2016 (6) TMI 402 - AT - Central Excise

Eligibility to avail the credit on input services - generation of electricity which is partly cleared to their sister units who are also engaged in the manufacture of dutiable final products - Held that - Considering that the electricity has been used in the manufacture of dutiable final products and also the fact that all units belong to the appellant the denial of credit is not justifiable in the present case. Further, it is a fact that if the appellant were to follow the procedure for input service distribution the credit eligibility on part of the electricity cleared to sister unit could not have been questioned and the credit could have been passed on to the unit which is actually using the electricity or retained fully by the appellant himself without proportionate distribution. Such being the factual position, find that the impugned orders are not sustainable. Further, the reliance placed on Maruti Suzuki Ltd. vs. CCE, Delhi - III (2009 (8) TMI 14 - SUPREME COURT) is not appropriate. The input service credits attributable to the electricity sold to utility companies are not available to the appellants as held by the Hon ble Supreme Court. This, the appellants are not contesting and have already reversed the amount towards such input service credits. - Decided in favour of assessee.

Summary

Issues:
- Entitlement to Cenvat credit on input services used in the generation of electricity cleared to sister units engaged in the manufacture of dutiable final products.

Analysis:

1. The appeals addressed a common issue concerning the entitlement of the appellant to Cenvat credit on input services used in generating electricity cleared to sister units involved in manufacturing dutiable final products. The appellant, engaged in zinc production, availed Cenvat credit on inputs and services, including GTA services for coal/LDO transportation to their power plant. A dispute arose regarding the eligibility of full credit amount due to the sale of electricity to utility companies and sister units. The Revenue demanded recovery of input service credit, leading to multiple show cause notices and penalties imposed upon confirmation of demands by the Commissioner (Appeals), prompting the appellant to file appeals against these decisions.

2. The appellant's counsel argued that while they accepted the need to reverse input service credit proportionate to electricity sales to utility companies, they contested the denial of credit for electricity cleared to their other manufacturing units. They highlighted that all units were engaged in producing dutiable final products, justifying the credit's availability for generating electricity used in their plants. The counsel criticized the lower Authorities for misapplying the Supreme Court's decision in Maruti Suzuki Ltd. vs. CCE, Delhi III, emphasizing the procedural aspect of input service distribution and citing relevant tribunal and high court precedents supporting their position.

3. The authorized representative for the Revenue reiterated the lower Authorities' stance, emphasizing Rule 2(l) of the Cenvat Credit Rules, 2004, which specifies that input services must be used in manufacturing dutiable final products within the manufacturer's unit to qualify for credit. The contention was that electricity cleared to the appellant's sister units did not contribute to the dutiable final products at the appellant's unit, justifying the denial of credit.

4. Upon reviewing the arguments and records, the Tribunal deliberated on whether the appellant could avail credit for input services used in generating electricity cleared to sister units engaged in manufacturing dutiable final products. The Tribunal acknowledged the eligibility of Cenvat credit for power generation as long as the electricity contributed to manufacturing dutiable final products. It noted that the denial of credit hinged on whether the electricity was used within the generation plant or outside by the same manufacturer. Given that the electricity was utilized for dutiable final products across all units owned by the appellant, the Tribunal deemed the denial of credit unjustified. It emphasized that following the input service distribution procedure would have legitimized the credit for electricity cleared to sister units, rendering the impugned orders unsustainable.

5. In conclusion, the Tribunal found the impugned orders unsustainable concerning electricity cleared to other units of the appellant, setting them aside along with the imposed penalties. The appeals were allowed in this regard, emphasizing the factual distinctions from the Supreme Court precedent cited and the procedural validity of credit distribution within the appellant's manufacturing units.