‘Naphta’ used for Generation of Electricity is a ‘Marketable’ Product, Excise Duty can be Levied: Chennai CESTAT [Read Order]

The Chennai CESTAT, in a recent ruling, held that Naphta which is used for generation of electricity is a ‘marketable’ product and hence, it is subject to excise duty under the provisions of the Central Excise Act.

Before the CESTAT, the appellants contended that Naphtha manufactured in their factory is a non-commercial grade and is not marketable and hence, excise duty cannot be levied on it. They urged that it is captively consumed in the generation of electricity and a part of such electricity generated by the captive power plant is wheeled out to T.N.E.B.  The lower authorities held that the appellant will not be eligible for exemption under the Notification No.67/95-CE dt. 16.03.1995 for the portion of Naphtha/RFO attributable to the electricity wheeled out to TNEB.

The bench noted that it is settled position of law that in cases where electricity generated by the captive power plant is wheeled out, the benefit of captive consumption exemption notification as well as credit on inputs will not be eligible.

It also noted the findings of the original authority that naphta is being used as fuel in the gas turbine to produce electricity.  It was also noted by the authority that the product is capable of being used in any gas turbine to produce electricity. Such being the case there cannot be any lot of doubt about the marketability of the product.

Aligning with the findings of the original authority, the CESTAT dismissed the appeal. However, considering the facts of the case, it deleted the penalty order passed against the assessee.

Read the full text of the Order below.

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