2015 (6) TMI 404 - AT - Central Excise

Demand of CENVAT Credit - fuel used in the generation of electricity cleared to DHBVNL - sending electricity on job work and receiving back - Rule 4(5)(a) - Penalty u/s 11A - Contravention of Rule 2(k) and 3 of the CENVAT Credit Rules, 2004 - Held that - there is no sale of electricity to the power grid. It is also noted that the electricity sent to power grid was returned back to the Appellant, which was further used in the manufacture of final product. The Hon ble Supreme Court categorically observed that the reversal of credit would be required on the wheeled out of electricity at a price to the joint venture/vendor etc, for manufacture. In the present case, there is no sale of electricity, and the same was returned back to their factory for consumption in their final product. - Adjudicating authority denied the CENVAT Credit on inputs used for generation of electricity supplied to the grinding unit. The Appellant argued that the power plant can be a job worker o the Appellant and that the inputs sent by Appellant to the job worker plant, for generation of electricity brought back to the Appellant for manufacture of final product. The Tribunal held that proportional credit of inputs sent by clinker unit to the power plant under Rule 4(5)(a), corresponding to generation of electricity used in the DMW plant and administrative block will be eligible as CENVAT Credit. Electricity sent for synchronization to power grid, would be treated as job worker. There is no dispute that the electricity was returned back to the Appellant s factory, and there is a substantial compliance with the provisions of Rule 4(5)(a) of the Rules. - impugned order cannot be sustained and accordingly, it is set aside. - Decided in favour of assessee.

Issues Involved:
1. Eligibility of CENVAT Credit on inputs used for generating electricity sent to the power grid.
2. Applicability of Rule 4(5)(a) of the CENVAT Credit Rules, 2004.
3. Relevance of the Supreme Court decisions in M/s Maruti Suzuki Ltd and M/s Ultratech Cement Ltd cases.

Detailed Analysis:

1. Eligibility of CENVAT Credit on Inputs Used for Generating Electricity Sent to the Power Grid:

The Appellant, engaged in manufacturing steel products, set up a captive power plant and used part of the generated electricity within the factory while sending a portion to the power grid for synchronization. The electricity sent to the grid was returned to the factory for use in manufacturing. A show cause notice demanded reversal of CENVAT Credit on inputs used for generating electricity sent to the grid, amounting to Rs. 54,38,492.00, along with interest and a penalty of equal amount under Rule 15 of CENVAT Credit Rules, 2004 read with Section 11AC of Central Excise Act, 1944.

The Appellant argued that the electricity sent to the power grid was not sold but returned and used in manufacturing, thus not warranting reversal of CENVAT Credit. They cited a previous Tribunal order in their favor and distinguished their case from the Supreme Court decision in M/s Maruti Suzuki Ltd, where excess electricity was sold.

The Tribunal found that the electricity sent to the grid was not sold but returned to the factory and used in manufacturing. The power grid charged 10% of the electricity value for synchronization, and the arrangement was to maintain uniform frequency of electricity. The Tribunal concluded that the demand for reversal of CENVAT Credit was unsustainable as the electricity was not sold but used in manufacturing.

2. Applicability of Rule 4(5)(a) of the CENVAT Credit Rules, 2004:

The Appellant contended that under Rule 4(5)(a), inputs or capital goods sent outside the factory for further processing and returned should be eligible for CENVAT Credit. They argued that the power grid acted as a job worker, and the electricity sent for synchronization and returned fell within the purview of Rule 4(5)(a).

The Tribunal agreed with the Appellant, noting that Rule 4(5)(a) allows CENVAT Credit for inputs sent to a job worker and returned to the factory. The electricity sent for synchronization and returned was considered within the scope of Rule 4(5)(a), supporting the Appellant's claim for CENVAT Credit.

3. Relevance of the Supreme Court Decisions in M/s Maruti Suzuki Ltd and M/s Ultratech Cement Ltd Cases:

The Revenue relied on the Supreme Court decision in M/s Maruti Suzuki Ltd, which held that CENVAT Credit is not admissible for inputs used in generating electricity sold outside the factory. However, the Tribunal distinguished the present case, noting that the electricity was not sold but returned and used in manufacturing.

The Tribunal also considered the Supreme Court decision in M/s Ultratech Cement Ltd, which remanded the matter to determine if excess electricity was cleared at a price. In the present case, there was no sale of electricity, and it was returned to the factory for use in manufacturing, making the Supreme Court decisions inapplicable.

Conclusion:

The Tribunal concluded that the electricity sent to the power grid for synchronization and returned to the factory for use in manufacturing did not warrant reversal of CENVAT Credit. The arrangement was within the scope of Rule 4(5)(a) of the CENVAT Credit Rules, 2004. The impugned order demanding reversal of CENVAT Credit was set aside, and the appeal was allowed with consequential relief.

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