(Prayer in C.M.A. No. 1747 of 2009: Civil Miscellaneous Appeal filed under Section 35 G of the Central Excise Act, 1944, against the Final Order No.1481 of 2007 dated 13.12.2007 made in Appeal Nos.E/633 & 634 of 2003 on the file of Customs, Excise & Service Tax Appellate Tribunal, South Zonal Bench, Chennai.

In C.M.A. No. 1748 of 2009: Civil Miscellaneous Appeal filed under Section 35G of the Central Excise Act, 1944, against the Final Order No.1482 of 2007 dated 13.12.2007 made in Appeal Nos.E/633 & 634 of 2003 on the file of Customs, Excise & Service Tax Appellate Tribunal, South Zonal Bench, Chennai.

In C.M.A. No. 882 of 2015: Civil Miscellaneous Appeal filed under Section 35G of the Central Excise Act, 1944, against the Final Order No.40683/2013, dated 02.12.2013 in Appeal No.E/13/2005 on the file of Customs, Excise & Service Tax Appellate Tribunal, South Zonal Bench, Chennai.)

Common Judgment:

1. These Civil Miscellaneous Appeals are directed against the common order passed in E/633 & 634/03, dated 13.12.2007 and the Final Order No.40683/2013, dated 02.12.2013 in Appeal No.E/13/2005 on the file of the of Customs, Excise & Service Tax Appellate Tribunal, South Zonal Bench, Chennai.

2. The appellant and the substantial questions of law involved in these appeals are one and the same. Hence by consent, appeals tagged together and arguments submitted in common.

3. The appellant-M/s.Chemplast Sanmar Ltd., is engaged in manufacture of PVC resin, refrigerant gases, caustic soda, chlorine and other products. For the various inputs and capital goods used in the manufacture of the above products, the appellant has been availing MODVAT Credit. Low Sulphur Heavy Stock (hereinafter referred to as ‘LSHS’) is one such input used for generating electricity. The assessee having four plants, shared the surplus electricity generated in one unit with the other units-particularly Plants II and III, which also are engaged in manufacturing PVC resin and other industrial chemicals. A portion of the excess electricity also used for lighting the staff colony.

4. The excess power generated in one unit was transferred to other units through wheeling using the TNEB power grid. The assessee for the LSHS used for generating electricity availed MODVAT input credit. Later, the department found that the input credit was wrongly availed, hence reversed the credit and also imposed penalty along with duty. The Order-in-Original relating to the period October 1994 – August 2001 is 1/2003, dated 06/06/2003. (Subject matter in C.M.A.No.1747 of 2008). The Order-in-Original for the period October 1994 to August 2001 is 2/2003, dated 06.06.2003 (Subject matter of C.M.A.No.1748 of 2008). The Order-in-Original for the period April 2002 to December 2002 is 5/2004, dated 22.01.2004 (Subject matter of C.M.A.No.882 of 2015).

5. Whether the assessee is eligible for input credit on LSHS used as fuel for generating electricity and transfer of the generated electricity through TNEB grid by wheeling, to the sister units of the assessee and for lighting staff colony located outside the factory of its generation, is the question in dispute in these batch of Civil Miscellaneous Appeals.

6. Facts in brief:

                   The Assessing Officer, Appellate Authority and the Tribunal concurrently held against the assessee. According to the Department, prior to introduction of clause (d) to the explanation under Rule 57 A of the erstwhile Central Excise Rules, 1944, the assessee was eligible for credit of duty paid on exercisable goods used as inputs only if LSHS is used as fuel for manufacturing final product within the factory of its production. The term ‘input’ as explained under Rule 57A was amended vide Notification 11/1995, dated 16.03.1995 by introducing clause (d) to the explanation under Rule 57A, which reads as under:

                   “Explanation:- For the purposes of this rule, ‘inputs’ includes –

                   (a)...

                   (b)...

                   (c) inputs used as fuel, and

                   (d) inputs used for generation of electricity, used within the factory of production for manufacturing of final products or for any other purposes.”

7. Controversy arose when the assessee availed credit on LSHS used as fuel for generation of electricity which was used in the plants other than the factory of production/generation of the said electricity. The input duty credit can be availed only if used at the place of its generation for producing the final product. If the final product is not manufactured at the place of generating electricity, such inputs are excluded as explained under clause (d). The specific case of the Department is that Plants II and III for which the electricity generated using LSHS is transferred are not within the factory of production. The admitted case of the assessee is that the electricity generated using LSHS as input is transferred to Units II and III as well as to the Staff Colony. Therefore input credit cannot be extended to the assessee in so far as the electricity not used within the factory of its production. Therefore, the assessee is liable to pay duty and equivalent penalty.

8. In short, the contention of the Department is that MODVAT/CENVAT credit on LSHS relatable to electricity and steam generated using the said LSHS and diverted outside the factory (of its production) is not eligible for credit. Rule 57A(1)(d) of Central Excise Rules, 1994, refers to the generation of electricity used within the factory of production for the manufacture of final products or for any other purpose. Since it is admitted that the assessee has used the electricity for Plants II & III located outside the factory where the electricity is generated, the tribunal rightly dismissed the appeal by the assessee.

9. The Appeals (C.M.A.Nos.1747 & 1748 of 2009) by the assessee were admitted by this Court on 10.07.2009, to answer the following substantial questions of law:

                   (i) Whether MODVAT credit can be denied on LSHS and Fuel additives used for generation of electricity for the manufacture of dutiable final products to the extent that the same relates to electricity and steam which does not get consumed within the factory of production and is cleared outside the factory as a surplus and used in another factory of the same manufacturer on in the housing colony?

