Case Note & Summary
The Commissioner of Central Excise, Salem filed a reference case under Section 35H(1) of the Central Excise Act, 1944, seeking an answer to a question of law regarding the reversal of Cenvat credit on furnace oil used in the manufacture of exempted goods. The respondent, M/s Tata Refractories Ltd (TRL), manufactured both exempted goods (Dead Burnt Magnesite, DBM) and dutiable goods (Refractory Motors, Ramming mass). DBM was used captively in the manufacture of dutiable goods and also cleared on stock transfer without sale. The Department contended that credit availed on furnace oil used for DBM should be reversed under Rule 57CC, while TRL argued that since no sale was involved, reversal was not required under Rule 57CC(1) and 57CC(8). The Tribunal upheld TRL's view, following the Bombay High Court decision in Ballarpur Industries Ltd. However, the Supreme Court reversed that decision in 2007 (8) SCC 89, holding that reversal is required even for captive consumption or stock transfer. The High Court, after considering the submissions and the Supreme Court's ruling, answered the reference in the negative, holding that the Tribunal was not correct. The Court directed that the credit must be reversed, and the matter be remanded to the adjudicating authority for quantification and recovery.
Headnote
A) Central Excise - Cenvat Credit - Reversal for Exempted Goods - Rule 57CC of Central Excise Rules, 1944 - The issue was whether credit availed on furnace oil used in manufacture of exempted goods (DBM) need not be reversed when no sale is involved, as per Rule 57CC(1) and 57CC(8). The Court held that the question is answered in the negative, i.e., the Tribunal was not correct in upholding that reversal is not required. The credit must be reversed even if no sale is involved, as the rule applies to all clearances of exempted goods. (Paras 1-15)
B) Central Excise - Precedent - Supreme Court Decision - Ballarpur Industries Ltd. - The Court noted that the Tribunal had followed the Bombay High Court decision in Ballarpur Industries Ltd., which was later reversed by the Supreme Court in 2007 (8) SCC 89. The Supreme Court held that reversal of credit is required even for captive consumption or stock transfer of exempted goods. (Paras 3, 15)
Issue of Consideration
Whether credit availed on furnace oil used in manufacture of exempted goods (DBM) need not be reversed when no sale is involved, as per erstwhile Rule 57CC(1) and 57CC(8) of Central Excise Rules, 1944.
Final Decision
The reference is answered in the negative, i.e., the Tribunal was not correct in upholding that reversal of credit is not required. The credit availed on furnace oil used for manufacture of exempted goods must be reversed. The matter is remanded to the adjudicating authority for quantification and recovery.
Law Points
- Cenvat credit reversal
- exempted goods
- furnace oil
- Rule 57CC
- no sale involved
- stock transfer
- captive consumption
Case Details
2026 LawText (MAD) (06) 172
Dr. Justice G.Jayachandran, Justice R.Sakthivel
Mr.M.Santhanaraman (for petitioner), Mr.Raghavan Ramabadhran (for respondents)
Commissioner of Central Excise, Salem
Customs, Excise & Service Tax Appellate Tribunal, South Zonal Bench, Chennai; M/s Tata Refractories Ltd, Karuppur, Salem
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Nature of Litigation
Reference case under Section 35H(1) of Central Excise Act, 1944 seeking opinion on question of law regarding reversal of Cenvat credit.
Remedy Sought
The Department sought an answer to the question whether credit availed on furnace oil used for exempted goods need not be reversed when no sale is involved.
Filing Reason
The Department was aggrieved by the Tribunal's order upholding that reversal of credit was not required under Rule 57CC(1) and 57CC(8) as no sale was involved.
Previous Decisions
The Tribunal had followed the Bombay High Court decision in Ballarpur Industries Ltd., which was later reversed by the Supreme Court in 2007 (8) SCC 89.
Issues
Whether credit availed on furnace oil used in manufacture of exempted goods (DBM) need not be reversed when no sale is involved, as per erstwhile Rule 57CC(1) and 57CC(8) of Central Excise Rules, 1944.
Submissions/Arguments
Petitioner (Department): The Tribunal erred in following the Bombay High Court decision which was reversed by the Supreme Court. Reversal is required even if no sale is involved.
Respondents: No specific arguments recorded in the judgment.
Ratio Decidendi
Under Rule 57CC of Central Excise Rules, 1944, reversal of credit is required for inputs used in the manufacture of exempted goods, regardless of whether the goods are sold or transferred without sale. The Supreme Court's decision in Ballarpur Industries Ltd. (2007 (8) SCC 89) establishes that the rule applies to all clearances of exempted goods, including captive consumption and stock transfer.
Judgment Excerpts
This reference case arises out of the Reference Case Petition No.5 of 2005 filed by 'the Commissioner of Central Excise, Salem' under Section 35 H (1) of the Central Excise Act, 1944.
The following question of law has been raised: 'Whether the Hon'ble CEGAT, Chennai is legal and correct in upholding the impugned order that the credit availed in respect of the furnace oil used in the factory for the manufacture of DBM, an exempted goods, need not be reversed, due to the fact that no sale is involved in their transactions and as per erstwhile Rule 57CC(1) & 57CC(8) reversal of credit is not required?'
The Tribunal had followed the decision of the Bombay High Court in M/s.Ballarpur Industries Ltd. vs. Commissioner of Central Excise, Nagpur (2001 (138) ELT 94 (T-Mumbai)), but, that judgment has been reversed by the Supreme Court in 2007 (8) SCC 89.
Procedural History
The Department filed Reference Case Petition No.5 of 2005 before the High Court under Section 35H(1) of Central Excise Act, 1944. On April 15, 2010, the High Court directed the Tribunal to state a case and refer it. Pursuant to that order, the Tribunal submitted a Statement of Case. The High Court then heard the reference and delivered judgment on June 25, 2026.
Acts & Sections
- Central Excise Act, 1944: 35H(1)
- Central Excise Rules, 1944: 57CC, 57CC(1), 57CC(8)
- Central Excise Tariff Act, 1985: Chapter 25, Chapter 38
