Per Mr. VASA SESHAGIRI RAO

The appellant, M/s. Blue Mount Textiles (Unit of Sharadha Terry Products Limited), Mettupalayam, is engaged in manufacture of cotton terry towels falling under Chapter 63 of the First Schedule to the Central Excise Tariff Act, 1985.

1.2 During the material period 01.10.2010 to 23.06.2011, the appellant was functioning as a 100% Export Oriented Unit (EOU) and was procuring furnace oil without payment of duty under Notification No. 22/2003-CE dated 31.03.2003, for generation of electricity in its captive power plant. The electricity so generated was used partly within the appellant's unit and partly supplied to its sister division, namely M/s. SKS Mills. It is not in dispute that SKS Mills had exited from EOU status and became a Domestic Tariff Area (DTA) unit in October 2010 vide Final Exit Order issued by the Development Commissioner.

1.3 The Department formed a view that electricity generated out of duty-free furnace oil and supplied to a DTA unit would attract duty liability in terms of the third proviso to Para 7 of Notification No. 22/2003-CE read with Para 6.16 of the Hand Book of Procedures (HBP) and Appendix 14-I-C.

1.4 Accordingly, Show Cause Notice No. 20/2015 dated 06.11.2015 was issued proposing recovery of Rs.14,73,571/- being duty attributable to proportionate furnace oil used in electricity supplied to SKS Mills (DTA), along with interest and penalty under Section 11AC. The adjudicating authority confirmed the demand, interest and imposed equal penalty. And, the Commissioner (Appeals) upheld the same.

2. Aggrieved, the Appellant filed this present appeal before this Tribunal.

3. The Ld. Advocate Shri S. Durairaj, appeared on behalf of the Appellant and the Ld. Authorized Representative Ms. Rajni Menon, appeared for the Revenue.

4. The Learned Advocate for the Appellant submitted that: -

4.1 that Blue Mount Textiles and SKS Mills were divisions of the same company and functioned as part of an integrated manufacturing chain for the production and export of terry towels. It was submitted that cotton fibre and PVA fibre were sent to SKS Mills under duly approved job work permissions for conversion into yarn and that the electricity generated in the captive power plant of Blue Mount Textiles was supplied only for such job work activity. According to the appellant, there was no sale of electricity, no commercial transaction and no independent consideration involved, but merely internal utilization of electricity in furtherance of export production.

4.2 it was further contended that paragraph 6.16 of the Hand Book of Procedures and the relevant proviso to Notification No. 22/2003-CE apply only in cases of sale of surplus power and not to transfer of electricity for job work within an integrated manufacturing setup of the same entity. Reliance was placed on the decisions of the Hon'ble High Courts in CCE v. Biocon Ltd., 2014 (309) ELT 66 (Kar.) and CCE v. Jindal Polyester, 2014 (305) ELT 43 (All.), to submit that where electricity generated within factory premises is consumed in related units engaged in manufacture of excisable goods, denial of benefit is unwarranted unless there is an express statutory prohibition.

4.3 the Ld. Advocate further submitted that Notification No. 22/2003-CE stood substantially complied with, as the furnace oil procured without payment of duty was ultimately used in the manufacture of goods which were predominantly exported, and therefore there was no revenue loss to the exchequer. It is argued that the extended period of limitation is not invokable, since the job work arrangements as well as the exit of SKS Mills from EOU status were within the knowledge of the Department and reflected in official records. On these grounds, it was prayed that the demand of duty, interest and penalty be set aside.

5.1 The Ld. Authorized Representative Ms. Rajini Menon for the Revenue supported the findings of the impugned order and further submitted that the exemption under Notifica