                   (ii) Whether the extended period of limitation is invokable in the facts and circumstances of the case?

10. The appeal in C.M.A.No.882 of 2015 filed by the assessee was admitted by this Court on 24.07.2015 to answer the following substantial questions of law:

                   (i).Whether CENVAT credit taken on fuel (LSHS) used for generation of electricity used for the manufacture of dutiable final products, can be denied to the extent that the same is consumed in the generation of the surplus electricity and steam cleared to sister units located adjacent to the factory and used in another factory for the same manufacturer or in the housing colony of the company?

                   (ii). Whether the Tribunal is right in remanding the matter only for the purpose of quantification of the credit relatable to the LSHS consumed in the electricity and stream transferred to sister units located adjacent to the factory, proceeding on the premise that proportionate credit was reversible, contrary to the ruling of the coordinate bench of the tribunal in the case of diamond cements reported in 2004 (160) E.L.T 34 (T)?

11. The Learned Counsel appearing for the appellant/Assessee submitted that, Low Sulphur Heavy Stock (LSHS) is an input used as fuel in manufacturing electricity. The final product manufactured by the assessee company is PVC resin, refrigerator gases, Caustic soda, Chlorine etc. For the manufacture of these final products electricity is used and it being an intermediary, as per Rule 57 A read with the explanation to the term ‘inputs’, it is clear without any ambiguity, the assessee is entitled for CENVAT credit not only for the electricity used within the factory of its production but for its sister Units II and III as for lighting the staff colony. While so, the reversal of input credit belatedly and demand of penalty is illegal when there is no suppression with intention to defraud the exchequer.

12. To buttress the above submission, the Learned Counsel for the appellant/assessee relied on the following judgments:

                   (i). India Cements Limited vs. Commissioner of Customs, Central Excise and Service Tax, Tirunelveli reported in 2024 SCC Online Mad 569.

                   (ii). Commissioner of Central Excise and Customs vs. Reliance Industries Ltd reported in 2023 (385) E.L.T.481 (SC).

                   (iii). Commissioner of Central Goods & S.T., Jaipur vs. Shree Cement Ltd reported in 2018 (16) G.S.T.L 196 (Raj).

                   (iv). Commissioner of Central Excise & S.T.Belgaum vs. Mukund Ltd reported in 2015(324) E.L.T 387 (Kar).

                   (v). Commissioner of Central Excise & Service Tax, LTU, Bangalore vs. Biocon Ltd reported in 2014(309) E.L.T 66 (Kar).

                   (vi). Collector of Central Excise vs. Solaris Chemtech Limited reported in 2007 (214) E.L.T 481 (SC).

                   (vii). Chemplast Sanmar Ltd vs. Commissioner of Central Excise, Coimbatore reported in 2000 (122) E.L.T 861 (Tribunal).

13. The Learned counsel for the appellant/assessee, referring to the above judgments submitted that the Madras High Court, the Karnataka High Court and other High Courts have consistently held that the definition of “factory” includes multiple units of the factory, even if they are not located within the same premises. LSHS used as fuel for the generation of electricity for manufacturing end products is eligible as an input for credit. Further submitted that the appellant is entitled to credit on the eligible inputs utilized for the generation of electricity for its plants located outside the factory premises. The electricity captive generated would be an input wherever used by the assessee. The term “captive” refers to the location where electricity is generated and not of location where it is consumed.

14. Rebutting the submissions of the appellant’s counsel, the Learned Counsel appearing for the Department, defending the decision of the Income Tax Appellate Tribunal, submitted that MODVAT credit on fuel used for manufacturing the final product within the factory of production is contemplated under Rule 57A of the CENVAT Rules, which has been modified from time to time. During the period between October 1994 and August 2001, the assessee, who used LSHS as the main fuel for generating electricity for its plants, availed credit of duty paid on LSHS during 1993-1994 and 1999-2000. Since the steam and electricity generated were diverted outside the factory for use in the sister units and workers quarters for lighting staff colony by wheeling through the TNEB grid, the assessee was demanded to reverse the credit and pay the interest with penalty.

15. The provisions of Rule 57A were amended in 1995 by Notification 11/95, whereby sub-clause (d) was added to the explanation to Rule 57A, which reads as below:

                   “(d). inputs used for generation of electricity used within the factory of production for manufacture of final products or for any other purpose.”

16. Prior to this amendment, the explanation for the word ‘input’ for the purposes of the Rules included inputs used as fuel. Subsequently, in the year 1997-1998, by introducing sub-clause (iv) to Rule 57B, the eligibility of credit of duty on certain goods extended to goods used for generation of electricity within the factory of production. The assessee sought input credit of duty paid under Rule 57A(i)(c), i.e., inputs used as fuel. Whereas, as per the rules in force then, the assessee is eligible for credit of duty paid only in respect of inputs used for generating electricity within the factory of production for the manufacture of final products.

17. Admittedly, in this case, LSHS used by the assessee for generating electricity was not within the factory of production. Therefore, the electricity was diverted and transmitted to Plants II & III outside the factory of the production of electricity. Reversal of input tax with interest and penalty rightly demanded and the said demand was confirmed by the Tribunal. Thus, the Learned Counsel appearing for the Department summarized that inputs used as fuel would be entitled to credit only if they are used for, or in relation to, the manufacture of final products. The appellant had availed MODVAT credit on fuel used for electricity generation and diverted outside the factory premises. Unless the inputs are used to produce final products within the factory, which are cleared on payment of duty, credit in respect of said inputs cannot be availed. On that basis, the demand relatable to electricity and steam cleared outside the factory of production has to be sustained.

