Commissioner Of Central Excise vs M/S.Gujrat Narmada V.Fertilizers ...

3. For the sake of convenience we may refer to the facts in Civil Appeal No.1308 of 2008 - Commnr. of Central Excise v. M/s. Gujarat Narmada Fertilisers Co. Ltd.

4. The assessee is a manufacturer of excisable goods such as fertilizers, methanol, formic acid, nitric acid, aceptic acid, etc. out of which fertilizers were exempt from central excise duty under Notification No.6/2000-CE, dated 1.3.2002. The respondent functioned under CENVAT Credit Rules, 2002 ("2002 Rules", for short) during the relevant period. There is no dispute that the entire quantity of Low Sulphur Heavy Stock (LSHS) was used as "fuel" within the respondent's factory for burning in the boiler plant for producing steam. There is no dispute that the entire steam was used within the factory directly in or in relation to manufacture of final products or for production of electricity which was captively used in the manufacture of final products. The credit, however, was disallowed due to interpretation of Rule 6 of the 2002 Rules by 3 the Commissioner who took the view that since fertilizers were exempted goods, credit on LSHS, even though used as "fuel" within the factory, was not allowable. Accordingly, one show cause notice was issued on 8.3.04 seeking to disallow CENVAT credit of Rs.2,17,61,795/- for the period March 2003 to September 2003. Vide Order dated 13.7.04, the said show cause notice stood confirmed by the Commissioner. The second show cause notice dated 28.7.04 was issued for a different period, namely, October 2003 to March 2004 which was also confirmed by the Commissioner who disallowed CENVAT credit vide his Order dated 30.8.04. Against the Commissioners' Orders, dated 13.7.04 and 30.8.04, disallowing the said CENVAT credit, the respondent preferred appeals before CESTAT. The said appeals were referred to a larger Bench who by the impugned decision dated 27.12.06 held that credit was admissible on LSHS used as "fuel". In passing the said Order the CESTAT followed the judgment of the Gujarat High Court in the case of Commnr. of Central Excise and Customs v. M/s. Gujarat Narmada Valley reported in (2006) 193 ELT 136, in which it was held that in sub-rule (2) of Rule 6 of the 2002 Rules an exception stood carved out in case of inputs "intended to be used as fuel" and in such cases the necessity of maintenance of a 4 separate account or denial of credit cannot be insisted upon. RELEVANT RULES

Explanation.- The amount mentioned in (a) and (b) above shall be paid by the manufacturer by debiting the CENVAT credit or otherwise. (3) No credit of the specified duty shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods (other than final products which are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year).

Explanation II.- If the manufacturer fails to pay the said amount, it shall be recovered along with interest in the same manner, as provided in rule 12, for recovery of CENVAT credit wrongly taken. "

FINDINGS

11. For the above reasons, we find merit in the Department's civil appeals.

14. Subject to what is stated above, the civil appeals filed by the Department are allowed with no order as to costs.

August 17, 2009.