2016 (10) TMI 651 - AT - Central Excise

Reversal of CENVAT credit on exempted as well as dutiable goods under rule 6 - Demand of CENVAT credit with interest and penalty u/R 6(3)(b) read with Rule 14 of Cenvat Credit Rules, 2004 - manufacture of sponge iron falling under heading 7203 of the Schedule to the Central Excise Tariff Act, 1985 - another product Iron Ore Fines produced on manufacture of iron ore is cleared without payment of duty as there is exemption from payment of excise duty - CENVAT credit availed on GTA services paid for the transportation of iron ore to their factory - no separate accounts were maintained and the common input service (GTA) credit has been taken and used for dutiable final product (sponge iron) and exempted final product (iron ore fines) - whether reversal justified? - Held that - the decision in the case of Union of India Vs. Hindustan Zinc Ltd. 2014 (5) TMI 253 - SUPREME COURT relied upon where it was held that a distinction has to be made between final product as well as by-products. It was held that by-products cannot be held to be main final products. The court was examining the question of reversal in the context of Rule 57CC as well as Rule 6 of the Cenvat Credit Rules, 2004 and decided that for clearance of exempted by-products there will be no need for reversal of 8%/10% of the value of the exempted products. Generation of electricity in the captive power plant situated within the factory - A part of the electricity generated in the power plant was wheeled out to the Electricity Board. Electricity is classified under 27160000 against which no central excise duty is indicated in the tariff. Demand has been made under Rule 6 (3) of the Cenvat Credit Rules, 2004 at the rate of 10% of the value of the exempted goods - whether reversal justified? - Held that - the appellant has reversed the entire credit taken on input services, namely, GTA services in respect of transportation of coal, even though part of the coal was used in the manufacture of dutiable sponge iron. If the credit originally availed is reversed subsequently it would amount to the effect as if no credit has been availed. - no justification found to demand 10% of the value of electricity wheeled out. The appellant has availed Cenvat credit not only on GTA service but also on various other services such as cargo handling service, consulting engineering service, security service, telephone service, etc. It is easily seen that credit availed on service tax on transportation of coal is the only service on which credit can be said to have been taken where it is used for generation of electricity and the same has been reversed - reversal of CENVAT credit not justified - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Availing Cenvat credit on input and input services.
2. Reversal of Cenvat credit for exempted products.
3. Demand for reversal of Cenvat credit on electricity wheeled out.
4. Challenge against Order-in-Original regarding iron ore fines and electricity.
5. Reversal of credit on input services related to transportation of coal.
6. Applicability of cited case laws.
7. Justification for demanding 10% of the value of electricity wheeled out.
8. Availing Cenvat credit on various other services.

Analysis:
1. The appellant, engaged in manufacturing sponge iron, availed Cenvat credit on input and input services, including service tax on transportation of goods. The demand in the impugned order was for reversal of Cenvat credit due to two main allegations.

2. The first allegation involved the appellant availing Cenvat credit on GTA services for transporting iron ore, leading to the emergence of iron ore fines cleared without duty payment. The demand was made for reversal of credit at 10% of the value of exempted products. The appellant argued that iron ore fines were by-products, not final products, citing relevant case laws.

3. The second allegation concerned the use of coal for sponge iron manufacture and electricity generation. The demand was made for reversal of 10% of the value of electricity wheeled out. The appellant contended that electricity did not fall under excisable goods and no duty rate was prescribed, hence no liability existed.

4. The appellant challenged the Order-in-Original, arguing against the need for reversal of 10% credit for waste or by-products like iron ore fines. Citing relevant case laws, they contended that no reversal was required for such products. Regarding electricity, they argued against its classification as exempted goods due to the absence of an exemption notification.

5. The appellant reversed the credit on input services related to coal transportation, partially used for sponge iron and electricity generation. Citing legal precedents, they claimed that reversing the credit meant it was not availed initially, thus no liability existed.

6. The Tribunal analyzed the case laws cited by the appellant and found them applicable, especially regarding the treatment of by-products like iron ore fines. The decisions supported the appellant's argument against the reversal of credit for such products.

7. Regarding electricity, the Tribunal determined that since the appellant had already reversed the credit on input services, no further demand for 10% of the value of wheeled-out electricity was justified.

8. The Departmental Representative raised concerns about the appellant availing credit on various other services besides GTA services. However, the Tribunal noted that only the credit related to coal transportation for electricity generation had been reversed, leading to the conclusion that the demand in the impugned order could not be upheld.

In conclusion, the Tribunal set aside the Order-in-Original, allowing the appeal in favor of the appellant.