18. According to the Learned Counsel for the Department, Rule 57A (1) Explanation (d) and Rule 57B (iv) are to the same effect, except that Rule 57B(iv) also covers steam. Therefore, credit for LSHS used for generating electricity and transmitting outside the factory of production falls outside the scope of 57A(1) Explanation (d) and Rule 57 B (iv). In fact it is covered under Rule 57D (2). Insofar as Maruthi Suzuki Ltd case cited and relied by the Assessee Counsel, whether wheeling of electricity to the sister units without element of sale was not discussed. Therefore, the Division Bench of this Court in Commissioner of Central Excise, Chennai vs. SRF Ltd., (2013 (298) E.L.T. 521 (Mad) distinguishing the Maruthi Suzuki case on this aspect remanded the matter to CESTAT for factual adjudication. Even if the transfer of electricity does not carry any element of sale, once it is transferred outside the factory of production, the plain reading of the Rules will clearly show that the assessee is not entitled for any input credit.

19. Heard the Learned Counsels and carefully examined their submissions and judgments cited.

20. The claim of input credit emanates from Rule 57A of Central Excise Rules, 1944. The Central Excise (Fourth Amendment) Rules, 1995 brought in certain change in the explanation to the term, ‘input’. The amendment came into force with effect from 16.03.1995. The show cause notices to the assessee in these case though issued post amendment, some of the show cause notices were issued for period covering both pre-amendment period and post amendment period. Therefore, it is necessary to know the law prevailing during the period for which the input duty was reversed by the department. Hence same is extracted below for the sake of convenience.

                   Prior to 4 th amendment:

                   Credit of Duty paid on excisable goods used as inputs:

                   Rule 57A: Applicability:- (1) The provisions of this section shall apply to such finished excisable goods (hereinafter referred to as the “final products”), as the Central Government may, by notification in the Official Gazette, specify in this behalf, for the purpose of allowing credit of any duty of excise or the additional duty under Section 3 of the Customs Tariff Act, 1975 (51 of 1975), as may be specified in the said notification (hereinafter referred to as the “specified duty”) paid on the goods used in or in relation to the manufacture of the said final products (hereinafter referred to as the ‘inputs’) and for utilising the credit so allowed towards payment of duty of excise leviable on the final products, whether under the Act or under any other Act, as may be specified in the said notification, subject to the provisions of this Section and the conditions and restrictions that may be specified in the notification:

                   Provided that the Central Government may specify the goods or classes of goods in respect of which the credit of specified duty may be restricted.

                   Explanation:- For the purpose of this rule, ‘inputs’ includes –

                   (a) inputs which are manufactured and used within the factory of production, in or in relation to, the manufacture of final products,

                   (b) paints and packaging materials [and]

                   (c) inputs used as fuel

                   but does not include –

                   (i) machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products;

                   (ii) packaging materials in respect of which any exemption to the extent of the duty of excise payable on the value of the packaging materials is being availed of for packaging any final products;

                   (iii) packaging materials the cost of which is not included or had not been included during the preceding financial year in the assessable value of the final products under Section 4 of the Act;

                   (iv) Cylinders for packing gases;

                   (v) plywood for teat [chests; or]

                   (vi) bags or sacks made out of fabrics (whether or not coated, covered or laminated with any other material) woven from strips or tapes of plastics.

                   After 4 th Amendment:

                   Rule 57A. Applicability.-(1) The provisions of this section shall apply such finished excisable goods (hereinafter referred to as the "final products"), as Central Government may, by notification in the Official Gazette, specify in this behalf, for the purpose of allowing credit of any duty of excise or the additional duty under Section 3 of the Customs Tariff Act, 1975 (51 of 1975), as may be specified in the said notification (hereinafter referred to as the "specified duty") paid on the goods used in or in relation to the manufacture of the said final products (hereinafter referred to as the "inputs") and for utilising the credit so allowed towards payment duty of excise leviable on the final products, whether under the Act or under any other Act, as may be specified in the said notification, subject to the provisions of this section and the conditions and restrictions that may be specified notification:

                   Provided that the Central Government may specify the goods or classes of goods in respect of which the credit of specified duty may be restricted.

                   Explanation. For the purposes of this rule, "inputs" includes

                   (a) inputs which are manufactured and used within the factory of production, in or in relation to, the manufacture of final products,

                   (b) paints and packaging materials,

                   (c) inputs used as fuel and

                   (d) inputs used for generation of electricity, used within the factory of production for manufacture of final products or for any other purpose,

                   but does not include –

                   (i) machines, machinery, plant, equipment, apparatus, tools or appliances used for producing or processing of any goods or for bringing about any change in any substance in or in relation to the manufacture of the final products;

                   (ii) packing materials in respect of which any exemption extent of the duty of excise payable on the value of the packing materials is being availed of for packaging any final products.

                   (iii) packaging materials or containers, the cost of which is included in the assessable value of the final products under 4 of the Act.

21. Upon, reading of pre and post amended provisions for applicability of input credit, we find prior to the amendment subject to the restrictions that may be specifically notified by the Central Government, the conditions required to be satisfied are:

                   (a) The finished goods must be an excisable goods. (final product).

                   (b) The said input goods must have been used in or in relation to the manufacture of the said final products.

                   (c) For the purpose of Rule 57 A, the term ‘input’ includes ‘fuel’.

