Per Gowri Shankar:

These five appeals are by Essar Steel Limited. Appeal 3885/99 is against the order of the Commissioner (Appeals), Surat, and the other four appeals are against the common order of the Commissioner (Appeals), Vadodara disposing of two appeals before him.

2. The appellant is a manufacturer of hot briquetted iron and hot rolled steel coils in its mill at Hazira in Gujarat. In order to obtain the electricity required for running the steel mill, the appellant set up a subsidiary company M/s. Essar Power Limited (EPL for short), adjacent to the steel mill. The entire electricity generated by EPL is transmitted through the steel plant; some of it is utilised in the steel plant, the remaining being transmitted to the grid of the Gujarat State Electricity Board. EPL generated the electricity by means of turbines, which were fuelled by natural gasoline liquid (NGL form short) and naphtha, purchased and supplied by the appellant. The appellant had declared the NGL as input under Rule 57G. It had also declared, under Sub rule (3) of Rule 57F, its intention to remove the NGL to EPL and to take credit of the duty paid on NGL supplied to the latter. It thereafter proceeded to utilise the duty paid on NGL for payment of duty on the iron and steel manufactured by it.

3. The department issued notices to the appellant, proposing to deny the benefit of the modvat credit. The Assistant Commissioner on 8.7.1996 adjudicated the notice dated 31.1.1995. He held that the NGL was not an input because the condition contained in clause (d) of the Explanation below Rule 57A, that inputs used for generation of electricity to be inputs must be used within the factory of production for manufacture of final products or for any other purpose, was not satisfied. He further said that Rule 57F(3) (b) would not apply because the electricity, which was claimed by the asscssee to be an intermediate product, did not come into existence within the factory of production. He concluded that, on a consideration of Rules 57F and 57D, it is only that electricity that is produced in the same factory, where the final product is manufactured which would only qualify as input. The Assistant Commissioner relied upon this order in disposing of remaining notices.

4. The assessee appealed these orders. Two of these appeals were dismissed by two orders of the Commissioner (Appeals), Vadodara, confirming the Asst. Commissioner's view. The Commissioner (Appeals) also relied upon what he said were the Tribunal's views, that an intermediate product must necessarily emerge out of the raw material in the course of the processes to which it is subjected in the factory of production. The other two appeals were decided by Commissioner (Appeals), Surat. That Commissioner (Appeals) took a different view. He found that clause (d) of the Explanation to Rule 57A did not provide that, for an input used to generate electricity to be considered to be an input, it was necessary that electricity should be used within the factory of production. He said that any input used in or in relation to the manufacture of final product could be an input. He found the essence of the scheme to allow the credit of fuel used to generate electricity used in the manufacture of the product. He however concluded that the credit was available on merits. In the final order he said that the credit should not be utilised since an appeal was ahead} pending with the Tribunal as to the issue which was before him, it was proper that matter should be decided.

5. The Explanation below Rule 57A defines inputs, and in Clause (d), specifics "'Inputs used for generation of electricity used within the factor}' of production for manufacture of final product or for any other purposes." It is the contention of the representative of the appellant that the term "factory of production" in this clause refers, not to the factor}- where the electricity is produced, but to the factor}' where the final product is produced. Claus