2018 (1) TMI 472 - AT - Central Excise

CENVAT credit - input/input services - inputs used for generation of steam within the factory - captive consumption - Held that - the electricity generated within the factory by use of steam, were not utilised/used in entirety within the factory for manufacture of the excisable final product. Since, a portion of the generated electricity is wheeled out from the factory, the appellant was not entitled to take credit or was required to reverse Cenvat credit proportionately in respect of the electricity wheeled out from the factory. Extended period of limitation - penalties - Held that - it is an admitted fact that the issue with regard to applicability of sub-rule (3) of Rule 6 ibid was highly contentious and at the material time, there was no proper clarity with regard to dealing with manufacture of dutiable as well as final product. Therefore, mala fides cannot be attributed, justifying invocation of the extended period of limitation and for imposition of penalties. Appeal allowed in part.

Summary

Issues involved:
- Entitlement to Cenvat credit on inputs used for generation of electricity
- Applicability of Rule 6(3) of the Cenvat Credit Rules, 2001/2002
- Limitation period for show cause proceedings
- Imposition of penalties

Entitlement to Cenvat credit on inputs used for generation of electricity:
The appellant, engaged in manufacturing chemicals, availed Cenvat credit on inputs used for generating steam, which in turn produced electricity. The department objected to this claiming that since not all electricity was used within the factory, the appellant was not entitled to the full Cenvat credit. The appellant argued that since electricity was not exempted or subject to nil rate of duty, Rule 6(3) of the Cenvat Credit Rules did not apply. The appellant relied on a High Court judgment upheld by the Supreme Court to support their position. The Tribunal acknowledged that not all generated electricity was used internally, leading to the conclusion that the appellant was not entitled to full credit for inputs used in electricity generation.

Applicability of Rule 6(3) of the Cenvat Credit Rules, 2001/2002:
The Revenue argued that since electricity was wheeled out of the factory, the appellant should not receive full Cenvat benefit on the inputs used for electricity generation. The Tribunal agreed that the appellant should reverse Cenvat credit proportionately for the electricity wheeled out. However, due to the lack of clarity at the time regarding the application of Rule 6(3), the Tribunal did not attribute mala fides to the appellant and decided against invoking the extended limitation period or imposing penalties.

Limitation period for show cause proceedings:
The appellant contended that the show cause notice was time-barred as their actions were in compliance with the Cenvat statute, without any intent to defraud revenue. The Tribunal agreed, ruling that the extended limitation period could not be invoked, and any demand should be limited to the normal period. Since there was no evidence of mala fides, the Tribunal decided against imposing penalties.

In conclusion, the Tribunal disposed of the appeal by finding that the appellant was not entitled to full Cenvat credit on inputs used for electricity generation due to the portion of electricity wheeled out of the factory. The Tribunal also ruled that the extended limitation period was inapplicable, and no penalties were to be imposed due to the absence of mala fides on the part of the appellant.