22. From the change in Rule 57A of the Central Excise Rules, 1944 through the 4th amendment w.e.f. 16.03.1995, we find a liberal approach for claiming input credit has been adopted. The scope of applicability to seek credit of duty paid extended to the inputs used for generation of electricity, used within the factory of production for manufacture of final products or for any other purpose. (emphasis added)

23. Thus, the additional condition after amendment is the use of the intermediary i.e., electricity must be within the factory of its production. However the electricity so generated may be used for any other purpose. Therefore to claim input credit, the assessee has to first establish that the fuel i.e., LSHS used for generating electricity is in the course of manufacturing the final product. Next it has to establish that the electricity generated in one of its unit used for the production of final product in other units or for any other purpose within the factory of production.

24. The judgments relied by the Learned Counsels provides the answer for the substantial questions of law as below:-

                   (i) In India Cements Limited vs. Commissioner of Customs, Central Excise and Service Tax, Tirunelveli reported in 2024 SCC Online Mad 569) the Hon’ble Supreme Court has observed:

                   “16. We have heard the rival contentions advanced by the parties and have studied the files as well as statutory provisions and Rules. The definition of “input” under rule 2(g) of the CCR, 2002 and 2004 contained a clear mandate that inputs must be consumed within the factory of production/generation and reads as follows:

                   “2. Definitions.—In these Rules, unless the context otherwise requires,—...

                   (g) ‘input’ means all goods, except (light diesel oil) (inserted by M.F. and C.A. (D. R) Notification No.13/2003-C.E. (N.T.), dated March 1, 2003.) high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not, and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used for manufacture of final products or for any other purpose, within the factory of production.”

                   17. The above definition is what had come up for consideration in the case of Maruti Suzuki Ltd. [Maruti Suzuki Ltd. v. Commissioner of Central Excise, (2010) 1 GSTR 200 (SC); (2009) 240 ELT 641 (SC).] , referred to in extenso by both parties. The definition contains three parts, as amplified by the Bench in that case. The first component relates to the description of the goods that would qualify as “input” and is wide and inclusive. The second component relates to the use of those inputs as aforesaid in manufacture. The dispute arises from the reference to “place of use”,which is the third component of the definition.

                   …..

                   …...

                   30. Upon a comparison of 2002 and 2004, Rules one would see that under the 2002 Rules, the mandate was categoric that an input must be consumed “within the factory or production”. Under the substituted Rules however, inputs have been categorized into four categories:

                   “(i) goods used ‘in the factory’ by the manufacturer of the final product;

                   (ii) all goods including accessories cleared along with the final product, the value of which is included in the value of the final product and goods used for providing free warranty for final products;

                   (iii) all goods used for generation of electricity or steam for captive use; and

                   (iv) all goods used for providing any output service.”

                   31. Clauses (ii) and (iv) are not relevant for the purposes of this order. Importantly, a distinction has been envisaged between the goods used “in the factory” by the “manufacturer of the final product” and the goods used for “generation of power”. While the former insists that the goods must be used “in the factory”,there is no stipulation of place as regards the goods in clause (iii). Therefore, we find merit in the position that electricity captively generated is an input, wherever used by the assessee concerned. The use of the term “captive” is, in our view a qualification of the location where it is generated and not of the location where it is used.

                   32. In the present appeals, the period in question is September 2012 to May 2013 to which the substituted definition of “input” would apply. There is a substantial cost in the setting up of a CPP. Perhaps the object of the substitution is itself that such expenditure must go to benefit the company as a whole, including the sister concerns to which supply is made.

                   33. There is no dispute on facts in relation to the power supplied gratis to the sister units. Thus the admitted facts that commend themselves to us are that:

                   “(i) the captive power plant has been set up at substantial cost by the appellant at one of the company locations.

                   (ii) the electricity generated has been used as ‘input’ only within the appellant group of companies though at different locations.

                   (iii) the consumption is in pari materia with the power generation and there is no inflated claim.

                   (iv) the electricity generated has been wheeled through the grid and thus the process of supply to each of the sister units is transparent and in accordance with the terms of, and procedure under the wheeling agreement entered into with TANGEDCO.

                   (v) being related parties and units of one company, it is possible for there to be a check on the methodology adopted by the parties for the transfer of the input, the utilization of the ‘input’ itself and all other relevant determinants by the Department.”

                   (ii). Commissioner of Central Excise and Customs vs. Reliance Industries Ltd reported in 2023 (385) E.L.T.481 (SC):

                   While dealing with recovery of duties and imposition of penalty after the period of limitation, the Hon’ble Supreme Court has held as below:

                   “12. Section 11-A of the Central Excise Act, 1944, which deals with the issue of limitation for issuing show-cause notices for recovery of duties which have been short-paid or short-levied, is the governing law in the present case. Sub-section (1) of Section 11-A, which is most relevant to the present case, for the sake of convenience, is being reproduced hereunder:

                   “11-A. Recovery of duties not levied or not paid or short-levied or short-paid or erroneously refunded.— (1) When any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded, whether or not such non-levy or non-payment, short-levy or short payment or erroneous refund, as the case may be, was on the basis of any approval, acceptance or assessment relating to the rate of duty on or valuation of excisable goods under any other provisions of this Act or the rules made thereunder, a Central Excise Officer may, within one year from the relevant date, serve notice on the person chargeable with the duty which has not been levied or paid or which has been shortlevied or short-paid or to whom the refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice:”

                   13. The first proviso to the above mentioned sub-section (1), which is the relevant provision relating to the extended period of limitation, reads as under:

                   “Provided that where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, by such person or his agent, the provisions of this sub-section shall have effect, as if for the words one year the words five years were substituted.”

