CESTAT Kolkata: No Rule 6 Liability on Electricity Generated from Inevitable By-Product Coke Oven Gas
Overview of the Case
The CESTAT Kolkata, in the matter of Bengal Energy Ltd. Vs Commr. of CGST & Central Excise, delivered a significant ruling concerning the applicability of Rule 6 of the CENVAT Credit Rules, 2004 to electricity generated from coke oven waste gas. The Tribunal categorically held that where a by-product emerges as an unavoidable consequence of a manufacturing process — without any deliberate use of inputs for its generation — the restrictions under Rule 6(3) of the CENVAT Credit Rules, 2004 cannot be invoked against the assessee.
Background and Material Facts
Bengal Energy Ltd. (hereinafter referred to as BEL or the assessee) is engaged in the manufacture of Hard Coke of Coal (Coke), for which Coking Coal is deployed as the principal raw material input. The production process involves subjecting Coking Coal to extremely high temperatures inside coke ovens, which converts it into the final product — Coke. As an inherent and unavoidable consequence of this thermochemical process, a large volume of hot flue gas — reaching temperatures between 950 and 1050 degrees Celsius — is released. This gas, commonly referred to as coke oven waste gas, is generated entirely without intent and cannot be prevented during normal production operations.
Rather than releasing this waste gas into the atmosphere, BEL channelled it into an integrated captive power plant to generate electricity. A portion of this electricity was consumed captively within the facility, while the remainder was supplied to the West Bengal State Electricity Distribution Company Ltd.
How the Dispute Arose
During an excise audit, the Department observed that BEL was simultaneously manufacturing:
- Dutiable goods — Coke, and
- Exempted goods — Electricity
The Department further noted that BEL had not maintained separate accounts for the receipt, consumption, and inventory of its input — Coking Coal — as mandated under Rule 6(2) of the CENVAT Credit Rules, 2004. On this basis, the Department alleged that BEL was liable to pay an amount equal to 6% of the value of exempted goods (electricity) under Rule 6(3)(i) of the CENVAT Credit Rules, 2004.
Three Show Cause Notices (SCNs) were issued:
| SCN | Period Covered | Demand Raised |
|---|---|---|
| First SCN | April 2011 to February 2016 | Rs. 11,60,62,456 |
| Second SCN | March 2016 to December 2016 | Rs. 2,01,62,182 |
| Third SCN | March 2016 to June 2017 | Rs. 1,07,37,188 |
Procedural Journey
The adjudicating authority, through its Order-in-Original dated 29.11.2017, dropped the entire demand under the first SCN amounting to Rs. 11,60,62,456 and partially dropped Rs. 49,88,771 out of the demand raised under the second SCN. However, a sum of Rs. 1,51,73,411 under the second SCN was confirmed against the assessee.
For the third SCN, a separate Order-in-Original dated 31.05.2019 confirmed the demand. On appeal before the Commissioner (Appeals), the said order was set aside vide Order-in-Appeal dated 21.12.2020.
This gave rise to three separate appeals before CESTAT Kolkata:
- Appeal by BEL — Against confirmation of Rs. 1,51,73,411
- Appeal by Revenue — Against dropping of Rs. 11,60,62,456 under the first SCN
- Appeal by Revenue — Against the Commissioner (Appeals) order setting aside the demand of Rs. 1,07,37,188
All three appeals were clubbed and heard together since they involved an identical issue relating to the same assessee.
Legal Issues Framed
The Tribunal identified and examined the following core legal questions: