2014 (2) TMI 395 - AT - Central Excise

Availment of CENVAT Credit - inputs / input services used in generation of electricity - Appellant did not maintain any separate records in respect of consumption of inputs/input services used in the manufacture of electricity captively consumed and electricity sold - Held that - appellant has generated electricity from bagasse. Baggase on burning generates heat and with the help of heat, steam is generated which is used to rotate turbines as a result of which electricity is generated. In view of the above the impugned demands confirmed against the appellant @10%/5% of the value of the electricity supplied to MSEB is clearly unsustainable in law - appellant would be liable to reverse the credit if any taken on such inputs/input services which have been used in the generation of electricity which have been sold to MSEB. Common inputs on which credit has been availed are (1) Sulphur, (2) HCL. (3) Caustic soda, (4) Lubricant Oil, (5) T-46 (6) Turbo Oil, (7) Boiler Chemicals, (8) Flocculants, (9) Colour Precipitate, (10) Grease and (11) Phosphoric acid. Of these inputs Sulphur, HCI, Caustic Soda, Boiler chemicals, Flocculants, Colour precipitate and Phosphoric acid has nothing to do with the generation of electricity and therefore, there is no need to reverse any credit taken in respect of these inputs. Inward Cane Transportation has nothing to do with electricity generation. Inspection and testing service will apply only when the same has been done in respect of equipment used for generation of electricity. So it is the case in respect of insurance services, maintenance & repair services. Similarly in respect of construction services also it has to be seen how the same has nexus with generation of electricity. Therefore, reversal of credit is required only in respect of input services which have nexus with generation of electricity. - For this limited purpose the matter has to go back to the adjudicating authority for re-computation of the demand - Decided in favour of assessee.

Summary

Issues:
- Determination of excisability of electricity generated and sold by the manufacturer.
- Applicability of Rule 6 of CENVAT Credit Rules, 2004 to the inputs/input services used in the generation of electricity.
- Eligibility of the manufacturer to claim CENVAT credit on inputs/input services used in the generation of non-excisable electricity sold.
- Requirement of reversing CENVAT credit on inputs/input services with nexus to electricity generation.

Analysis:

Issue 1: Determination of excisability of electricity:
The appellant contended that electricity is not excisable goods as no rate of duty is specified in the Central Excise Tariff Act. Citing a precedent, it was argued that electricity generated from bagasse does not fall under excisable goods. The Tribunal concurred, ruling that electricity produced from bagasse is not excisable goods under Chapter 27 of the Tariff Act. Consequently, demands for payment based on the value of electricity sold were deemed legally unsustainable.

Issue 2: Applicability of Rule 6 of CENVAT Credit Rules:
The Tribunal clarified that Rule 6 of the CENVAT Credit Rules, 2004 does not apply to electricity, as it is not excisable goods. Therefore, the appellant cannot claim CENVAT credit on inputs/input services used in generating and selling electricity. However, the appellant must reverse any credit taken on inputs/services related to electricity generation that are not eligible for CENVAT credit.

Issue 3: Eligibility for CENVAT credit on non-excisable electricity:
Since electricity is not excisable goods, the appellant cannot avail CENVAT credit on inputs/services used in generating non-excisable electricity sold to MSEB. The Tribunal emphasized that CENVAT credit is only applicable when inputs/services are used in manufacturing excisable goods or providing taxable services. Any credit taken on inputs/services related to electricity generation must be reversed.

Issue 4: Reversal of CENVAT credit on inputs/services with nexus to electricity generation:
The Tribunal identified specific inputs/services with no connection to electricity generation, such as Sulphur, Caustic Soda, and certain input services. Reversal of credit was deemed necessary only for inputs/services directly linked to electricity generation. The appellant was granted the opportunity to provide evidence to support the lack of nexus between certain inputs/services and electricity generation. The matter was remanded to the adjudicating authority for re-computation based on the evidence provided.

In conclusion, the appeals were allowed partly, with the Tribunal providing detailed guidance on the excisability of electricity, the application of CENVAT credit rules, and the reversal of credit on inputs/services used in electricity generation.