Excise Duty Payable Once Electricity Generated Out Of Duty-Free Furnace Oil Moved From EOU To DTA unit: CESTAT

The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the Excise Duty Payable Once Electricity Generated Out Of Duty-Free Furnace Oil Moved From Export Oriented Unit (EOU) to Domestic Tariff Area (DTA) unit. The bench of P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member) has observed that once SKS Mills became a DTA unit, electricity generated out of duty-free furnace oil supplied to it could not be treated as captive use within the EOU framework, irrespective of whether the yarn produced was eventually used in export goods. The supply was not a mere internal job work transfer in the legal sense contemplated under the EOU scheme but was a supply to a DTA unit attracting duty liability under the third proviso to paragraph 7 of Notification No. 22/2003-CE read with paragraph 6.16 of the Hand Book of Procedures. The case arose from proceedings initiated by the Commissioner of GST and Central Excise, Coimbatore, against Blue Mount Textiles, which was functioning as a 100% Export Oriented Unit (EOU) during the period from October 1, 2010 to June 23, 2011. The company had procured furnace oil without payment of duty under Notification No. 22/2003-CE for use in its captive power plant. While part of the electricity generated was consumed within the EOU, a portion was supplied to its sister division, SKS Mills. However, SKS Mills had exited the EOU scheme in October 2010 and transitioned into a Domestic Tariff Area (DTA) unit under a Final Exit Order issued by the Development Commissioner. The Department took the view that electricity generated from duty-free furnace oil and supplied to a DTA unit attracted duty liability under the third proviso to Paragraph 7 of Notification No. 22/2003-CE read with Paragraph 6.16 of the Hand Book of Procedures. A show cause notice was issued in November 2015 proposing recovery of ₹14,73,571, along with interest and equal penalty under Section 11AC. The adjudicating authority confirmed the demand, and the Commissioner (Appeals) upheld the order, prompting the company to approach the Tribunal. Before the Bench comprising Judicial Member P. Dinesha and Technical Member Vasa Seshagiri Rao, the appellant argued that Blue Mount Textiles and SKS Mills were divisions of the same company and part of an integrated manufacturing chain for terry towel exports. The electricity supplied, it contended, was used only for job work activities and did not constitute a commercial sale or independent transaction. The company further maintained that the exemption notification applied only to cases involving sale of surplus power and not to internal transfers for job work within the same corporate entity. It relied on High Court rulings in CCE v. Biocon Ltd. and CCE v. Jindal Polyester to argue that denial of benefit was unwarranted in the absence of an express statutory prohibition. It also asserted that there was no revenue loss, as the ultimate products were exported, and that the extended period of limitation was not invokable since the Department was aware of the job work arrangement and the exit of SKS Mills from EOU status. The department countered that the exemption under Notification No. 22/2003-CE was conditional and had to be strictly construed. Once SKS Mills became a DTA unit, any electricity supplied to it fell squarely within the ambit of supply to DTA, attracting duty equivalent to that foregone on the raw materials used to generate such power. The Department emphasized that no fresh permission was obtained after SKS Mills exited the EOU scheme and that the continued supply without payment of duty constituted a violation of the notification’s conditions. The Tribunal held that exemption notifications must be interpreted strictly, and eligibility conditions must be complied with in letter and spirit. It noted that the EOU scheme operates on a unit-wise basis, not company-wise, and that once SKS Mills lost its EOU status, electricity supplied to it could no longer be treated as transfer between EOUs. The Bench clarified that while electricity itself is not an excisable commodity, the liability arose from breach of the conditions attached to the exemption notification governing duty-free procurement of inputs. Rejecting the appellant’s reliance on CENVAT credit jurisprudence, the Tribunal observed that the cited High Court decisions pertained to interpretation of “input” and “factory” under the CENVAT Credit Rules and were not applicable to conditional exemptions under the EOU scheme. The Bench further held that revenue neutrality or eventual export of goods did not cure non-compliance with mandatory conditions of the notification. Case Details Case Title: M/s. Blue Mount Textiles Versus Commissioner of GST and Central Excise Citation: JURISHOUR-196-CESTAT-2026(Chen) Case No.: Excise Appeal No. 40292 of 2018 Date: 03.03.2026 Counsel For Appellant: S. Durairaj, Advocate Counsel For Respondent: Rajini Menon, Authorised Representative Click Here To Read Order Read More: Charitable Trusts Move Bombay High Court Against I-T Dept’s ‘Irrevocability’ Clause Demand

Excise Duty Payable Once Electricity Generated Out Of Duty-Free Furnace Oil Moved From EOU To DTA unit: CESTAT

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