Judgment:
1. These are three appeals filed by the present appellants against the order of the Commissioner of Central Excise, Belgaum. The issue relates to dis-allowance of Modvat credit on Low Sulphur Heavy Stock (LSHS) and furnace oil used in DG Sets for generation of electricity which in turn is used by the appellants in electrolysis process for manufacturing of caustic soda.
2. By the impugned order Modvat credit taken by the appellants on LSHS and Furnace oil during the period April, 1994 to 15 March 1995 amounting to Rs. 1,02,44,698.07 was dis-allowed. The Collector held that the said goods could not be treated as inputs in terms of Rule 57A since the product obtained was electricity which is energy and, therefore, not goods nor an intermediate product for purposes of Rule 57D (2) of the Central Excise Rules, 1944. Further, the power generated was not exclusively used for the production of the final product but in other parts of the plant for lighting, running motors used for fabrication works and also for other purposes. Collector observed that the inputs in question were used to produce electricity using diesal generating sets installed by the appellants which was used as an alternative source of power to the main power supplied by the State Electricity Board. The Collector held that after the issue of Notification No. 11/95-C.E. (N.T.), dated 16-3-1995 the word "input" used in the Explanation to Rule 57A included inputs used for generation of electricity used within the factory for manufacture of final products or for any other purposes. Prior to the issue of Notification No. 11/95 no input used for the purpose of generating electricity in DG Sets was eligible to be considered as input for Modvat purposes.
3. Arguing for the appellants Shri A. Madhav Rao, ld. Counsel explained that from 1-3-1994 petroleum products had been brought within the purview of Rule 57A as furnace oil falls within sub-heading 2710.50 and LSHS under 2713.30 of the Schedule to the CETA, 1985 and, therefore, there cannot be any doubt as to whether these inputs were covered for availment of Modvat credit in terms of Rule 57A read with Notification issued during the period, especially Notification No. 5/94-C.E., dated 1-3-1994. He submitted that the admitted position was furnace oil and LSHS were used in DG Sets within the factory for generation of electricity and the electricity so generated was mainly being consumed in the electrolysis product for making caustic soda which was an intermediate product used in or in relation to the manufacture of their final product. Further, electricity was itself 'goods' under erstwhile Tariff Item HE and under Sub-heading 27.16 under the New Tariff. It was not also in dispute that after amendment of Rule 57A with effect from 16-3-1995 inputs used for generation of electricity used within the factory of production or for any other purposes had been specifically included in the explanation to Rule 57A, as per Notification No.11/95-C.E. (N.T.). Therefore, availment of Modvat credit on such inputs after 16-3-1995 was not in dispute irrespective of whether such electricity generated is required to be used as an input in the manufacture of the goods or otherwise. He also drew attention to the amendment to Rule 57D (2) incorporating a Proviso to the said Rule specifically providing that credit shall be allowed in respect of inputs used for generation of electricity used within the factory of production for manufacture of final products or for any other purposes.
According to the ld. Counsel the mere fact that the amendments to Rule 57A and 57D specifically permitted the availment of credit for inputs for generation of electricity did not derogate the eligibility for claiming credit on inputs used for generating electricity since electricity was admittedly also used as an input/intermediate product in or in relation to the manufacture of the final product. Ld. Counsel in this connection referred to the recent decisions of the Tribunal allowing Modvat credit on furnace oil used in the generation of electricity and its subsequent use in the manufacture of the final product. He referred to the Final Order No. A/864/97-NB dated 12-8-1997 in Jaypee Rewa Cement v. Collector of Central Excise, Raipur [1997 (95) E.L.T. 429 (Tribunal)] in which the Tribunal had referred to the decision in Indian Oil Corporation v. Collector of Central Excise, -1985 (19) E.L.T. 145 wherein fuel used for generation of electricity will also get the exemption under Notification No. 352/77-C.E. In subsequent cases also furnace oil used in the generation of electricity which is further used in the manufacture of final products was allowed.
He referred to the case of Collector of Central Excise v. Batliboi & Co. -1997 (89) E.L.T. 696 and Rathi Alloys and Steel Limited v.Collector of Central Excise 4. Countering the argument of the ld. Counsel for the appellants Shri D.K. Nayyar, ld. JDR drew attention to the decision of the Tribunal in Ferro Alloys Corporation v. Collector of Central Excise, reported in 1997 (20) RLT 778 in which the South Regional Bench had held that LSHS oil and furnace oil used as fuel oil for captive generation of electricity used in the production of the final product will not be eligible for Modvat credit as an input under Rule 57A prior to or even after the amendment of Rule 57A in 1995 as the same cannot be said to have been used in or in relation to the manufacture of the final product. He drew attention to Paragraph 4 of the said order in which the question has been considered at length. The Tribunal had held in the said case that processing carried out at an interior stage, i.e.
for production of raw-materials which may be fed into a particular manufacturing stream cannot be taken to be a part of the manufacturing process of the finished product unless it could be shown that integrality of the operation by virtue of technical requirement was there. The ld. DR, therefore, submitted that since there are conflicting decisions of the various Benches of the Tribunal on the same question, this may be referred to a Larger Bench of the Tribunal.
5. Heard the submissions of both the parties. We observe that the decisions of the various Benches of the Tribunal on the question of admissibil-ity of fuel oil used for generating electricity as an input for purposes of Modvat credit under Rule 57A has not been consistent as would be seen from the discussions above.
6. Having regard to this position, we agree with the prayer of the Departmental Representative to refer the question to a Larger Bench of this Tribunal.
7. Accordingly, we direct the Registry to place the matter before the Hon'ble President.