                   14. In Pushpam Pharmaceuticals Co. v. CCE [Pushpam Pharmaceuticals Co. v. CCE, 1995 Supp (3) SCC 462], this Court, while dealing with a similar fact circumstance wherein the extended period of limitation under the above mentioned proviso had been invoked, held that since the expression “suppression of facts” is used in the company of terms such as fraud, collusion and wilful misstatement, it cannot therefore refer to an act of mere omission, and must be interpreted as referring to a deliberate act of non-disclosure aimed at evading duty, that is to say, an element of intentional action must be present.

                   15. Similarly, in CCE v. Chemphar Drugs & Liniments [CCE v. Chemphar Drugs & Liniments, (1989) 2 SCC 127:1989 SCC (Tax) 245], this Court, while dealing with a similar situation of invocation of extended period of limitation under Section 11-A of the Act, this Court held as under:

                   “9. ... In order to make the demand for duty sustainable beyond a period of six months and up to a period of 5 years in view of the proviso to subsection (1) of Section 11-A of the Act, it has to be established that the duty of excise has not been levied or paid or short-levied or short-paid, or erroneously refunded by reasons of either fraud or collusion or wilful misstatement or suppression of facts or contravention of any provision of the Act or Rules made thereunder, with intent to evade payment of duty. Something positive other than mere inaction or failure on the part of the manufacturer or producer or conscious or deliberate withholding of information when the manufacturer knew otherwise, is required before it is saddled with any liability, before (sic beyond) the period of six months. Whether in a particular set of facts and circumstances there was any fraud or collusion or wilful misstatement or suppression or contravention of any provision of any Act, is a question of fact depending upon the facts and circumstances of a particular case. The Tribunal came to the conclusion that the facts referred to herein before do not warrant any inference of fraud. The assessee declared the goods on the basis of their belief of the interpretation of the provisions of the law that the exempted goods were not required to be included and these did not include the value of the exempted goods which they manufactured at the relevant time. The Tribunal found that the explanation was plausible, and also noted that the Department had full knowledge of the facts about manufacture of all the goods manufactured by the respondent when the declaration was filed by the respondent. The respondent did not include the value of the products other than those falling under Tariff Item 14E manufactured by the respondent and this was in the knowledge, according to the Tribunal, of the authorities. These findings of the Tribunal have not been challenged before us or before the Tribunal itself as being based on no evidence.”

                   (iii). Commissioner of Central Goods & S.T., Jaipur vs. Shree Cement Ltd reported in 2018 (16) G.S.T.L 196 (Raj):

                   The High Court of Rajasthan, in this case has observed that if the transfer of electricity to the other units of the same assessee not for price, then even if the units are outside the factory and electricity is transferred through wheeling, the assessee is eligible for MODVAT input credit. In the words of the Learned Judges,

                   “14......On the contrary, the AO observed as under:

                   “That in this connection, as far as the present case is concerned, it is submitted that is transferring power to its own units without there being any sale. In such a situation no denial of credit can be made in the case. This is because of certain observations made in the order itself, which are as under:-

                   (a) "Applying the said test, we hold that when the electricity generation is a captive arrangement and the requirement is for carrying out the manufacturing activity, the electricity generation also forms part of the manufacturing activity and the "input" used in that electricity generation is an "input used in the manufacture" of final product.

                   This observation makes it clear that in the case where there is an arrangement for captive generation of electricity, it has to be treated as a requirement for carrying out manufacturing process and therefore credit would be admissible. Therefore, the key expression is "captive arrangement". Captive arrangement means arrangement made by the company for its own use and not for use by others.

                   Therefore, when one company has various different units located at different geographical locations, all the units are manufacturing units, and the electricity generated in one unit is being consumed in the other unit of the same company in addition to it being consumed in the same unit also, it can be safely concluded that it is a case of captive generation and captive consumption of such electricity. In such a situation, the case would satisfy the test "electricity generation is a captive arrangement."

                   15. In our considered opinion, therefore, Maruti's judgment will not apply in the present case and the decision which is taken by the Tribunal that the captive power plant of the sister concern, the same is against the fuel and fuel is used for the sister concern which is a part of the company itself. In that view of the matter, we are of the considered opinion that the view taken by the Tribunal is just and proper.

                   (iv) Commissioner of Central Excise & S.T.Belgaum vs. Mukund Ltd reported in 2015(324) E.L.T 387 (Kar). In this judgment, Karnataka High Court has held that,

                   “7. The Principal Bench of this Court had an occasion to deal with a similar case in CEA No. 42/2011 which was disposed of on 19-6-2014: 2014 (309) E.L.T. 66 (Kar.). After referring to the various judgments of the Supreme Court and particularly, the case of Vikram Cements v. Cee Industries reported in 2006 (194) E.L.T. 3 (S.C.), the Division Bench of this Court has held that the definition of ‘input’ is to be construed as within the factory of production, if the assessee owns more than one unit and they are situated at one place.

                   In the case on hand, allegation of the appellant- Revenue is that respondent herein and M/s. Kalyani Steels Limited being two different entities are using the gases indented by respondent herein. In paragraph 2 of the show cause notice, the Revenue, has referred to the Strategic Alliance Agreement dated 16-5-1998 as also the ratio in which the two companies would be manufacturing respective products. To appreciate as to what exactly the agreement defines, it is necessary to note the salient points of the agreement which are as follows:

                   (a) respondent manufactures alloy and nonalloy steel billets

                   and blooms;

                   (b) Kalyani Steels Limited manufacture pig iron (solid) and pig iron (hot metal) which is an intermediary product and in turn this intermediary product is also used by respondent for production of final product in terms of the Strategic Alliance Agreement dated 16-5- 1998 is for production of steel through an integrated steel plant. Therefore, logically, the corporate entities had entered to Strategic Alliance Agreement for manufacture of steel in an integrated steel plant.

