2026-VIL-658-MAD-CE
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CENTRAL EXCISE High Court Cases

Central Excise – Eligibility to CENVAT Input Credit on Fuel Used in Manufacturing Intermediate Non-Dutiable Products - Appellant, a manufacturer of refractory products, manufactures Dead Burnt Magnesite (DBM), a nil-rated intermediate product at its Salem unit using furnace oil as fuel. The DBM is then stock-transferred to Appellant's Belpahar unit where it is used to manufacture dutiable final products such as refractory mortars, ramming mass and refractory bricks - Department denied CENVAT input credit on furnace oil claiming that since DBM is a nil-rated final good cleared from Salem unit, no input credit can be claimed under Rule 57AD(1) which prohibits input credit on exempted or nil-rated goods - Whether CENVAT credit taken on fuel is required to be reversed when the exempted intermediate product is used for manufacture of dutiable goods that are ultimately cleared only on payment of Central Excise Duty – HELD - The DBM is an intermediary product and not a final product for the purpose of denying input credit, as the actual final products are the dutiable goods manufactured at Belpahar unit. The principle established in Escorts Limited case applies that where an intermediate product chargeable at nil-rate of duty comes into existence, credit is allowed so long as duty is paid on the final product - The term "within the factory of production" should be interpreted liberally to include another unit of the same manufacturer where both units are commonly owned with unified balance sheets, as a strict literal interpretation would create artificial distinctions contrary to the object of MODVAT and CENVAT schemes which aim to prevent cascading effect of taxes - Since the final products are excisable in nature, the bar under Rule 57AD(1) applicable only to exempted or nil-rated final goods does not apply, and the Appellant is entitled to claim CENVAT input credit on furnace oil - The Tribunal's order is set aside with the Commissioner of Central Excise (Appeals) order being restored in favour of the Appellant – The appeal is allowed - Stock Transfer or Sale - Whether the clearance of D.B.M. as such from Salem unit to Belpahar unit is a stock-transfer or sale – HELD – There was no consideration of any sort involved in the clearance of D.B.M. from Salem unit. Goods were merely shifted from one unit of the manufacturer to another unit of the very same manufacturer. Admittedly, the owners of the units are one and the same and the balance sheet is common for both. There is no sign of any trade whatsoever. Even in the clearance bills, it has been specified as stock-transfers. Anything contrary, the same has to be brought up by the Department. Hence, it is merely a stock-transfer, and not sale as alleged by the Department - Scope of expression "within the factory of production" - Whether input credit can be claimed when input utilised in one location and the final dutiable product is manufacture elsewhere – HELD - If the expression "within the factory of production" is interpreted strictly and narrowly to mean that every stage of manufacture must take place within the same factory premises, anomalous consequences would follow - When both the concerned units are owned by the same manufacturer and have a common balance sheet, if CENVAT input credit is to be denied on the mere ground that physical location of utilisation of the input and the physical location of manufacture of the final goods are different, then it would be detrimental to the very object of MODVAT and CENVAT Scheme which is to remove all the cascading effect of taxes by allowing manufacturers and service providers to claim credit for duties paid on inputs against their final output excise duty liability. Such a result would make the entitlement of credit depend not on the use of the input or its nexus with the final product, but merely on the physical distance between the very same manufacturer's facilities and also introduce an artificial distinction having no nexus with the object of the MODVAT/CENVAT scheme. Moreover, no prejudice or loss of due revenue would be caused to the Dept by following the wider interpretation. Therefore, the phrase "within the factory of production" is to be given a wider interpretation to include TRL's Belpahar unit as well and consequently, CENVAT input credit cannot be denied for the fuel - furnace oil on the ground that it was utilised in TRL's Salem unit while the final product was produced in its Belpahar unit.
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