2016 (7) TMI 497 - AT - Central Excise

Cenvat Credit on capital goods - capital equipments were installed for the purpose of generation of electricity by heat energy recovery which is exhausted by the three natural gas fired generator sets already working. - The case of the Revenue is that these capital goods are becoming part of the existing generator sets which belong to another legal entity (M/s. OPG Energy Pvt. Ltd.) and hence credit on such capital goods is not available to the appellant. Held that - the department has not disputed the duty-paid nature of the capital goods, discharge of duty by the appellant, usage of capital goods for generation of electricity and consumption of such electricity by the appellant in the manufacture of dutiable final products. - Credit cannot be denied - Decided in favor of assessee.

Summary

Issues:
Eligibility of Cenvat credit on capital goods used for electricity generation in adjacent premises.

Analysis:
The appeal challenged the order of the Commissioner of Central Excise, Trichy regarding the eligibility of Cenvat credit on capital goods used by the appellants for electricity generation. The appellants, engaged in manufacturing iron & steel billets, procured capital goods like steam boilers for electricity generation through heat energy recovery. The Revenue contended that since these capital goods were installed in the premises of another legal entity, the appellant could not claim credit on them. The original authority upheld the denial of credits and imposed penalties. The appellant argued that the denial was based on the location of usage, contrary to established legal principles allowing the use of inputs or capital goods in manufacturing processes regardless of location.

The Revenue maintained that the capital goods were integrated into the existing generator sets of the sister unit and, being a separate legal entity, the appellant could not claim credit for their usage in electricity generation. The Tribunal examined the case and found that the capital goods were indeed used for electricity generation through a Waste Heat Recovery System, with the electricity being consumed by the appellants in their manufacturing process. The Tribunal emphasized that the location of the capital goods in the sister unit's premises should not be a reason to deny credit, especially considering the waste heat recovery process integrated with the power generation.

Referring to legal precedents, the Tribunal highlighted that the generation of electricity or steam used within the factory premises qualifies for credit, and the mere location of capital goods outside the factory does not justify credit denial. The Tribunal noted that the department did not dispute the duty-paid nature of the capital goods, their usage for electricity generation, and consumption by the appellant in manufacturing final products. Consequently, the Tribunal set aside the impugned order, allowing the appeal in favor of the appellants.