                   8. Admittedly, M/s.Praxair India Limited has supplied oxygen and nitrogen in pipelines and the Cenvat credit has been availed of only by the respondent. After the visit of the Officers of the Revenue, the respondent is said to have tendered the demand of duty even before the issuance of show cause notice. Though the Cenvat credit was claimed only by the respondent, the input i.e., oxygen and nitrogen were used by both the companies. The law on the point is no more res integra. In the light of the decision rendered by the Principal Bench of this Court in CEA No. 42/2011 referred to supra, which we respectfully agree, it is well settled that a manufacturing unit can have one or more units to manufacture intermediary raw materials to manufacture a final product. In the instant case, by the Strategic Alliance Agreement, the corporate entities had entered into a joint venture agreement to manufacture steel products. The records disclose that whatever was manufactured by M/s. Kalyani Steels Limited in the ratio agreed to between the parties was finally made over to the respondent herein for manufacture of final product. Therefore, it appears, the companies joined hands to manufacture the final products in terms of the Strategic Alliance Agreement. In the circumstances, we hold that Cenvat cannot be deemed on the ground that credit is being availed by one factory and material inputs are used by three factories, because the Cenvatable input is being used for common share and continuous purpose of manufacturing dutiable goods. Though there are three separate units with separate registrations, the entire raw material is being converted into final dutiable product in continuous, inter connected and integrated process conforming to the definition of a single factory under Section 2(f) of the Central Excise Act.”

                   (v) Commissioner of Central Excise & Service Tax, LTU, Bangalore vs. Biocon Ltd reported in 2014(309) E.L.T 66 (Kar). In this judgment, again the Karnataka High Court has reiterated:-

                   “12. In view of clear language in the statutory provisions coupled with the fact that the factory includes more than one premises to be eligible for, CENVAT Credit, an assessee has to use the input in the manufacture of dutiable goods in his factory. If the factory includes more than one unit and if the assessee uses this input in the manufacturing of excisable goods in both the units, he would be entitled to CENVAT Credit. The Apex Court in Vikram Cement -vs- Commissioner (2006 (194) E.L.T. 3 (SC) case has held as under:

                   “It appears to us on a plain reading of the clause that the phrase “within the factory of production” means only such generation of electricity or steam which is used within the factory would qualify as an intermediate product. The utilization of inputs in the generation of steam or electricity not being qualified by the phrase “within the factory of production” could be outside the factory. Therefore, whatever goes into generation of electricity or steam which is used within the factory would be an input for the purposes of obtaining credit on the duty payable thereon.”

                   13. The Apex Court in Maruti Suzuki Ltd -vs- Commissioner (2009(240) E.L.T.641 (SC) case, held as under:

                   “To sum up, we hold that the definition of “input” brings within its fold, inputs used for generation of electricity or steam, provided such electricity or steam is used within the factory of production for manufacture of final products or for any other purpose. The important point to be noted is that, in the present case, excess electricity has been cleared by the assessee at the agreed rate from time to time in favour of its joint ventures, vendors, etc., for a price and has also cleared such electricity in favour of the grid for distribution. To that extent, in our view, assessee was not entitled to CENVAT credit. In short, assessee is entitled to credit on the eligible inputs utilized in the generation of electricity to the extent to which they are using the produced electricity within their factory (for captive consumption). They are not entitled to CENVAT credit to the extent of the excess electricity cleared at the contractual rates in favour of the joint ventures, vendors, etc., which is sold at a price.”

                   14. From the aforesaid decision, it is clear that the definition of ‘input’ brings within its fold the inputs used for generation of electricity or steam, provided such electricity or steam is used within the factory of production for manufacture of final products or for any other purpose. Therefore, it follows the term “within the factory of production” cannot be confined to a single unit. In view of the definition of factory in the act which means more than one premises, it has to be construed as the factory owned by the assessee. If the assessee owns more than one unit, all the units if they are situated at a place would constitute “a factory”. If the electricity or steam generated within the factory of production means within the factory premises which may include more than one unit. If such electricity or steam generated within the factory of production is utilized by the assessee in more than one unit and if those units are manufacturing excisable goods, then, the assessee would be entitled to the benefit of CENVAT credit to the entire extent of utilization of such electricity or steam in all the units of its factory premises. Therefore, whatever goes into generation of electricity or steam which is placed within the factory which may consists of more than one unit would be an input for the purposes of obtaining credit on the duty payable thereon.” (emphasis added).

                   (vi). Collector of Central Excise vs. Solaris Chemtech Limited reported in 2007 (214) E.L.T 481 (SC), the Hon’ble Supreme Court has held that:-

                   7. The assessees contend that LSHS falls within the ambit of Explanation clause (c). The Department's contention is that these inputs are utilised for manufacturing electricity which is not excisable and hence cannot be considered as an input used as fuel in terms of Explanation clause (c). It is the case of the Department that LSHS does generate electricity. However, it cannot be said that LSHS has been used in or in relation for manufacture of final product, namely, caustic soda and cement. According to the Department, LSHS has been basically used in the generation of electricity which is not specified as final product and hence no modvat credit of duty paid on LSHS is admissible. According to the Department, generation of electricity by heating LSHS is a process which is independent of the process of manufacturing cement and caustic soda. According to the Department, LSHS generates electricity but that process does not result into manufacture of cement and caustic soda and, therefore, modvat credit was not admissible for the duty paid on LSHS.

