Per K.D. Mankar : Brief facts of the case are that the appellants are engaged in the manufacture of fertilizers, chemicals and PCB and are availing the facility of modvat/cenvat credit. They are using LSHS (Low Sulphur Heavy Stock) as feed stock for manufacture of fertilizers. A part of LSHS is also used in the generation of steam and electricity. The steam generated is being used in the manufacture of fertilizer and the industrial products and the balance is being used for generation of electricity in their captive power plant. Portion of electricity so generated is supplied to the township and to Gujrat Electricity Board (GEB) outside the factory. However, duty is paid on LSHS which is used for production of industrial products and generation of steam and availing modvat/cenvat credit of duty paid on LSHS. It was alleged that the appellants are required to reverse credit taken on LSHS on that quantity which is utilised in producing the quantity of electricity used in township as well as the quantity supplied to GEB. The lower authorities confirmed the duty demand of Rs. 1,90,435/- and also imposed penalty. Hence the instant appeal.

2. Heard both sides.

3. I note that the demand in question pertains to November 2000 to March 2001 and April 2001 to June 2001. The demand has been proposed for recovery under Rule 57AH of the Central Excise Rules 1944 and Rule 8 of the CENVAT Credit Rules 2001. While the order of the adjudicating authority quotes extensively from the said rules claiming that credit of duty paid on inputs used in the manufacture of exempted final products is deniable, which view is also upheld by the Commissioner (Appeals), what is forgotten in the din of this argument is the plea from the appellants to refer to the provisions of rules which permit credit on certain inputs which are used as "fuels". The appellants are crying hoarse in seeking attention of the authorities to look into the provisions of Rule 57B, which deals with permitting credit of duty paid on fuels, where their role in the manufacturing activity will be totally different as compared to the role of inputs of non-fuel category. Therefore the appellants have claimed that eligibility of credit has to be tested in accordance with the provisions contained in that rule alone.

4. Once we reach the above position, the eligibility of credit has to be examined under Rule 57B. On going through the said rule, credit on fuels (LSHS in this case) is permissible as long as the fuel is used in the manufacture of steam which is utilised in the factory. There is no dispute that the steam is not so used. It is, in fact, used for manufacture of fertilizers, chemicals as well as for the generation of electricity. All the three uses having occurred in the factory, it is immaterial as to what happens to the electricity so manufactured from steam.

5. I am aware that fuels can also be directly used for manufacturing electricity by heating gases which can move the turbines, without using the fuel for making steam. In the event use of LSHS was alleged in the above manner, only then, the objection and consequential duty demand could have been sustained. Since in this case, steam was admittedly manufactured and used within the plant, the modvat credit could not have been denied, as discussed above.

6. Accordingly I allow the appeal and set aside the orders of the lower authorities with consequential reliefs, if any.