Furnace oil used for captive electricity generation qualifies as an eligible input under Rule 2(k) of the CENVAT Credit Rules, 2004, regardless of whether a portion of the generated electricity is incidentally used for non-manufacturing factory operations.

FINAL ORDER NO. 75709 / 2026

ORDER: [PER SHRI ASHOK JINDAL]

The appellant is in appeal against the impugned order whereby the denial and recovery of CENVAT Credit of Rs.5,36,809/- (inclusive of cess) availed on furnace oil, along with interest thereon, has been upheld.

2. The facts of the case are that M/s. MCPI Private Limited (hereinafter referred to as “the appellant”) is engaged, inter alia, in the manufacture of Purified Terephthalic Acid (PTA), classifiable under Tariff Heading 29173600 of the First Schedule to the Central Excise Tariff Act, 1985, at its manufacturing facility at Vill. & P.O.- Bhuniaraichak, Via Sutahata, Haldia, District - Purba Midnapur, West Bengal.

3. The appellant has been using furnace oil for manufacturing PTA as also for generation of electricity captively consumed within the factory premises. However, 132 KV Power Supply Line was commissioned and made operational in two phases beginning April, 2015 and June, 2015. Consequently, during the impugned period i.e., from May, 2015 to February, 2016, a major portion of furnace oil was used in the manufacture of final products and only a negligible quantity was used in generation of electricity. However, when information was sought from the appellant as regards consumption of furnace oil in electricity generation for the purposes of issuance of periodical Show Cause Notice by the Revenue, the appellant inadvertently proceeded on the basis of earlier methodology of proportionate allocation by overlooking the fact that electricity was pre-dominantly sourced from the grid. Therefore, the appellant had initially furnished incorrect information and actually, a very insignificant quantity of furnace oil was actually consumed for electricity generation during the period under dispute, in the view of grid supply.

4. A Show Cause Notice bearing No. V CH. 29(15)31/CE/HAL/Adjn/2016/5804 dated 30.05.2016 was issued, proposing a disallowance of CENVAT Credit totally amounting to Rs.5,36,809/- on the allegation that CENVAT credit had been wrongly availed on furnace oil used for generation of electricity consumed in non-manufacturing activities, which is inadmissible as per Rule 2(k) read with Rules 3, 4 and 6 of the CENVAT Credit Rules, 2004 (CCR Rules).

5. The above Notice was adjudicated by the Ld. Assistant Commissioner Vide Order-in-Original No. 30/Assistant Commissioner/CX/Haldia-II/MCCPTA/Adjn./2017 dated 24.11.2017 by following an earlier order dated 10.08.2009 of the Tribunal rendered in the context of the old definition of “inputs”.

5.1. The appellant challenged the aforesaid adjudication order before the Ld. Commissioner (Appeals), who vide his Order-in-Appeal No. 232-233/HAL/CE/2018-19 dated 30.11.2018 (hereinafter referred to as “impugned order”) upheld the denial of CENVAT Credit but aside the penalty on the ground of absence of mala fide intent, noting that the issue involved interpretation and was recurring in nature.

5.2. Aggrieved by the said order, the appellant is before us.

6. The Ld. Counsel appearing on behalf of the appellant has made various submissions in support of his contentions, which can be broadly summarized as under: -

A. The issue is no longer res integra as the same stands settled in favour of the appellant in its own case by this Hon'ble Tribunal vide Final Order No. 76487/2019 dated 01.11.2019

(i) The appellant submits that pursuant to the amendment in the definition of “input” under Rule 2(k) of the CENVAT Credit Rules, 2004 with effect from 01.04.2011, whereby the phrase “goods used for generation of electricity or steam used in or in relation to manufacture of final products or for any other purpose, within the factory of production” was substituted with “all goods used for generation of electricity or steam for captive use”, the scope of the definition has been significantly widened. Therefore, with the amended definition, it is clear that goods would qualify as inputs if they are used for gen