                   8. In our view, there is no merit in this civil appeal filed by the Department. At the outset, we may clarify that electricity is not an excisable item. Further, in this batch of civil appeals we are concerned with the electricity which is generated inside the plant by heating of LSHS and which is captively consumed and used to manufacture cement/caustic soda.

                   9. Rule 57-A, quoted above, has an Explanation clause which stated as to what inputs are included in modvat credit. Explanation clause (c) refers to “input used as fuel”. This clause was introduced by Notification No. 4/94. At that time the Government made it clear that inputs used as fuel were entitled to modvat credit. That fuel either utilised directly or for generating electricity, as an intermediary product, is integrally connected with several operations which results in the emergence of the final product, namely, cement/caustic soda. It is important to note that without utilisation of LSHS, it is not possible to manufacture cement/caustic soda. The electrolysis process is dependent on continuous flow of electricity. If there is disruption in the supply of electricity from the Electricity Board then the entire plant of the assessees would fail and the manufacture of cement/caustic soda would not take place. Therefore, LSHS would come within the ambit of the expression “used in or in relation to the manufacture of the final product”.

                   10. Further, in CCE v. Rajasthan State Chemical Works [(1991) 4 SCC 473: (1991) 55 ELT 444] it has been held that any operation in the course of manufacture, if integrally connected with the operation which results in the emergence of manufactured goods, would come within the term “manufacture”. This is because of the words used in Rule 57-A, namely, “goods used in or in relation to the manufacture of the final products”. Electricity is one form of heat. It gets generated in several ways. LSHS is a fuel used in the generation of electricity. Since electricity is self-generated and since it comes into existence as an intermediary product, its utilisation for production of final product is crucial. Hence, modvat credit on LSHS used in production of electricity cannot be denied.

                   11. Lastly, we may point out that in order to appreciate the arguments advanced on behalf of the Department one needs to interpret the expression “in or in relation to the manufacture of final products”. The expression “in the manufacture of goods” indicates the use of the input in the manufacture of the final product. The said expression normally covers the entire process of converting raw materials into finished goods such as caustic soda, cement, etc. However, the matter does not end with the said expression. The expression also covers inputs “used in relation to the manufacture of final products”. It is interesting to note that the said expression, namely, “in relation to” also finds place in the extended definition of the word “manufacture” in Section 2(f) of the Central Excises and Salt Act, 1944 (for short “the said Act”). It is for this reason that this Court has repeatedly held that the expression “in relation to” must be given a wide connotation.

                   12. The Explanation to Rule 57-A shows an inclusive definition of the word “inputs”. Therefore, that is a dichotomy between inputs used in the manufacture of the final product and inputs used in relation to the manufacture of final products. The Department gave a narrow meaning to the word “used” in Rule 57-A. The Department would have been right in saying that the input must be raw material consumed in the manufacture of final product, however, in the present case, as stated above, the expression “used” in Rule 57-A uses the words “in relation to the manufacture of final products”.

                   13. The words “in relation to” which find place in Section 2(f) of the said Act have been interpreted by this Court to cover processes generating intermediate products and it is in this context that it has been repeatedly held by this Court that if manufacture of final product cannot take place without the process in question then that process is an integral part of the activity of manufacture of the final product. Therefore, the words “in relation to the manufacture” have been used to widen and expand the scope, meaning and content of the expression “inputs” so as to attract goods which do not enter into finished goods.

                    14. In J.K. Cotton Spg. & Wvg. Mills Co. Ltd. v. STO [AIR 1965 SC 1310] this Court has held that Rule 57- A refers to inputs which are not only goods used in the manufacture of final products but also goods used in relation to the manufacture of final products. Where raw material is used in the manufacture of final product it is an input used in the manufacture of final product. However, the doubt may arise only in regard to use of some articles not in the mainstream of manufacturing process but something which is used for rendering final product marketable or something used otherwise in assisting the process of manufacture. This doubt is set at rest by use of the words “used in relation to manufacture”.

                   15. In the present case, LSHS is used to generate electricity which is captively consumed. Without continuous supply of such electricity generated in the plant it is not possible to manufacture cement, caustic soda, etc. Without such supply the process of electrolysis was not possible. Therefore, keeping in mind the expression “used in relation to the manufacture” in Rule 57-A we are of the view that the assessees were entitled to modvat credit on LSHS. In our opinion, the present case falls in Clause (c), therefore, the assessees were entitled to modvat credit under Explanation clause (c) even before 16-3-1995. Inputs used for generation of electricity will qualify for modvat credit only if they are used in or in relation to the manufacture of the final product, such as cement, caustic soda, etc. Therefore, it is not correct to state that inputs used as fuel for generation of electricity captively consumed will not be covered as inputs under Rule 57-A.

                   (vii) Chemplast Sanmar Ltd vs. Commissioner of Central Excise, Coimbatore reported in 2000 (122) E.L.T 861 (Tribunal), the CESTAT in the assessee’s own case, had held in favour of the assessee regarding CENVAT input credit for LSHS used for generating electricity and shared with other units located outside the factory of its production.

                   In the words of the tribunal:-

                   “7. We have considered the submissions of both the sides. The issue involved in all these appeals has been finally settled by the larger bench of the Appellate Tribunal in the case of Ballarpur Industries v. CCE, Belgaum, as reported in 2000 (116) E.L.T. 312 wherein it has been held that fuel oils such as low sulphur heavy stock (LSHS), light diesel oil, residual fuel oil, mobile oil and furnace oil used captively for generation of electricity which in turn is used for manufacture of the final products are inputs even prior to 16-3-1995. It was observed by the Tribunal that when electricity generation is a captive arrangement and requirement for carrying out the manufacturing activity, electricity generation also forms part of the manufacturing activity and the input used in that electricity generation is also input used in the manufacture.”

