2014 (3) TMI 373 - AT - Central Excise

Denial of Cenvat credit - Cenvat credit on LSHS furnace oil - penalty - Held that - no hesitation to hold that two units are consist of one factory. Further, we find that single registration was granted for both the units by department themselves which also constitute that both the units consist of one factory. - assessee is entitled to credit on the eligible inputs utilized in the generation of electricity to the extent to which they are using the produced electricity within their factory (for captive consumption). Regarding supply of electricity to JV and levy of penalty - Held that - They are not entitled to CENVAT credit to the extent of the excess electricity cleared at the contractual rates in favour of joint ventures, vendors etc., which is sold at a price - Following decision of M/s. Maruti Suzuki Ltd. Versus Commissioner of Central Excise, Delhi-III 2009 (8) TMI 14 - SUPREME COURT and DHAMPUR SUGAR MILLS LTD. Versus COMMISSIONER OF C. EX., MEERUT 2001 (1) TMI 129 - CEGAT, COURT NO. IV, NEW DELHI - penalty set aside - Decided against Revenue.

Summary

Issues:
- Denial of Cenvat credit on electricity supplied outside the factory premises.
- Determination of legal and proper order by the Commissioner.
- Applicability of Modvat/Cenvat credit on inputs used for electricity generation.
- Imposition of penalty under Section 11AC of the Central Excise Act, 1944.

Issue 1: Denial of Cenvat credit on electricity supplied outside the factory premises:
The case involved respondents engaged in manufacturing excisable goods availing Modvat/Cenvat credit on inputs, including electricity procured from various sources. The dispute arose when the Revenue observed that the respondents claimed credit on fuel used for generating electricity supplied outside the factory, leading to show cause notices proposing denial of Cenvat credit. The Commissioner dropped the demand for electricity consumed in certain areas but disallowed credit for supply to residential colony, club, and hospital, imposing penalties. The Board raised concerns regarding the legality of the Commissioner's order, leading to a review challenging its correctness.

Issue 2: Determination of legal and proper order by the Commissioner:
The Board directed the Commissioner to apply to CESTAT for a correct determination on various points, including the legality and propriety of the Commissioner's order under Section 35E(1) of the Act. The contentions revolved around the proper application of Cenvat credit rules, especially concerning electricity usage outside the factory premises. The respondents filed cross-objections, disputing the demand confirmed against them and challenging the imposition of penalties based on the extended period of limitation.

Issue 3: Applicability of Modvat/Cenvat credit on inputs used for electricity generation:
The Revenue argued that Modvat/Cenvat credit on inputs used for electricity generation should only apply if the electricity is used in or in relation to the manufacture of the final product within the factory premises. The respondents countered, citing previous cases and asserting that single registration for both units indicated a common factory, entitling them to credit. The Tribunal analyzed the definition of 'factory' under the Central Excise Act and referred to precedents to determine whether the two units constituted one factory for credit eligibility.

Issue 4: Imposition of penalty under Section 11AC of the Central Excise Act, 1944:
The respondents challenged the imposition of penalties, citing a precedent where penalties were not imposed due to conflicting views on Cenvat rules. The Tribunal considered the applicability of penalties in light of the Maruti Suzuki Ltd. case and concluded that penalties were not imposable in this scenario. Following the decision, the Tribunal modified the impugned order, dropping penalties on the respondents and dismissing the Revenue's appeal.

This detailed analysis of the legal judgment highlights the key issues, arguments presented by both parties, relevant legal precedents, and the Tribunal's final decision on each issue.