2019 (4) TMI 2119 - AT - Central Excise

Recovery of CENVAT credit - sale of electricity which was generated from the waste heat produced during the manufacture of sponge iron - Rule 6(3) of the Cenvat Credit Rules, 2004 - time limitation - HELD THAT - The findings of the Tribunal in the case of Tirupati Starch Chemicals Ltd. Vs. CCE ST Ujjain 2018 (9) TMI 1481 - CESTAT NEW DELHI , agreed upon - It is found that though number of amendments have taken place from time to time to define exempted goods under the Cenvat Credit Rules, 2004 to include non-excisable products/ exempted products in the definition but in Rule 6(2) of the Cenvat Credit Rules, 2004, the expression final products have remained unchanged during these years. Thus it is very clear that the legislation has intended to include only those inputs/ services which are used during the manufacture of final products and not unintended by-products which are a necessity of the manufacturing products. It cannot be accepted that the heat entrapped in flue gases which emerge during the process as waste or by-product can be regarded as a final product which is beneficially used by the appellant for manufacture of electricity. The ratio of the Hon ble Supreme Court judgment in the case of UNION OF INDIA OTHERS VERSUS M/S. HINDUSTAN ZINC LTD. 2014 (5) TMI 253 - SUPREME COURT is squarely applicable to the issue in hand, where it was held that the requirements of 57CC were fully met in the way in which the Respondent was maintaining records and inventory and the mischief of recovery of 8% under Rule 57 CC on exempted sulphuric acid is not attracted. Time Limitation - HELD THAT - Even on limitation as the issue is squarely based on interpretation of law, it is held that the charge of willful suppression does not sustain and extended period of limitation is not applicable. The appeal is allowed.

Summary

Issues:
- Disputed demand under Rule 6(3) of Cenvat Credit Rules, 2004 for the sale of electricity generated from waste heat during the manufacture of Sponge Iron.
- Interpretation of whether waste heat used to generate electricity constitutes a final product and the applicability of Rule 6(3) in the present case.
- Application of relevant legal precedents and judgments to determine the liability for reversal of Cenvat credit on the electricity generated.
- Consideration of the limitation period for the demand raised and the charge of willful suppression in the interpretation of the law.

Issue 1: Disputed Demand under Rule 6(3) of Cenvat Credit Rules, 2004:
The appellant, engaged in the manufacture of Sponge Iron, appealed against the demand raised under Rule 6(3) for the sale of electricity generated from waste heat during the manufacturing process. The dispute arose from the Department's calculation of 6% of the value realized from the transfer of electricity from April 2013 to October 2015. The demand, amounting to Rs. 41,22,563, was confirmed by the adjudicating authority, imposing interest and penalty. The Commissioner (Appeals) upheld the demand, citing the availing of Cenvat credit on inputs used for both dutiable goods and exempted electricity. The penalty imposed was later reduced to 50% for maintaining electronic records of Cenvat credit.

Issue 2: Interpretation of Waste Heat as a Final Product and Applicability of Rule 6(3):
The appellant contended that waste heat from the Sponge Iron plant, used to generate electricity, is not a final product but waste and refuse. They argued that since no inputs are used in generating electricity from waste heat, Rule 6(3) does not apply. The process of electricity generation involved treating waste heat with water in a Waste Heat Recovery Plant, where only waste heat from Sponge Iron manufacture was utilized. The appellant relied on legal precedents and the Supreme Court's judgment in a similar case to support their interpretation.

Issue 3: Application of Legal Precedents and Judgments:
The Tribunal referenced the Supreme Court's judgment in Union of India v. Hindustan Zinc Ltd. to analyze the manufacturing process involving common inputs for dutiable and exempted products. The Court emphasized that the provisions of Rule 57CC and Rule 6 of Cenvat Credit Rules apply when final products emerge from common inputs. The judgment highlighted the distinction between by-products and final products, emphasizing that the intention of the assessee in manufacturing exempted products is irrelevant. The Tribunal applied this legal interpretation to the present case to determine the liability for Cenvat credit reversal on electricity generated from waste heat.

Issue 4: Limitation Period and Willful Suppression Charge:
Regarding the limitation period and willful suppression charge, the Tribunal held that as the issue primarily involved the interpretation of the law, the charge of willful suppression did not sustain, and the extended limitation period was deemed inapplicable. The Tribunal's decision was influenced by the legislative intent to include only inputs used in manufacturing final products, not unintended by-products like waste heat. Consequently, the appeal was allowed, and consequential benefits were granted to the appellant.

This detailed analysis of the judgment highlights the key issues, arguments presented, legal interpretations applied, and the final decision rendered by the Tribunal in the case.