Customs, Excise and Gold Tribunal - Delhi
Dcm Shriram Consolidated Ltd. vs Commissioner Of Central Excise on 13 November, 2002
Equivalent citations: 2003(86)ECC91, 2003(159)ELT278(TRI-DEL)
JUDGMENT V.K. Agrawal, Member (T)
1. The issue involved in this Appeal, filed by M/s. DCM Shriram Consolidated Ltd., is whether they are eligible to get furnace oil at concessional rate of duty under Notification No. 75/84-CE dated 1.3,84 and subsequent notifications.
2. Shri V. Lakshmikumaran, learned Advocate submitted that the Appellants manufacture various excisable goods; that in one of the Divisions, they manufacture fertilizer; that they have installed captive power plant as under catering to the power requirement of their factory:
Plant Number of Firing arrangment Fuel Boilers Turbines 35 MW 2 1 Pulverized coalTangentially Fired Coal (Furnace Oilas supportive fuel) 30 MW 2 1 Atmospheric Fluidized Bed Combustion Coal 10 MW 1 1 Atmospheric Fluidized Bed Combustion Coal 10.3 MW 0 1
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2.2 He further, mentioned that all the boilers are essentially coal fired and furnace oil is used as a supportive oil for boilers of 35 MW Power Plant; that the design of boilers of other power plant does not accommodate oil firing; that 35 MW Power Plant is to meet the exclusive requirement of fertilizer plant; that as advised by M/s. Tata Consulting Engineers, who were entrusted with the task of preparing a System Study Report on Power Plants, a common grid was installed in 1994 to run all the generaters in a synchronized manner; that since then the system of pooling all the generated power in a common area and then distributing it to the various consuming plants has been followed as a means of operational necessity.
2.3 The learned Counsel also mentioned that Notification provides for getting furnace oil at concessional rate of Central Excise duty for use otherwise than as feed stock in the manufacture of fertilizers subject to following the Chapter X Procedure; that the Fertiliser Division has been granted the L6 Licence and the furnace oil so obtained was used by them in the 35 MW Power Plant; that the Commissioner, under the impugned Order, has disallowed the benefit of the exemption Notification on the ground that the Furnace Oil was not directly used in the fertilizers plant as the power generated was transferred to the common grid and got mixed with the power generated by other power plants and that the identity of the power generated from the furnace oil was lost and accordingly the power generated from the furnace oil cannot be proved to be intended for use in the manufacture of fertilizer only.
3. The learned Advocate submitted that the furnace oil is capable of being used only in the 35 MV Power Plant which has been catering to the power requirement of fertilizer plant ever since 1991; that the total power requirement of the various plants are as under:
PLANT POWER REQUIREMENT-MW Fertilizer & Power Plant 40.0 Caustic Soda - Cell House 15.8 Aux. + Projects 2.3 Cement 3.8 PVC 2.7 Carbide-Furnace 28.8 Auxiliary 1.2 Total 94.6 3.2 He contended that from the power consumption by each plant, it is evident that the power consumed by the fertiliser plant is much more than the power generated in the 35 MW power plant; that the emergence of a common grid is more for engineering and safety reasons and this cannot detract the fact that the power requirement of all the three plants are met from the power generated by the primary fuel, viz., coal; that the power consumed by the other plants is much less than the power consumed by the fertilizer plant and accordingly, it cannot be construed that the power generated from furnace oil is for consumption of the other two plants. He emphasized the fact that the 35 MW Power Plant, prior to synchronization, was clearly earmarked for the load of the fertilizer plant and, therefore, submitted that the requirement of the Notification 75/84-Central Excise to satisfy the intended use of the furnace oil in the manufacture of the fertilizer is fulfilled. He relied on the decision in the case of Steel Authority of India Ltd. v. CCE, 1996 (56) ECC 123 (SC) : 1996 (88) ELT 314 (SC), wherein the Supreme Court has observed that the Notification No. 187/61-C.E., required proof that the raw naphtha was "intended for use" in the manufacture of fertiliser and not that the raw naphtha was used in the manufacture of fertiliser. The Court allowed the benefit of the Notification in respect of raw naphtha used in Naphtha Reforming Plant for keeping it continuously running so that Ammonia Plant could be switched on immediately upon resumption of power. Reliance has also been placed on the decision in the case of Tata Chemical v. CCE Surat, Final Order No. 418/99-C dated 21.5.1999. He also relied upon the decision in the case of Indian Farmers Fertiliser Coop Ltd. v. CCE, Ahmedabad, 1996 (56) ECC 127 (SC) : 7996 (86) ELT 177 (SC) wherein the benefit of Notification was allowed though the raw naphtha was used to produce ammonia which in turn was used in off-site plants namely water treatment plant, steam generation plant, inert gas generation plant and effluent treatment plant. The Court observed that there is no good reason why the exemption should be limited to the raw naphtha used for producing ammonia that is utilized directly in the urea plant; that exemption Notification does not require that the ammonia should be used directly in the manufacture of fertilizers.
