2015 (7) TMI 546 - AT - Central Excise

Eligibility for cenvat credit - Capital goods - Whether common registration under Rule 9 of Central Excise Rules, 2002 can be issued to sugar mill and its co-generation power plant which are separated by a public road - Held that - Sugar mills and co-generation power plant separated by a public road are connected through overhead conveyer by which bagasse is generated in the sugar mill is transferred to co-generation power plant where it is used in the boiler for generation of steam which is used for generation of electricity. The electricity generated is used in the sugar mill in its various parts and surplus electricity was sold to the state electricity board. In terms of supplementary instructions issued by the board under Rule 31 of Central Excise Rules, 2002 ( chapter 2 of CBEC s Excise Manual of Supplementary Instrucitons,2005) separate central excise registration is required in respect of separate premises except in cases where two or more premises are actually part of the same factory (where processes are interlinked), but are segregated by public road, canal, or railway-line. When sugar mill and co-generation power plant are connected through overhead conveyer by which bagasse generated in the sugar mill is transferred to co-generation power plant where it is used in the boiler for generation of electricity and the electricity generated in the co-generation power plant is used in the sugar mill for its operation and only surplus electricity is sold to the state electricity board and when it is not disputed that administrations/work management of the sugar mill and co-generation power plant is common, the functioning of the sugar mill and its co-generation plant located across the public road has to be treated as interlinked and the two have to be treated as one factory. The Commissioner (Appeals) s findings in the impugned order on the functioning of the sugar mill and co-generation power plant that the two are totally incorrect. In our view, the reasons have been given by the Commissioner (Appeals) for upholding denial of common registration for sugar mill and co-generation power plants are absurd. - Decided in favour of assessee.

Summary

Issues Involved:

1. Eligibility for Cenvat credit on capital goods and input services for the co-generation power plant.
2. Grant of common central excise registration for the sugar mill and co-generation power plant.

Detailed Analysis:

1. Eligibility for Cenvat Credit on Capital Goods and Input Services:

The primary issue concerns the eligibility for Cenvat credit on various items of capital goods received by the appellant for setting up a co-generation power plant and various input services covered by Rule 6(5) of the Cenvat Credit Rules, 2004. The co-generation power plant generates electricity by burning bagasse from the sugar mill, which is used in the sugar mill, with surplus electricity sold to the state electricity board. The period of dispute spans from January 2004 to October 2006, July 2010 to March 2011, and April 2012 to March 2013.

The appellant argued that the co-generation power plant is part of the sugar mill and that the capital goods and input services used should be eligible for Cenvat credit. They cited the Tribunal's decision in Konark Met Ltd. vs. CCE, Bhubaneswar-I, where it was held that Cenvat credit on capital goods used in a power plant is admissible if the electricity generated is used in the manufacturing unit. They also referenced the Chhattisgarh High Court's decision in Union of India vs. HEG Ltd., which supported the admissibility of credit even when a portion of the electricity is sold outside.

The Tribunal concluded that since the sugar mill and the co-generation power plant are interlinked and function as one factory, the appellant is eligible for Cenvat credit on capital goods and input services used in the co-generation power plant. The Tribunal found the department's reasoning for denying credit, based on the off-season sale of electricity, to be unsubstantiated.

2. Grant of Common Central Excise Registration:

The second issue is whether a common central excise registration could be granted under Rule 9 of the Central Excise Rules, 2002, to the sugar mill and the co-generation power plant, which are separated by a public road. The appellant's request for common registration was rejected by the Assistant Commissioner and upheld by the Commissioner (Appeals), who argued that the electricity generated is not a semi-finished good used in the manufacture of the final product of the sugar mill, and thus, there is no interlinked process.

The Tribunal reviewed the supplementary instructions issued under Rule 31 of the Central Excise Rules, 2002, which allow for common registration if premises are part of the same factory and are interlinked but separated by a public road. The Tribunal found that the sugar mill and co-generation power plant are connected through an overhead conveyor and have common administration and management, thus constituting one factory. The Tribunal deemed the Commissioner (Appeals)'s findings incorrect and set aside the order denying common registration.

Conclusion:

The Tribunal allowed the appeals, ruling that the sugar mill and co-generation power plant should be treated as one factory, making the appellant eligible for Cenvat credit on capital goods and input services used in the co-generation power plant. The Tribunal also set aside the order denying common central excise registration, affirming that the operations of the sugar mill and the co-generation plant are interlinked.