2006 (2) TMI 452 - AT - Central Excise

Summary

Issues:
1. Confirmation of demand under Rule 12 of Cenvat Credit Rules, 2001 and penalty imposition under Rule 13(2) read with Section 11AC of the Central Excise Act, 1944.
2. Allegation of availing credit on inputs for manufacturing electricity sold to outside party in violation of Rule 57AD of Central Excise Rules, 1944.
3. Interpretation of Rule 57AD in relation to electricity as neither excisable nor exempted goods.
4. Application of Notification No. 11/95 on inputs used for generation of electricity.
5. Comparison with previous judgments on diversion of excess power for captive consumption and export.

Analysis:

1. The case involved the confirmation of a demand under Rule 12 of Cenvat Credit Rules, 2001, and the imposition of a penalty under Rule 13(2) read with Section 11AC of the Central Excise Act, 1944. The Commissioner (Appeals) had upheld the order, confirming the demand of Rs. 29,931/- and imposing an equal penalty on the appellants. Additionally, interest as per Section 11AB of the Central Excise Act was ordered to be paid.

2. The main issue revolved around the allegation that the appellants had availed credit on inputs for manufacturing electricity sold to an outside party in violation of Rule 57AD of the erstwhile Central Excise Rules, 1944. The appellants argued that electricity is neither an exempted nor an excisable good, thus the provisions of Rule 57AD should not be applicable in their case. They relied on previous judgments and interpretations to support their claim.

3. The Tribunal analyzed the interpretation of Rule 57AD in relation to electricity, noting that electricity is neither an excisable nor an exempted good as defined under the Central Excise Rules. It was highlighted that the majority of the electricity produced by the appellants was used for their own captive consumption, with only a small portion being sent to the grid as excess power. The Tribunal emphasized that electricity, by its nature, cannot be stored and must be consumed instantaneously.

4. The Tribunal further considered the application of Notification No. 11/95, which allowed for the eligibility of inputs used for the generation of electricity for Modvat credit. The appellants argued that they had not violated any conditions of the notification as only a small percentage of electricity was transferred to the grid, while the rest was used for captive consumption.

5. In reaching its decision, the Tribunal compared the present case with previous judgments on the diversion of excess power for captive consumption and export. It was noted that the absence of a restrictive clause in the notification referred to by the appellants supported their argument that they had not violated any conditions. The Tribunal ultimately found that the order passed by the Commissioner (Appeals) was not proper and legal, setting it aside and allowing the appeal filed by the appellants.