Important Point
Any input used in or in relation to the manufacture of the final product is covered by rule 57A,Explanation, clause (c).

Headnote:MODVAT Rules – Rule 57A – Electricity is not an excisable item – In view of the inputs used as fuel being entitled to MODVAT credit, inputs used in relation to manufacture of the final product would also qualify for MODVAT credit – LHSH being used to generate electricity which in turn was used captively for manufacture of final products like cement, caustic soda would be covered by Explanation, clause (c) of rule 57A entitled for MODVAT credit – However, if the electricity so generated is consumed by the residential colony of the factory’s workers’ families, schools etc., to that extent MODVAT credit will not be Admissible on the consumption of the LHSH. (Para 8)
       1991 (55) ELT 444 (SC); AIR 1965 SC 1310 – Relied upon.
       Facts of the case :
       Question of entitlement of the assessee to MODVAT credit under Rule 57A on Low Sulphur Heavy Stock (LSHS) and furnace oil used for generating electricity captively consumed for the manufacture of the final products such as caustic soda, cement etc. is raised in these appeals.
       Findings of the Court :
       LSHS would come within the ambit of the expression “used in or in relation to the manufacture of the final product”.
       Result : Appeals dismissed.

JUDGMENT

KAPADIA, J.—

1.Leave granted in special leave petitions.

2.In this batch of civil appeals the short question which arises for determination is : whether the assessee is entitled to MODVAT credit under Rule 57A on Low Sulphur Heavy Stock (LSHS) and furnace oil used for generating electricity captively consumed for the manufacture of the final products such as caustic soda, cement etc.

3.For the sake of convenience we may refer to the facts in the case of Civil Appeal No.6465-6475 of 2001 Commr. Of Central Excise & others v. M/s. Solaris Chemtech Ltd. and others (earlier known as ‘M/s. Ballarpur Industries Ltd.’).

4.Low Sulphur Heavy Stock (LSHS) is used by the assessees as fuel for generating electricity which in turn is captively consumed for the production of caustic soda and cement.

5.Rule 57A (MODVAT Rule) reads as under :

“Rule 57A. Applicability. —

(1)The provisions of this section shall apply to such finished excisable goods (hereinafter referred to as the “final products”), as the Central Government may, by notification in the Official Gazette, specify in this behalf, for the purpose of allowing credit of any duty of excise or the additional duty under section 3 of the Customs Tariff Act, 1975 (51 of 1975), as may be specified goods used in or in relation to the manufacture of the said final products (whether directly or indirectly and whether contained in the final product or not) (hereinafter referred to as the “inputs”) and for utilising the credit so allowed towards payment of duty of excise leviable on the final products, whether under the Act or under any other Act, as may be specified in the said notification, subject to the provisions of this section and the conditions and restrictions that may be specified in the notification :

Provided that the Central Government may specify the goods or classes of goods in respect of which the credit of specified duty may be restricted. Explanation. For the purpose of this rule, “inputs” includes—

(a)Inputs which are manufactured and used within the factory of production in or in relation to manufacture of final products.

(b)Paints and Packing material,

(c)Inputs used as fuel.

(d)inputs used for the generation of electricity, used within the factory of production for manufacture of final products or for any other purpose but does not include.

(i)machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products;

(ii)packaging materials in respect of which any exemption to the extent of the duty of excise payable on the value of the packaging materials is being availed of for packaging any final products;

(iii)packaging materials the cost of which is not included or had not been included during the preceding financial year in the assessable value of the final products under section 4 of the Act;

(iv)cylinders for packing gases;

(v)plywood for tea (chests; or).

(vi)bags or sacks made out of fabrics (whether or not coated, covered or laminated with any other material) woven from strips or tapes of plastics.”

6.Explanation clause (c) was added by Notification No.4/94 dated 1.3.94. This clause is the bone of contention.

7.The assessees contend that LSHS fall within the ambit of Explanation clause (c). The Department’s contention is that these inputs are utilized for manufacturing electricity which is not excisable and hence cannot be considered as an input used as fuel in terms of Explanation clause (c). It is the case of the Department that LSHS does generate electricity. However, it cannot be said that LSHS has been used in or in relation for manufacture of final product, namely, caustic soda and cement. According to the Department, LSHS has been basically used in the generation of electricity which is not specified as final product and hence no MODVAT credit of duty paid on LSHS is admissible. According to the Department, generat

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2007 Supreme(SC) 988

Important PointAny input used in or in relation to the manufacture of the final product is covered by rule 57A,Explanation, clause (c).

Cases Referred (1)

Important Point
Any input used in or in relation to the manufacture of the final product is covered by rule 57A,Explanation, clause (c).