Excise exemption for captive power

FROM THE COURTS

The Supreme Court has held that companies which consume electricity from their captive power units need not pay excise duty to the government.

A Bench comprising Justice SH Kapadia and Justice B Sudershan Reddy while upholding the Customs, Excise and Service Tax Appellate Tribunal's (CESTAT's) order, said companies were not liable to pay excise duty on electricity generated for their captive consumption.

The ruling came on an appeal filed by the Commissioner of Central Excise, Chennai, asking state-run Chennai Petroleum Corporation Ltd to pay arrears of duty on naphtha, sulphur and electricity on the ground that they were not petroleum products.

"This is because electricity generated in the (CPCL) refinery is used to operate various processes within the refinery. In the refinery, there exists large number of processes. Each process generates an item and, therefore, every refinery is given the status of deemed warehouse," the judges said.

The Bench also exempted naphtha and sulphur from duty on the ground that they were petroleum products made from crude oil.

However, the court returned the matter to the adjudicating authority for fresh determination of duty for the electricity sold by the CPCL refinery to the Tamil Nadu Electricity Board.

According to it, the department was right in demanding duty from the public sector company on the portion of the generated electricity sold to the Tamil Nadu Electricity Board.

The public sector utility has been manufacturing naphtha, sulphur and electricity from crude oil since 1969 and used refinery fuel oil as fuel for generation of electricity.

Electricity boards' plea dismissed

State electricity boards lost their legal battle against the Central Electricity Regulation Commission and the National Thermal Power Corporation Ltd when the Supreme Court dismissed their appeals against the mode of calculating the inflation rate for "operation and maintenance expenses".

The NTPC's stand was that the revision of operation and maintenance expenses should be undertaken on the notional 6 per cent escalation factor, based on the actual escalation between 4.8 per cent and 7.2 per cent.

In case the deviation went below 4.8 per cent or above 7.2 per cent, it would have to be adjusted on the basis of the actual escalation factor. On the other hand, the electricity boards argued that the escalation factor should be based on the 6 per cent norm.

The tribunal held that deviations beyond the terminal limits of 4.8 per cent to 7.2 per cent were required to be adjusted on the basis of the actual escalation factor. The electricity boards of Tamil Nadu, Uttar Pradesh and Rajathan appealed to the Supreme Court.

After interpreting Regulation 2.7(d)(iv) of the Central Electricity Regulatory Commission, a Bench consisting of Justice HK Sema and Justice VS Sirpurkar dismissed their appeals.