2011 (6) TMI 599 - AT - Central Excise

Reversal of cenvat credit penalty - inputs which has gone into manufacturing/production of electricity which was consumed in the residential colony/guesthouse/schools/ hospitals etc. - Held that - in the case of Grauer and Weil (1994 - TMI - 43855 - SUPREME COURT OF INDIA - Central Excise) any premises including the precincts thereof in section 2(m) of the Central Excise Act are wide enough to cover any activity carried on within the licensed premises supply of electricity to the residential complexes situated within the factory premises are neither connected with or related to the production of the final products. - order is held as correct and legal to the extent it confirms the demand of reversal, but is incorrect in upholding the penalty.

Summary

Issues:
Reversal of proportionate credit inputs for electricity used in residential premises.

Analysis:
The appellant, a manufacturer of paper and paperboard, generated electricity using a generator for both internal use and supply to residential premises within the factory premises. The authorities issued a Show Cause Notice for the reversal of credit on fuel used for generating electricity supplied to residential premises. The adjudicating authority upheld the demand for reversal, imposing a penalty. The first appellate authority also supported this decision, leading to the appeal before the tribunal.

The main issue revolved around whether the electricity supplied to residential premises within the factory premises could be considered as a requirement of business. The appellant argued citing a Supreme Court judgment and a Tribunal decision in their favor. However, the Departmental Representative referred to a Bombay High Court judgment supporting a similar issue.

The tribunal analyzed the submissions and records, considering the interpretation of the phrase "any other purpose" in the relevant rules. Referring to the Bombay High Court judgment, the tribunal emphasized that the use of electricity must be connected or related to the manufacture of final products to claim credit on inputs used for electricity generation. It was clarified that supplying electricity to residential premises within the factory premises does not qualify as connected to or related to the production of final products, hence not eligible for credit.

The tribunal noted that the Bombay High Court judgment was upheld by the Apex Court in an appeal, emphasizing the finality of the decision. Consequently, the tribunal set aside the penalty imposed by the adjudicating authority, as the issue was a matter of interpretation upheld by the highest court. The tribunal upheld the demand for reversal of credit but deemed the penalty unwarranted, thus modifying the impugned order accordingly.

In conclusion, the tribunal held the impugned order correct and legal in confirming the demand for credit reversal but found the penalty imposition unjustified. Therefore, the appeal was disposed of with the decision to uphold the demand for reversal while setting aside the penalty.