25. In our considered opinion, going by the definition of ‘factory’ under the Central Excise Act and the dictum laid in Maruthi Suzuki case (cited supra), when one Company has different units at different geographical locations and all the units are manufacturing units, the electricity generated in one unit, consumed in the other units of the same company in addition to it being consumed in the same unit also, qualifies as a case of captive generation and captive consumption of such electricity. Even in a case where electricity is consumed by the other sister units by wheeling process, the electricity generated and consumed would nevertheless qualify as electricity generated under a captive arrangement. Therefore, the input credit claimed by the assessee under Rule 57A, cannot be denied. Any reversal of the claim and imposition of penalty is therefore ultravires the statute.

26. As the result, the substantial questions of law framed in C.M.A.No.1747 of 2008 and C.M.A.No.1748 of 2008 are answered as below:-

                   (i) Whether MODVAT credit can be denied on LSHS and Fuel additives used for generation of electricity for the manufacture of dutiable final products to the extent that the same relates to electricity and steam which does not get consumed within the factory of production and is cleared outside the factory as a surplus and used in another factory of the same manufacturer on in the housing colony?

                   Insofar as the use of the surplus electricity transferred to the sister units II and III, MODVAT credit cannot be denied in view of the definition of ‘factory’ in Section 2(e) of the Central Excise Act, 1944 and the Judgment of Karnataka High Court in Commissioner of Central Excise & Service Tax, LTU, Bangalore vs. Biocon Ltd (2014) 309 E.L.T. 66 (Kar).

                   Insofar as the surplus electricity used for lighting the housing colony, since it is not used for manufacturing of any final product dutiable, to that extent electricity transferred for lighting the housing colony, the denial of input credit is sustainable in view of the judgement of the Hon’ble Supreme Court judgement in Collector of Central Excise vs. Solaris Chemtech Limited (2007) 214 ELT 481 @ para 9 (SC).

                   (ii) Whether the extended period of limitation is invokable in the facts and circumstances of the case?

                   * The dispute started on introduction of explanation (d) to ‘inputs’ in Rule 57 A, which came into effect from 16/03/1995. Several show cause notices were issued to the assessee for the alleged suppression covering the period commencing from October 1994. The first show cause notice is dated 20/10/1999. Prior to the issuance of show cause notice, investigation by the Divisional Preventive Officers, at the appellant’s factory was conducted which unravelled the diversion of electricity to other units and for housing colony. We are of the view that since the assessee disclosed the transfer of electricity to the sister units and housing colony only after the inspection of its factory premise, an element of intentional suppression of diversion is apparent and therefore, there is no error in invoking the extended period of limitation. The Commissioner of Central Excise and Customs vs. Reliance Industries Ltd (2023) 8 Centax 96 (SC) relied by the appellants on facts is different and distinguishable.

Accordingly, this question is answered in affirmative in favour of the Department.

27. The substantial questions of law in C.M.A.No.882 of 2015 answered as below:-

                   (i). Whether CENVAT credit taken on fuel (LSHS) used for generation of electricity used for the manufacture of dutiable final products, can be denied to the extent that the same is consumed in the generation of the surplus electricity and steam cleared to sister units located adjacent to the factory and used in another factory for the same manufacturer or in the housing colony of the Company?

                   In view of the definition of ‘factory’ in Section 2(e) of the Central Excise Act, 1944 and the judgement of the Hon’ble Karnataka High Court in Commissioner of Central Excise & Service Tax, LTU, Bangalore vs. Biocon Ltd (2014) 309 E.L.T. 66 (Kar), sharing of electricity generated from one unit of the assessee to other units for manufacturing final product will not disentitle the assessee from claiming input credits.

                   The question answered in favour of the assessee.

                   (ii). Whether the Tribunal is right in remanding the matter only for the purpose of quantification of the credit relatable to the LSHS consumed in the electricity and steam transferred to sister units located adjacent to the factory, proceeding on the premise that proportionate credit was reversible, contrary to the ruling of the coordinate bench of the tribunal in the case of diamond cements reported in 2004 (160 )E.L.T 34 (T)?

                   In view of the judgement of the Hon’ble Supreme court in Collector of Central Excise -vs- Solaris Chemtech Limited: 2007(214) E.L.T. 481 (SC), electricity diverted for purpose other than manufacturing the final product, the assessee cannot claim input credit. Therefore, the decision in Diamond Cement is no more good law. To determine the duty payable on the input used for generation of the electricity diverted for the lighting of housing colony of workers, reassessment is inevitable. Therefore, remand of the matter for the said limited purpose has to be upheld.

28. The answer to the substantial questions of law in both the appeals leads to the conclusion that the appeals are partly allowed with modification to the impugned order of remand by the CESTAT (second respondent herein) as below:-

                   The matters are remanded back to the Original Authority to restrict the determination of duty for the input availed for electricity generated and used for the lighting of the staff housing colony, but not for manufacturing final product in the other units of the assessee factory.

29. Based on the records furnished by the assessee, the Original Authority shall fix the duty after considering the credit applicable for the electricity used to manufacture the final products in both the Plants II and III and for the balance surplus used for lighting the housing colony which is not within the expression ‘manufacture of product’, fix the duty leviable. The revised Order in Original shall be passed preferably within 90 days from the date of receipt of the order.

Accordingly, the substantial questions of law framed are answered.

30. Accordingly, these Civil Miscellaneous Appeals are disposed in the above terms. No order as to costs. Consequently, connected Miscellaneous Petitions are closed.