2016 (3) TMI 1042 - AT - Central Excise

Entitlement to capital goods CENVAT Credit - capital goods credit denied on the ground that the same are used partially for producing electricity which is sold outside - Held that - It can be seen that in the instant case the Capital Goods are not used exclusively for producing electricity that is wheeled out. The benefit of credit can not be denied to items namely, Sr No. 21, 42, 43, 61, 63, 65, 67 and 53 of the annexure B.Items at Sr. No. 22, 58 and 64 of the said annexure B are claimed to be capital goods. Learned counsel informed that Sr. No. 32 is G.I. Plates scrap; Sr. No. 58 is SHRINKKOMP-30 and Sr. No. 64 is FRP Motor Cover. He could, however, not give exact usage of these items. No reason is given for denying the credit on these items in the impugned order. Credit cannot be denied without reason arbitrarily.- Decided in favour of assessee Non entitled to CENVAT Credit on the input services - claim denied as the plant was not set up with intention to captive consumption but also to the pre-set mind to sale electricity out of it for commercial consideration - Held that - The Cenvat rules are common for both the inputs and for input services. Thus what the Hon ble Supreme Court in Maruti Suzuki Ltd. 2009 (8) TMI 14 - SUPREME COURT has held in case of inputs will apply to the input services as well. In the instant case they have infact not availed entire credit but only the credit which is admissible to them in terms of Rule 6(2) of the Cenvat Credit Rules, 2004. In view of above we find that there is merit in the appeal filed by the appellants on this count. - Decided in favour of assessee Non admissible service tax - demand under Rule 6(3)(i) of the Cenvat Credit Rules - the electricity generated from the plant does not attract Central Excise duty - Held that - The rule 6(3) can be invoked only if it is found that the appellant has failed to follow the previous provisions of the said rule 6 of the Cenvat Credit Rules 2004. In this case the appellants have taken credit only to the extent of credit that is eligible to them as the demands of reversal credit themselves have been set aside. In such circumstances the rule 6(3)(i) of the Cenvat Credit Rules 2004 cannot be invoked. The said rule comes into play only when there is a wrong and excess availment of credit. As the appellant have been taking credit only to the extent eligible to them rule 6(3)(i) of the Cenvat Credit Rules 2004 cannot be invoked. - Decided in favour of assessee

Summary

Issues Involved:
1. Entitlement to capital goods CENVAT Credit for electricity partially wheeled out.
2. Entitlement to CENVAT Credit on input services for electricity generation.
3. Compliance with Rule 6(3)(i) of the Cenvat Credit Rules, 2004 for the period April 2011 to February 2014.

Issue-wise Detailed Analysis:

1. Entitlement to Capital Goods CENVAT Credit:
The appellants, M/s JSW Steel Coated Products Ltd., installed a captive power plant and availed credit of capital goods duty. The Revenue contended that since part of the electricity generated was wheeled out, the appellants were not entitled to capital goods CENVAT Credit. The Tribunal clarified that under Rule 6(4) of the Cenvat Credit Rules, 2004, CENVAT Credit is disallowed only if capital goods are used exclusively for manufacturing exempted goods. Since the electricity generated was partially used for dutiable goods, the capital goods were not exclusively used for exempted goods, thus the appellants were entitled to CENVAT Credit. The Tribunal referenced the decision in H.E.G. Ltd. - 2012 (275) ELT 315 (Chhattisgarh), which supported this interpretation.

Furthermore, for items listed in Annexure-B of the show-cause notice, the Tribunal noted that if these items could be treated as inputs, credit should be allowed. The Tribunal cited Bhilai Steel Plant - 2010 (261) ELT 612 (Tri-Del) and Modi Rubber Ltd. - 2000 (119) ELT 197 (Tri-LB) to support this. Items at Sr. No. 32, 58, and 64 were also considered capital goods, and credit could not be denied without reason.

2. Entitlement to CENVAT Credit on Input Services:
The Revenue argued that the appellants were not entitled to CENVAT Credit on input services as the electricity generated, part of which was sold, did not attract Central Excise duty. The appellants maintained that they took credit only for the proportion of electricity used captively. The Tribunal referred to the Supreme Court's decision in Maruti Suzuki Ltd. - 2009 (240) ELT 641 (SC), which allowed proportionate credit for inputs used in electricity generation for captive consumption. The Tribunal concluded that since the appellants meticulously maintained records and took credit proportionately, Rule 6(1) did not apply, and they were entitled to the credit.

3. Compliance with Rule 6(3)(i) of the Cenvat Credit Rules, 2004:
For the period April 2011 to February 2014, the Revenue alleged that the appellants failed to maintain separate accounts for inputs and input services used in generating electricity for captive use and for sale, requiring them to pay an amount equal to 5% (up to 31.3.2012) and 6% (from 1.4.2012 onwards) on the value of electricity sold to MSEB. The Tribunal referenced the decision in MIRC Electronics - 2015 (38) STR 199, which held that Rule 6(3) applies only if ineligible credit is taken. Since the appellants took credit only to the extent eligible, Rule 6(3)(i) could not be invoked. The Tribunal set aside the impugned order, confirming that the appellants complied with the provisions of the Cenvat Credit Rules, 2004.

Conclusion:
The Tribunal allowed the appeals, confirming the entitlement to capital goods and input services CENVAT Credit and compliance with Rule 6(3)(i) of the Cenvat Credit Rules, 2004. The judgments were pronounced in court.