2008 (2) TMI 269 - AT - Central Excise

Appellant is engaged in the mfg. of cement and has a captive power plant located within the premises of the cement plant - appellant used duty paid Naphtha & furnace oil for generating electricity - part of the electricity has been sold to sister units situated out side their factory premises - held that the inputs used in electricity generated which is sold to sister units, will not be eligible inputs for the purposes of Modvat credit - bona fide dispute penalty not imposable

Summary

Issues:
- Applicability of Cenvat credit on duty paid Naphtha and furnace oil used for generating electricity supplied to sister units outside factory premises.

Analysis:
1. The appellant, engaged in cement manufacturing with a captive power plant, used Naphtha and furnace oil to generate electricity. Initially, some exhaust gas was wasted, but later utilized to produce steam for running a steam turbine generator. A portion of the electricity generated was supplied to sister units outside the factory premises.

2. The Commissioner confirmed a duty demand of Rs. 4,99,85,439/-, attributing to Cenvat credit on Naphtha and furnace oil used for electricity production supplied to sister units. Additionally, a penalty was imposed on the appellant and the Asst. General Manager.

3. The appellant argued that all inputs were used within the factory for electricity production, complying with the definition of 'input'. They cited various decisions supporting their stance.

4. The Jt. CDR contended that electricity supplied outside the factory premises necessitates reversal of credit, referencing the Supreme Court's decision in M/s. Solaris Chem tech Ltd. case. The Tribunal's decision in M/s. Reliance Industries Ltd. was also cited in support.

5. The Tribunal observed that the segregation of electricity sources (gas turbine or steam turbine) is immaterial as the end goal is electricity production. It acknowledged the sale of surplus electricity to sister units. Previous Tribunal decisions supported disallowing credit for non-manufacturing activities.

6. Consequently, the Tribunal upheld the duty demand and interest but waived the penalty due to a genuine dispute. The appeal was partly allowed, emphasizing the duty payment on inputs used for non-manufacturing activities.

This detailed analysis of the judgment highlights the key arguments, legal interpretations, and decisions considered by the Appellate Tribunal CESTAT, Ahmedabad in the case involving the applicability of Cenvat credit on inputs used for electricity generation supplied to external units.