2011 (7) TMI 971 - HC - Central Excise

Whether the finding of the Tribunal that where one unit generates power and the neighbouring unit purchases the same, the inputs used for generation of power would be entitled for modvat credit in respect of the second unit which purchases power provided there is evidence of an amount equal to the amount of duty on the inputs used in generation of power and amount equal to duty should be considered as duty for availing cenvat credit, is perverse and arbitrary - held that - though the generation of electricity is for captive use, if the electricity manufacture is found to be excess, the same is permitted to sell under the notification dated 20-2-2003 - It is clear from the above said clause that EOU unit which has established captive power plant can sell electricity found to be excessive subject to the condition mentioned there on and to sell surplus power in Domestic Tariff Area on payment of amount equal to the duty leviable on consumables and raw materials but for the exemption thereon, used for generation of each unit of power so sold in the domestic Tariff Area on the basis of approval by the Board of Approval - the order passed by the Tribunal is justified and the finding that the respondent is entitled to cenvat credit and the same could not have been recalled, does not suffer form any perversity, arbitrariness - Appeal is dismissed

Issues:
1. Interpretation of modvat credit eligibility for power generation units.
2. Validity of cenvat credit availed by the respondent.
3. Obligation to pay duty for sale of excess power to Domestic Tariff Area (DTA).
4. Compliance with conditions of the notification for selling excess power.
5. Application of the law laid down by the Supreme Court in similar cases.

Issue 1 - Interpretation of modvat credit eligibility:
The case involved a dispute over the eligibility of modvat credit for power generation units. The Tribunal held that if one unit generates power and another unit purchases it, the inputs used for power generation qualify for modvat credit for the purchasing unit. The key question was whether the payment made by the purchasing unit should be considered as duty for availing cenvat credit. The appellant argued that the Tribunal's decision was erroneous and arbitrary, emphasizing that excise duty is payable by the manufacturer and vendor, not the purchasing unit.

Issue 2 - Validity of cenvat credit availed:
The appellant challenged the Tribunal's decision to allow cenvat credit to the respondent, contending that the payment made by the respondent should not be considered as duty for availing the credit. The original authority had disallowed the credit and ordered recovery of the amounts with interest. However, the Tribunal upheld the respondent's claim, stating that the payment made was equivalent to duty, as per the terms of the notification.

Issue 3 - Obligation to pay duty for sale of excess power:
The case revolved around the obligation to pay duty for selling excess power to the Domestic Tariff Area (DTA) as per the conditions specified in the notification. The respondent argued that the sale of excess power was permitted after complying with the conditions outlined in the notification, which required payment equal to the duty leviable on consumables and raw materials used for power generation.

Issue 4 - Compliance with notification conditions:
The Tribunal's decision was based on the conditions specified in the notification regarding the sale of excess power. The respondent had obtained permission to sell electricity to the DTA subject to compliance with para 7 of the notification, which outlined the obligations and payment requirements for selling surplus power.

Issue 5 - Application of Supreme Court precedent:
The judgment referred to a Supreme Court case where the obligation of the respondents was determined based on the conditions specified in the notification. Drawing parallels with the Supreme Court decision, the High Court held that the Tribunal's decision to allow cenvat credit to the respondent was justified and not arbitrary. The Court emphasized that the payment made by the respondent was equivalent to duty leviable on consumables and raw materials for power generation.

In conclusion, the High Court dismissed the appeals filed by the revenue, upholding the Tribunal's decision and ruling in favor of the respondent. The Court found that the respondent was entitled to the cenvat credit, as the payment made for the sale of excess power was equivalent to duty as per the notification conditions and legal precedents cited.

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