INDORAMA TEXTILES LTD. Vs. COMMISSIONER OF CENTRAL EXCISE

JUDGEMENT

(1.) THE appellants M/s Indorama Textiles Ltd. (IRTL) are engaged in the manufacture of Spun Yarn and were availing Cenvat credit in respect of input used in the manufacture of final product. They vide letter dated 31.03.2003 intimated the jurisdictional officer of their intention to send furnace oil to M/s Indorama Synthetics (India) Limited (IRSL) for the manufacture of electricity on job work basis in terms of Notification No. 214/86 -CE. The entire quantity of electricity so generated by IRSL would be supplied to them. They undertook to produce the evidence that the goods have been used in the manufacture of final product on which the duty shall be discharged by them. They accordingly took credit of Rs. 1,13,17,607/ - on furnace oil said to have been sent by them and used in generation of electricity on job work basis which in turn was used by them for the manufacture of final product.

(2.) CERTAIN investigations were carried out by the department, when it was gathered that M/s IRTL was not sending the furnace oil to M/s IRSL at all. In fact M/s IRSL received entire furnace oil on their own account as an input for the manufacture of polyester product and took credit on the said input. This furnace oil is stored in their own tanks. Later on part of the furnace oil is shown to be sold to M/s IRTL under invoice by reversing the credit taken on the furnace oil and transferred to the tanks earmarked for exclusive use of IRTL. This furnace oil alongwith their own furnace oil is used in the production of electricity and the electricity so produced is then distributed in pre -decided ratio to IRSL and IRTL. This electricity is thereafter used by M/s IRTL in the manufacture of final product.

(3.) IN view of above appellants were issued a show cause notice stating that furnace oil cannot be considered as input as according to Rule 2(g) of Cenvat Credit Rule, 2002 the furnace oil should be used for generation of electricity to be used in manufacture of final product or any other purpose within the factory of production. Since in this case furnace oil was not received in the premises of M/s IRTL but directly by M/s IRSL and electricity was also produced in premises of IRSL and not IRTL the same cannot be said to have been used within me factory of production. It was further stated that the provision of Notification 214/96 cannot be made applicable to M/s IRTL as the exemption provided under Notification 214/86 is available to those goods As specified in Column I of the table annexed to the said notification manufactured in factory as a job work and used in relation to the manufacture of final products specified in Column II of the said table to the said notification and subject to the fulfillment of conditions of para 1 and 2 of the said notification. In this case electricity was not an excisable goods and was not specified in the table annexed to the notification. Further since job work means processing or working upon raw material or semi -finished goods supplied to the worker so as to complete a part or whole of the process resulting in the manufacture or finishing of an article and since in the present case no process is carried out nor any work is done on the goods and the inputs are not received back by the unit and what is received is electricity which is not an excisable product, the same is not covered under the definition of job work. The show cause notice was adjudicated by the Commissioner. 3. During the course of adjudication proceedings appellant took a plea that the inputs were sold by M/s IRSL by paying duty of amount equal to the credit availed under Rule 3(4) of the Cenvat Credit Rules, to M/s IRTL who can take credit of the same under Rule 3(5) as there is no bar that the inputs cannot be obtained from the job worker and Since M/s IRTL had no storage facility certain tanks were earmarked for them in the premises of IRSL for M/s IRTL which has to be considered as belonging to them and thereafter it was used by them for the manufacture of electricity on job work basis under the provision of Rule 4(5) of Cenvat Credit Rules and was received back within 180 days by M/s IRTL. Since electricity is used for the manufacture of final product it has to be considered as an intermediate product and was therefore covered by the provision of Rule 4(5) and this electricity has been used in the manufacture of final product by M/s IRTL. The furnace oil has to be considered as input within the meaning of Rule 2(g) of the Cenvat Rules as it is required for generation of electricity for manufacture of final products within the factory of production. The factory of generation of electricity and the factory of production of final product may be different as has been held by the Tribunal in the case of Ballarpur Industries v. CCE and in the case of SRF Ltd. v. Commissioner of Central Excise, Chennai -I 2005 (191) E.L.T. 887 (Tri. -Chennai) wherein it was held that use of electricity in production of final goods in another factory also satisfies the requirement of Rule 2(g) of the Cenvat Credit Rules, 2002. Another plea taken was that the inputs can be send directly to the premises of job worker and credit cannot be denied on this ground as has been held by the Tribunal in the case of Colts Auto Ltd. v. Commissioner of Central Excise, Delhi -IV and Goa Industrial Products v. Commissioner of Central Excise, Goa . It also referred to the CBEC Circular No. 146/57/95 -CX dated 12.09.1995 and F. No. 345/2/2000 -TRU dated 29.08.2006 which clarify that credit cannot be denied to the supplier of inputs in a case where the goods are directly sent to the job worker and therefore credit in the instant case cannot be denied to the appellants on the ground that the furnace oil was not received by the appellants in their factory but was directly received by M/s IRSL who used the same in generation of the electricity.