3.3 The learned Counsel also contended that the fertilizers are subjected to the price control under the Fertilizer Control Order and the cost of furnace oil is an element for determining the operational cost and the subsidy thereof; that in providing their cost of production for the purpose of subsidy, the Appellants have never taken the cost of generation of power in their other three power plants using coal as a cost of manufacture of fertilizers; that only the cost of the furnace oil the coal used in the 35 MW has been taken as a cost for generation of power for manufacture of fertilizer; that these figures duly certified by the Chartered Accountant have been accepted by the FICC under Ministry of Fertilizers. He also emphasized that this is not a case where there was surplus power in the 35 MW Power Plant for it to be delivered to the other three plants; that on the other hand, it is the other three power plants that were giving power for the manufacture of fertilizer and thus the question of mis-utilisation due to common grid or suppression of existence of such common grid does not arise; that extended period for demanding duty for more than the normal period cannot be invoked as the existence of the power plant was always known to the Department; that the existence of a common grid was a fact that was ipso facto known once the power plant was visited by the officers.
4. Finally he submitted alternatively that if duty on furnace oil is payable, the said duty is available as Modvat Credit. He relied upon the decision of the Larger Bench of the Tribunal in the case of Jay Yushin Ltd. v. CCE, New Delhi, 2000 (72) ECC 407 (LB) : 2000 (119) ELT 718 (T) wherein it has been held that as far as revenue neutralization exercise is concerned, the said benefit is available if the assesses is able to demonstrate with reference to the Modvat credit available to himself. He also mentioned that imposition of penalty under Section 11AC of the Central Excise Act is incorrect as the period involved is prior to coming into force of the said provision; that moreover no penalty is imposabie since there is no diversion of the furnace oil for use other than as supportive fuel for 35 MW power plant which took the load of the Fertilizer Plant.
5. Countering the arguments, Shri R.D. Negi, learned SDR, submitted that the benefit of the concessional rate of duty under the Notification is available subject to the condition that it is proved to the satisfaction of Assistant Commissioner that furnace oil is cleared for intended use; that after transferring the power generated by 35 MW Power Plant in the common grid there was identification that the power generated from furnace oil was used for the manufacture of fertilizer; that therefore, the condition stipulated in the Notification has not been complied with. He also mentioned that though the Grid was set up in 1983, the Appellants in their Application for L6 Licence in June, 1991, they mentioned that the furnace oil would be used for the manufacture of fertilizer other than as feed stock; that they did not specify that the power would first be transferred to common grid; that the presence of common grid was also not shown in the ground plan submitted by them alongwith the L-6 Licence; that they had suppressed this vital information from the Department and, therefore, the extended period of limitation is attracted.
6. We have considered the submissions of both sides. The benefit of concessional rate of duty on furnace oil intended for use otherwise than as feed stock in the manufacture of fertilizers is available subject to the following conditions--
(a) that it is proved to the satisfaction of an officer not below the rank of the Assistant Commissioner of Central Excise having jurisdiction that such goods are cleared for intended use
(b) where such use is elsewhere than in the factory of production, the procedure set out in Chapter X of the Central Excise Rules, 1944, is followed.
7. It is not in dispute that the Appellants have followed the procedure set out in Chapter X. The benefit of the Notification has been disallowed as the power generated by using the fertilizer has not been directly taken to the fertilizer plant as the same has been pooled together with the power generated by other power plants in a common grid. The Revenue's main contention is that there was no identification that the power generated from furnace oil was used in the fertilizer plant and accordingly the appellants have failed to prove that the power generated from the furnace was solely used for the manufacture of fertilizer. The arguments looks to be attractive at first glance. But in our view the said argument is not sufficient to disallow the benefit of the Notification in view of the facts narrated by the learned Advocate for the appellants which have not been controverted by the Revenue. These facts are that the furnace oil, so obtained by the Appellants, is used as supportive fuel for 35 MW Power Plant, dedicated for the Fertilizer Plant; the design of boilers of other Power Plants does not accommodate oil firing; the requirement of power by the Fertilizer Plant is more than the power generated by the 35 MW Power Plant. We also observe that it is not the case of the Revenue that during the relevant period, fertilizer was not manufactured by the Appellants or the power generated by the use of furnace oil was used for Office/domestic purpose. The power generated by using furnace oil, procured at concessional rate of Central Excise Duty, is pooled in common grid with the power generated by other power plants using only coal as fuel and is distributed to various plants manufacturing various products including fertilizer. The element of direct use, no doubt, is not there as certainly power generated by different Power Plant is pooled. But the fact remains that fertilizer has been manufactured. The Revenue also cannot say that only the power generated by other Power Plants has been utilized for manufacture of fertilizers. Thus the requirement of notification that the furnace oil is "intended for use otherwise than as feed stock in the manufacture of fertiliers" has been complied with by the Appellants. The Apex Court in the case of Steel Authority of India has interpreted the expression "intended for use." The Court has held that "the exemption notification required proof that the raw naphtha was "intended for use" in the manufacture of fertilizer and not that the raw naphtha was used in the manufacture of fertiliser. It does not appear to be correct to hold, as the Tribunal did in the first Order, that this meant that it was requisite that it should be proved that the raw naphtha had been actually used in the manufacture of fertilizer, in the context, what was required to be shown was that the raw naphtha was used for the purpose and with the intention of manufacturing fertiliser." Following the ratio of this judgment, we hold that the Appellants have complied with the condition stipulated in the Notification and they are eligible to get the furnace oil at concessional rate. Accordingly, we set aside the impugned Order and allow the Appeal.