The Kolkata Bench Of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that reversal of Cenvat Credit on Naphtha sent for Job Work for electricity generation is not tenable.
M/s. Haldia Petrochemicals Limited, the Appellant is engaged in the manufacture of dutiable final products falling under Chapter 27 and Chapter 39 of the Central Excise Tariff Act at its petrochemical complex at Haldia, with Naphtha being its principal inputs. In order to meet the electricity and steam requirements of the Petrochemical Complex, the Appellant has set up a 116 MW Co-generation Power Plant as a Joint Venture titled, HPL Co-generation Limited (‘HPLCL’), within the factory complex.
During November 2000 to January 2004, the Appellant had removed Residual Fuel Gas (‘RFG’) generated out of cracking Naphtha to M/s. HPLCL for generation of electricity and steam following the procedure laid down under Rule 4(5)(a) of the Cenvat Credit Rules (‘CCR’),as was in force during the said period. The electricity and steam generated out of the supplied ‘RFG’ was returned to the Appellant for use in manufacture of dutiable final products.
The Revenue stated that since the RFG was an intermediate excisable product, manufactured out of cracking Naphtha, and being classifiable under chapter sub-heading No. 2711.90 of C.E.T.A., 1985, hence, the same could not be removed from the factory without payment of duty under Rule 4(5)(a) of the CCR or under Notification No. 214/86.
A show-cause cum demand Notice was issued to them for the said period on 16 April 2004 demanding duty of Rs. 10,67,40,103/- alleging suppression of facts. The Commissioner adjudicated the Notice vide ‘O-I-O’ confirming the demand and imposed equivalent penalty.
The Appellant assailed the ‘O-I-O’ and contended that Intermediate product such as ‘RFG’ could be cleared for job work under Rule 4(5)(a) of the CCR being covered by expression “partially processed inputs” and the said issue stands settled in favour of the Appellant in its own case reported in 2006 (197) ELT 97 in the context of another partially processed inputs, namely ‘CLS’.
The two member bench of P.K. Chaudhary (Judicial Member) and K. Anpazhakan (Technical Member) observed that both ‘RFG’ and ‘CLS’ were generated on cracking of Naphtha and were sent to M/s. HPLCL for generation of electricity and steam with an intention to bring back electricity and steam for use in the manufacture of final products.
In light of the decision of the Tribunal in Maharashtra Aldehydes & Chemicalscase wherein the duty demand on the intermediate product cleared under Rule 4(5)(a) of the CCR was dropped. Since the issue is squarely covered in favour of the Appellant by the decision of the Tribunal in the Appellant’s own case,the CESTAT allowed the appeal of the Appellant on merits.
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