2017 (11) TMI 475 - AT - Central Excise

CENVAT credit - captive consumption of electricity - the department was of the view that the appellant was required to pay an amount equal to 10%/ 5% of the price of exempted goods, i.e. electricity in terms of the provisions of rule 6 (3) (i) of the CCR, 2004 - Held that - it is settled position of law that substantial benefit cannot be denied for procedural infractions - In as much as the proportionate credit of input and input services stand reversed in the ratio of electricity wheeled out to electricity consumed in manufacture, the requirement of Rule 6 of CCR, 2004 stands satisfied - there is no justification for demand of reversal of amount at the rate of 12%/5% of the value of electricity wheeled out - appeal allowed - decided in favor of appellant.

Summary

Issues involved:
Interpretation of Rule 6 of the Cenvat Credit Rules, 2004 regarding the reversal of credit on inputs used for manufacturing exempted goods, specifically electricity wheeled out; Compliance with procedural requirements for availing the benefit of proportionate reversal under Rule 6 (3A); Applicability of Rule 6 in the case of electricity as an exempted product; Consideration of previous judicial decisions on similar matters.

Analysis:
The appeal was filed against an Order-in-Original demanding an amount equal to a percentage of the price of electricity wheeled out by the appellant to the Chhattisgarh State Electricity Board, under Rule 6 of the Cenvat Credit Rules, 2004. The appellant contended that they had already reversed the proportionate credit of input and input services, supported by a certificate from a Chartered Accountant. However, the department argued that procedural requirements were not followed, thus denying the benefit of proportionate reversal.

The Tribunal considered the introduction of Rule 6 (3A) from 01/04/2008, allowing for proportionate reversal of credit on inputs and input services used in the manufacture of exempted goods. Despite procedural lapses, the Tribunal held that substantial benefit cannot be denied for such infractions. As the appellant had reversed the credit in proportion to the electricity wheeled out, the requirement of Rule 6 was deemed satisfied, and the demand for reversal was unjustified.

Referring to the decision of the Hon'ble High Court in a similar case, where it was held that electricity is not excisable goods, the Tribunal concluded that Rule 6 of the Cenvat Credit Rules, 2004 was not applicable to the situation at hand. The High Court's ruling emphasized that no reversal was necessary for electricity wheeled out to the grid, aligning with the appellant's argument.

In light of the above analysis, the impugned order was set aside, and the appeal was allowed by the Tribunal. The judgment highlighted the importance of interpreting tax laws in line with the specific nature of goods involved, ensuring procedural requirements do not impede the substantive benefits intended by the legislation.

[Order Pronounced in the open court on 05/10/2017]