TATA Refractories Ltd. Vs Commissioner of Central Excise (Madras High Court)
The Madras High Court considered an appeal against the Final Order dated 11 March 2011 passed by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Chennai. The dispute concerned the eligibility of CENVAT credit on furnace oil used during the period from 1 March 2001 to 28 February 2002 for manufacturing Dead Burnt Magnesite (DBM), a nil-rated intermediate product.
The assessee manufactured DBM at its Salem unit by burning raw magnesite in a rotary kiln fuelled by furnace oil. Part of the DBM was used at the Salem unit to manufacture monolithic (mortars), while the remaining DBM was transferred to the Belpahar unit in Odisha where it was used to manufacture refractory mortars/ramming mass and refractory bricks. The final products manufactured at both locations were chargeable to excise duty at 16%.
The Department issued a show cause notice alleging that CENVAT credit on furnace oil was inadmissible under Rule 57AD(1) of the erstwhile Central Excise Rules, 1944 and Rule 6 of the CENVAT Credit Rules, 2001 because furnace oil had been used in manufacturing DBM, which was chargeable to nil rate of duty. According to the Department, Rule 57AD(2) provided an exception only for non-fuel inputs, making the exception unavailable for furnace oil. It proposed recovery of Rs.52,51,685 along with interest and penalty.
