2009 (11) TMI 648 - HC - Central Excise

Whether the Tribunal was justified in allowing Cenvat Credit to the respondent for capital goods used in the power plant when major portion of the electricity generated was sold to the MPEB Held that - major portion of the generated electricity from the power plant was sold to MPEB through its grid, however, it cannot be said that capital goods were exclusively used in manufacture of exempted goods (electricity) sold to MPEB as a portion of electricity generated in the power plant is also utilized in manufacture of final products sponge iron of the respondent factory, which is leviable to the excise duty and is not exempted goods, Tribunal was justified to hold that respondent was entitled for modvat credit against the capital goods used in the captive power plant of the respondent and Rule 6(4) of the Rules was no bar for denying Cenvat Credit, appeal dismissed

Summary

Issues:
1. Violation of Rule 2(h), 2(g), and 6(4) of the Cenvat Credit Rules, 2002 regarding the allowance of Cenvat Credit on electricity generated captively but not utilized through distribution lines of M.P.E.B.
2. Error in allowing credit on impugned goods in toto instead of proportionate credit on electricity consumed within the factory out of total electricity generated captively.

Analysis:
1. The appellant appealed against the order disallowing Cenvat Credit on parts used in boilers and turbines of their thermal power plant. The lower authority disallowed the credit due to supplying electricity to a sister concern outside the factory premises. On appeal, the Commissioner allowed credit for electricity used within the factory. The Tribunal, relying on precedent, allowed the appeal, stating that denying modvat credit was unwarranted as the electricity generated was not exclusively for exempted goods.

2. The appellant argued that Cenvat Credit cannot be allowed on capital goods exclusively used for exempted goods, citing Rule 6(4) of the Cenvat Credit Rules, 2002. They contended that as a major portion of electricity was supplied to the sister concern, the credit should be denied. The respondent argued that as surplus electricity was sold outside and not exclusively used for exempted goods, credit should be allowed. The Tribunal held that the capital goods were not exclusively used for exempted goods, thus justifying the credit.

3. The Court noted that the respondent's factory produced sponge iron, a product leviable to excise duty, using a thermal power plant with 3 boilers. The generated electricity was partly used in the factory and partly supplied outside. Rule 6(4) prohibits Cenvat Credit on capital goods exclusively used for exempted goods, but in this case, the capital goods were not exclusively used for exempted goods, as some electricity was used for manufacturing taxable products.

4. The Tribunal's decision to allow Cenvat Credit to the respondent for capital goods used in the power plant was upheld. The Court found that Rule 6(4) did not bar the credit, as the capital goods were not exclusively used for exempted goods. Therefore, the appeal was dismissed as lacking substance, with no substantial question of law for adjudication.