IMPORTANT POINT
Eligible input includes inputs used for generation of electricity or steam, to the extent it is used within the factory of production for manufacture of final products or for any other purpose.

JUDGMENT

S. H. Kapadia, J.—

1. Leave granted.

FACTS IN THE LEAD MATTER

2. The issue in the present civil appeal is : whether the Department is right in reversing proportionate CENVAT credit to the extent of power wheeled out by the appellant to its sister units, vendors, joint ventures. Basically, in both the civil appeals we are required to construe the word “input” as defined in Rule 2(g) of CENVAT Credit Rules, 2002.

3. M/s. Maruti Suzuki Ltd. (appellant) is engaged in the business of manufacturing motor vehicles falling under Chapter 87 of Central Excise Tariff Act, 1985. These motor vehicles are cleared on payment of duty. Assessee claimed CENVAT credit on “input” in accordance with CENVAT Credit Rules, 2002 (for short, “2002 Rules”). Assessee has installed three gas turbines in their factory for generation of electricity. All the three turbines have capacity to generate electricity of 20 MW each. Till June 2002, assessee was using natural gas as fuel for running the three gas turbines. No excise duty was leviable on natural gas and, therefore, there was no question of availing CENVAT credit on natural gas. During July 2002 to December 2002, assessee started using diesel as fuel to run the three turbines. In view of the said Rules barring availment of credit on diesel, the assessee did not avail any CENVAT Credit on diesel procured by them. From January 2003 onwards, assessee are using naphtha as fuel to run the gas turbines and they are availing CENVAT Credit on naphtha used for generation of electricity in gas turbines. Assessee also uses diesel generating set (DG set) for generation of electricity with the use of diesel for which they had not availed any credit. In their factory, assessee has a common distribution point for electricity generated in turbines as well as DG set and the entire electricity which is generated in the turbines and DG set(s), placed in the factory, is distributed through common distribution point.

4. During the disputed period assessee cleared a part of electricity generated in the factory to its joint ventures, vendors etc. In addition, assessee met its electricity requirements by electricity captively generated by the assessee in their turbines. During the said period, assessee generated 1,44,469.80 KWH of electricity out of which 18,838.49 KWH of electricity stood wheeled out (approximately 13% of total net power generation). This electricity stood cleared at the different rates for the entire period varying from Rs.4.65/KWH to Rs.9.72/KWH. It may be noted that even the joint ventures, vendors etc. to whom excess electricity is wheeled out in turn manufacture final products.

ARGUMENTS

5. At the outset it may be noted that the civil appeals in question concern the period January 2003 to October 2003 and November 2003 to March 2004 during which period CENVAT Credit Rules, 2002 was amended by Notification No.13/2003-CE(NT) dated 1.3.2003. Accordingly we are confining the arguments advanced by learned counsel on both sides to the said Rules.

6. Mr. V. Lakshmi Kumaran, learned counsel appearing on behalf of the appellant, submitted as follows. So long as naphtha is used as fuel for generation of electricity, appellant is entitled to take credit of duty paid on it and there is no need to reverse proportionate credit to the extent of power wheeled out to joint ventures, vendors etc. According to learned counsel, Rule 2(g) of the said 2002 Rules which defined “input”, was in two parts. The first part was the specific part which was followed by the inclusive part. In the inclusive part several items stood included such as lubricating oils, greases, cutting oils, coolants, accessories, 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. There is no dispute that the appellant had used naphtha as fuel for generation of electricity, hence, the said item fell with