2010 (9) TMI 322 - HC - Central Excise

Cenvat credit Capital goods credit on component, spare parts and accessories denied on the ground that electricity generated not fully utilized within factory and part electricity wheeled out - user test is satisfied and the question whether an item falls within the purview of capital goods would depend upon the user Held that - parts, accessories/spares of CPP installed in the factory premises would fall within the ambit of capital goods as contemplated under Rule 57-Q as user of electricity in the production of sponge iron is an integral part of manufacturing process - Cenvat credit on parts, accessories/spares cannot be denied to the assessee on the ground that substantial portion of the electricity generated from CPP has been wheeled out to its sister concern Appeal dismissed

Summary

Issues Involved:
1. Misinterpretation and inappropriate application of the earlier decision of the Tribunal.
2. Requirement for the respondent to pay irregularly availed Modvat/Cenvat credit on inputs used in the manufacture of electricity sold to outside parties.

Issue-Wise Detailed Analysis:

1. Misinterpretation and Inappropriate Application of the Earlier Decision of the Tribunal:

The primary issue was whether the Appellate Tribunal erred in misinterpreting and inappropriately applying its earlier decision to the present case. The Tribunal had to determine if the facts of the current case were sufficiently different to warrant a different interpretation. The Tribunal reviewed the arguments presented by the assessee, which emphasized that components like boilers, turbines, and generators were integral to the Captive Thermal Power Plant (CPP) and essential for manufacturing sponge iron. The Tribunal concluded that these components fell under the definition of "capital goods" as per Rule 57-Q, and thus, the assessee was entitled to Modvat credit. The Tribunal also noted that the revenue had conceded that credit could be taken for capital goods used in the manufacture of other capital goods for final product production.

2. Requirement for the Respondent to Pay Irregularly Availed Modvat/Cenvat Credit:

The second issue was whether the respondent was required to pay the irregularly availed Modvat/Cenvat credit on inputs used in manufacturing electricity sold to outside parties. The Commissioner of Central Excise issued multiple show cause notices to recover the duty, arguing that the electricity generated was not fully utilized within the factory for manufacturing sponge iron but was also transmitted to another factory. The Tribunal found that there was no requirement under Rule 57-Q that capital goods themselves must be dutiable for credit to be taken. Furthermore, the Tribunal rejected the revenue's argument that sub-rule (2) of Rule 57-R, which allowed credit for capital goods used for generating electricity for manufacturing excisable goods, was only in force until 22-7-95. The Tribunal held that the rule was in force beyond that date, allowing the respondent to avail Modvat credit.

Additional Relevant Judgments and Principles:

- The Tribunal referenced several Supreme Court decisions to support its findings, including *Commissioner of Central Excise, Coimbatore v. Jawahar Mills Ltd.* and *Collector of Central Excise v. Solaris Chemtech Limited*. These cases established that capital goods used in generating electricity for manufacturing final products qualify for Modvat credit.
- In *Maruti Suzuki Ltd. v. Commissioner of Central Excise, Delhi-III*, the Supreme Court held that Cenvat credit is not available for excess electricity sold outside the factory. However, the Tribunal distinguished this case, noting that the respondent did not claim Cenvat credit on inputs used for generating electricity sold outside.
- The Tribunal also considered the "user test" from *Rajasthan Spinning & Weaving Mills Ltd.*, which determines whether goods qualify as capital goods based on their use in manufacturing the final product.

Conclusion:

The Tribunal concluded that the parts, accessories, and spares of the CPP installed in the factory premises qualified as "capital goods" under Rule 57-Q. The Tribunal rejected the revenue's argument that substantial electricity was wheeled out to a sister concern, noting that the principles from *Maruti Suzuki Ltd.* did not apply as the respondent did not claim Cenvat credit on inputs used for generating electricity sold outside. The Tribunal decided the substantial questions of law in favor of the assessee, confirming the order of the Commissioner and dismissing the appeal.