2016 (1) TMI 291 - AT - Central Excise

Reversal of CENVAT Credit - some part of electricity / power is sold outside for consideration. - Invocation of extended period of limitation - Held that - the inputs and input services which are used in the production of such electricity sold outside will not be eligible for credit as they fall outside the ambit of input and input services as defined by Cenvat Credit Rules 2004. Here the service tax is paid on the inward transportation of gas used for power generation and there is no physical separation of supply lines or accounts to show which quantum of service tax is attributable to that gas used for electricity sold outside. Hence, it follows that proportionate to service tax attributable to the transportation of gas used for production of electricity sold outside has to be reversed - This is clearly in terms of provisions of Cenvat Credit Rules 2004 interpreted and decided by the Hon ble Supreme Court in the appellants own case (2009 (8) TMI 14 - SUPREME COURT ). In the present case the proceedings have been initiated only after the decision by the Hon ble Supreme Court in appellants case. This much has been stated in the notice as well as the impugned order. Hence, we find invoking extended period of demand alleging fraud and suppression etc on the part of the appellant is not sustainable. Accordingly we hold that while the demand of reversal of proportionate credit is sustainable for the normal period the demand for extended period along with penalty is to be set aside. - Appeal disposed of

Summary

Issues:
1. Reversal of Cenvat Credit on input services for electricity sold outside.
2. Applicability of Hon'ble Supreme Court judgment on input services.
3. Eligibility of service tax credit on input services.
4. Demand for extended period and penalty imposition.

Analysis:
1. The appellants, engaged in manufacturing motor vehicles, faced proceedings to reverse Cenvat Credit on input services for electricity sold outside. The Commissioner's order confirmed demands for proportionate credit availed on input services related to electricity sold externally. The appellants challenged this order, arguing against the reversal of credit.

2. The appellant contended that the Hon'ble Supreme Court's judgment in their case regarding inputs and proportionate credit reversal for electricity sold outside did not apply to input services. They emphasized the difference between "input" and "input services," stating that service tax on input services, like gas transportation, should not be apportioned based on electricity sales. They also disputed the demand for an extended period, citing no suppression on their part.

3. The Ld. AR supported the original authority's findings, stating that service tax credit on input services is contingent upon the final product being dutiable. The eligibility of input service credit was questioned when electricity generated using inputs was not used in manufacturing dutiable products. The Hon'ble Supreme Court's decision in the appellant's case was deemed applicable to input services as well.

4. The Tribunal analyzed whether the appellants should reverse proportionate credit for service tax linked to electricity sold externally. While the demand for the normal period was upheld, the demand for the extended period and penalty imposition was set aside. The Tribunal noted that the proceedings were initiated post the Hon'ble Supreme Court's decision in the appellant's case, thus ruling against fraud or suppression allegations for invoking the extended period.

Conclusion:
The Tribunal upheld the reversal of proportionate credit on service tax attributable to electricity sold outside for the normal period. However, the demand for the extended period and penalty imposition was dismissed due to the proceedings being initiated post the Hon'ble Supreme Court's decision. The appeals were disposed of accordingly.