Back
2026 Supreme(Online)(Mad) 56664
IN THE HIGH COURT OF JUDICATURE AT MADRAS
G. Jayachandran, R. Sakthivel, JJ
Tata Refractories Limited – Appellant
Versus
Commissioner of Central Excise – Respondent
C.M.A. No.3384 of 2011 | M.P. No.1 of 2011 in C.M.A. No.3384 of 2011
For the Appellants/Petitioners: Raghavan Ramabadhran
For the Respondents: M.Santhanaraman
CENVAT input credit for fuel used in intermediate manufacturing remains permissible if the ultimate final product is dutiable, even if the intermediate goods are initially produced as exempted or nil-rated items and the process occurs across different units under the same ownership.
Headnote:(A) Central Excise Act, 1944 - Rule 57AD and Rule 6 of CENVAT Credit Rules, 2001 - CENVAT input credit eligibility - Fuel used in intermediate manufacture - Interpretation of "within the factory of production".
(B) Interpretation of statutory provisions - Scope of "input" - Broad interpretation adopted to prevent cascading effect of taxes - (Paras 11.3, 16).
(C) Distinction between intermediate products and final products - If intermediate items move toward dutiable end-production, input credit is not restricted - (Para 11.2).
Facts of the case:
The assessee used fuel to produce intermediate goods that were subsequently moved to another facility of the same manufacturer for the production of taxed final products. The tax authorities argued that the intermediate item was an exempted finished product, precluding credit.
Findings of Court:
The court found that intermediate items do not count as final products when they continue in the manufacturing chain. Limiting "factory of production" to a single site creates an irrational distinction that defeats the purpose of tax credit mechanisms.
Issues: Whether fuel input credit is lost when an intermediate item, used later for dutiable final goods, undergoes production at a different location.
Ratio Decidendi: The eligibility for credit depends on the dutiable nature of the final end-product and its link to the initial input, rather than the physical location alone, provided the units share common ownership.
Result: Appeal allowed.
| Table of Content |
|---|
| 1. factual context of cenvat credit appeal regarding captive consumption. (Para 2) |
| 2. contentions regarding admissibility of input credit for intermediary non-dutiable goods. (Para 3 , 4) |
| 3. evaluation of jurisprudence and statutory interpretation regarding cenvat rules. (Para 5 , 6 , 7 , 8 , 9 , 10 , 11 , 12 , 13 , 14 , 19) |
| 4. intermediary products used for final dutiable goods qualify for input credit. (Para 15 , 16 , 17 , 18) |
| 5. final order allowing appeal and setting aside cestat decision. (Para 20) |
J U D G M E N T
R.SAKTHIVEL, J.
1.Feeling aggrieved by the Final Order No.E/451/2011 dated March 11, 2011 made by 'the Customs, Excise and Service Tax Appellate Tribunal, South Zonal Bench, Chennai' ['C.E.S.T.A.T.' for short], the respondent therein, namely 'M/s.Tata Refractories Limited, (Now known as TRL Krosaki Refractories Limited) Karuppur, Salem' ['T.R.L.' for short] has preferred this Civil Miscellaneous Appeal under new Section 35 (G) of the Central Excise Act, 1944.
FACTUAL MATRIX
2. Brief facts of the case necessary for the disposal of this Civil Miscellaneous Appeal are as follows:
2.1. T.R.L. is an assessee under the Central Excise Act, 1944. T.R.L. in its manufacturing unit at Salem, is engaged in the manufacture of 'Dead Burnt Magnesite' ['D.B.M.' for short], a non-dutiable good [nil-rate excise duty]. D.B.M. is manufactured in Salem unit by burning raw Magnesite in kiln fuelled by furnace oil, and then the same is sent to T.R.L.'s Belpahar unit at Odisha for production of refractory mortars / ramming mass, which is in turn used to produce refractory bricks. Finally, refractory mortars / ramming mass and refractory bricks are sold to various customers as final goods. Both, refractory mortars / ramming mass and refractory bricks are excisable at the rate of 16%.
2.2. In 2001, the Central Government devised a scheme for availing credit of duties paid on various inputs used in the manufacture of excisable goods under MODVAT/CENVAT Schemes. The dispute in the matter on hand relates to CENVAT input credit availed by T.R.L. / assessee for the period between March 1, 2001 and February 28, 2002.
2.3. When T.R.L. claimed CENVAT input credit for the furnace oil used in the manufacturing process, 'the Office of the Superintendent of Central Excise, Salem-III Range, Salem Division' ['Department' for short], issued show-cause notice dated March 3, 2002, stating that T.R.L. contravened the provisions of Rule 57AD (1) of the erstwhile Central Excise Rules, 1944 [hereinafter, any reference to Rule 57AD or its sub rules shall be construed as a reference to the corresponding provisions of the erstwhile Central Excise Rules, 1944] and Rule 6 of erstwhile CENVAT Credit Rules, 2001 and Rule 6 of the erstwhile Central Excise Rules, 2001, in so far as availing CENVAT input credit for the fuel - furnace oil used in the manufacture of final non-dutiable good, namely D.B.M.
2.4. According to the Department, T.R.L. partially used the D.B.M. produced at Salem to manufacture dutiable final products namely monolithic (mortars) at the Salem manufacturing unit itself, and cleared the remaining D.B.M. as such to its Belpahar unit. The D.B.M. cleared as such from the Salem manufacturing unit being a non-dutiable final good, T.R.L. cannot claim CENVAT input credit in view of Rule 57AD (1) which stipulates that CENVAT input credit cannot be claimed on exempted goods or nil-rated goods. While T.R.L. has not distinguished the quantity of furnace oil consumed in the production of dutiable final goods namely monolithic (mortars) at Salem unit and that consumed in the production of D.B.M. cleared as such from the Salem unit, exception to Rule 57AD (1) provided under Rule 57AD (2), is for 'non-fuel inputs' only and therefore, not applicable to T.R.L. claiming CENVAT input credit on the fuel - furnace oil. Accordingly, the Department issued show-cause notice why an amount of Rs.52,51,685/-, being the ineligible CENVAT input credit availed by T.R.L. / as
