2017 (11) TMI 14 - AT - Central Excise

CENVAT credit - whether credit availed on capital goods used to set up captive power plant can be denied on the ground that the capacity to manufacture dutiable goods was not set up within a few years? - Held that - Rule 6(1) and 6(4) of the Cenvat Credit Rules, 2004 lay down that no cenvat credit shall be allowed on inputs/ input services as well as capital goods which are used only in the manufacture of exempted goods or for provision of exempted services - In the present case, the capital goods on which cenvat credit has been availed, have been used only for the purpose of generation of electricity which stands wheeled out to the grid. It is on record that no part of the electricity has been used for manufacture of excisable goods since such plant was never set up. Electricity is not chargeable to any excise duty and falls within the definition of exempted goods in terms of Rule 2(d) of the Cenvat Credit Rules, 2004. Consequently, in terms of Rule 6(4), the cenvat credit availed is to be considered irregular and will be liable for recovery under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11A of the Central Excise Act, 1944 - appeal dismissed - decided against appellant.

Summary

Issues:
1. Cenvat credit availed on capital goods used for a captive power plant without setting up a factory for manufacturing excisable goods.
2. Interpretation of Rule 6(4) of the Cenvat Credit Rules, 2004 regarding the reversal of cenvat credit on capital goods used exclusively for exempted goods.
3. Applicability of case laws in situations where cenvat credit was availed on capital goods for a co-generation power plant operational before the main factory for excisable goods.

Analysis:
The appeal challenged an order-in-original by the Commissioner, Customs, Central Excise & Service tax, Raipur, concerning the irregular availing of cenvat credit by the appellant on capital goods for a captive power plant. The appellant had obtained registration for manufacturing pig iron, sponge iron, and ferro alloy, with plans to use the power generated from the captive power plant for manufacturing purposes. However, the manufacturing plant was delayed, and the power plant became non-operational. The revenue contended that cenvat credit should be reversed under Rule 6(4) as the power plant was used exclusively for generating electricity wheeled out to the grid, constituting exempted goods. The impugned order demanded recovery of cenvat credit with interest and penalty, leading to the appellant's appeal.

During the appeal, the appellant's counsel argued that the delay was due to financial stress, with plans to start manufacturing shortly, and cited the sale of a stake to another company for operationalizing the plant. The counsel contended that cenvat credit should not be reversed, even if the dutiable capacity was set up later. The Revenue, however, supported the impugned order, asserting that the power plant's use for electricity generation constituted exempted goods, justifying cenvat credit recovery under Rule 14 read with Rule 6(4) of the Cenvat Credit Rules, 2004.

The central issue revolved around whether cenvat credit on capital goods for a captive power plant could be denied due to the absence of a factory for manufacturing excisable goods within a reasonable timeframe. The Tribunal noted that the power plant was set up without the accompanying manufacturing plant, with electricity solely wheeled out to the grid. As per Rule 6(1) and 6(4) of the Cenvat Credit Rules, cenvat credit cannot be allowed on capital goods used exclusively for exempted goods, such as electricity, which falls under the definition of exempted goods. The Tribunal distinguished previous case laws involving co-generation power plants operational before the main factory, as in the present case, no factory was established for manufacturing excisable goods, rendering the cenvat credit irregular and subject to recovery.

Ultimately, the Tribunal upheld the impugned order, rejecting the appeal and affirming the recovery of cenvat credit. The decision was based on the clear application of Rule 6(4) and the absence of a manufacturing plant for excisable goods, leading to the irregularity in availing cenvat credit on capital goods used solely for generating electricity.