2012 (5) TMI 170 - AT - Central Excise

Cenvat credit on capital goods which are used in the captive power plant - part of electricity generated is sold outside the factory. - held that - in view of the provisions of Rule 6(4) of the CENVAT Credit Rules, we find prima facie the applicants have made a strong case in their favour for waiver of pre-deposit of duty in respect of capital goods. - stay petition allowed.

Summary

Issues:
1. Waiver of pre-deposit of duty, interest, and penalty.
2. Denial of credit in respect of capital goods used in captive power plant.
3. Denial of credit on items not considered capital goods.

Analysis:
Issue 1: The applicant sought a waiver of pre-deposit of duty amounting to Rs.2,96,66,481/-, interest, and penalty. The Tribunal considered the demand of Rs.2,88,97,841/- confirmed due to the denial of credit for capital goods used in the captive power plant, and a demand of Rs.7,68,640/- confirmed for items not classified as capital goods. The applicant argued that the denial of credit for capital goods used in the power plant was incorrect as per Rule 6(4) of the Cenvat Credit Rules, citing a similar decision by the High Court of Chattisgarh. The Tribunal noted that the capital goods were used for both generating electricity for factory production and for sale outside, thus not exclusively for exempted goods, leading to a strong case for waiver of pre-deposit.

Issue 2: The Revenue contended that the applicants should reverse a proportionate credit on capital goods used in the power plant for generating electricity sold outside the factory. However, the Tribunal found that as per Rule 6(4) of the Cenvat Credit Rules, credit is not disallowed for capital goods not exclusively used in the manufacture of exempted goods. Citing the High Court decision, the Tribunal supported the applicant's claim for waiver of pre-deposit regarding capital goods.

Issue 3: Regarding the demand of Rs.7,68,640/- for items not considered capital goods, the applicant had already reversed a portion of the credit along with interest. The Tribunal found that the remaining items were not capital goods and upheld the denial of credit. However, considering the facts and circumstances, the Tribunal deemed the deposit made sufficient for the appeal hearing on this issue, thus waiving the pre-deposit of duty, interest, and penalty and staying the recovery during the appeal's pendency.

In conclusion, the Tribunal granted the waiver of pre-deposit for the duty, interest, and penalty, citing the provisions of Rule 6(4) of the Cenvat Credit Rules and a supportive High Court decision, while also allowing the appeal to proceed without further deposit for the remaining amount denied on non-capital goods.