INDIAN ORGANIC CHEMICALS LTD. Vs. CCE

JUDGEMENT

(1.) THE appellants are manufacturers of Organic chemicals. During the period 4/2000 to 3/2001, they availed input duty credit on naphtha used as fuel for generation of steam which, in turn, was used for generation of electricity which was partly consumed captivity and partly issued outside the factory for being used by their sister unit. Both the lower authorities disallowed this credit to the appellants on the ground that naphtha used in the above manner was not covered by the definition of "input" under Rule 57AA (d) of the CE Rules, 1944. Hence the present appeal.

(2.) AFTER carefully examined the records and hearing both sides, I find that the issue to be settled in this case is as to whether naphtha which was used in the above manner, during the above period would fall within the scope of the definition of "input" under rule 57AA(d). This definition reads as under : "Input" means all goods, except high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not and includes accessories of the final products cleared along with the final products, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used for manufacture of final products or for any other purpose, within the factory of production, and also includes lubricating oils, greases, cutting oils and coolants. The above definition of "input" which came into force on 1.4.2000 was, obviously, substitute for the array of inputs under the erstwhile Rule 57B(1) of CE Rules 1944. The list of inputs under sub -rule (1) of Rule 57B(1) is as follows :

(3.) A closer look at the list of goods comprised in the definition of input under rule 57AA(d) would reveal that it is not different from the list of "inputs" mentioned under sub -rule (1) of the erstwhile Rule 57B. It appears from the submissions of both sides that, while the appellants would contend that naphtha was covered by the expression "goods used as fuel', the department would treat it as "goods used for generation of electricity or steam used for manufacture of final products or for any other purpose, within the factory of production". According to the learned Counsel for the appellants, "goods used for generation of electricity.. within the factory of production" do not include "goods used as fuel". Accordingly to the learned SDR, the entire Modvat Scheme has to be borne in mind while interpreting the above provisions. According to this argument, naphtha which was used for generation of electricity can only be covered by "goods used for generation of electricity.... within the factory of production." and the same would stand outside the ambit of "goods used as fuel". It is the further argument of the learned SDR that all the inputs referred to under either of the Rules should be used within the factory so as to qualify for the benefit of Modvat credit. The basis of this argument is that the substantive conditions laid down under Rule 57A cannot be given a go -by. The learned SDR has relied on the Rajasthan High Court's judgment in the case of Shree Cement Ltd. v. UOI reported in 2003 (160) ELT 42 (Raj.) in support of her argument that admissibility of Modvat Credit should be decided in the light of the entire Modvat scheme. An endeavour has also been made to draw a parallel between the benefit of Modvat Credit and that of Exemption Notification and it has been submitted that both should be based on strict interpretation. In this connection, reliance has been placed on the Tribunal's final order No. 196 -206/2002 -C dated 11.9.2002 in the case of IOC Ltd v. CCE wherein the benefit of an Exemption Notification was extended to RCO (reduced crude oil)/LSHS (low sulphur heavy stock) which was used in the manufacture of electricity which, in turn, was used within the factory and the benefit was denied to RCO/LSHS which was used in the manufacture of electricity which, in turn, was disposed of otherwise than in the above manner.