2018 (1) TMI 999 - HC - Central Excise

CENVAT credit - Whether the CESTAT is correct in allowing the CENVAT Credit on plant and machinery as capital goods installed in the Co-generation power plant which is outside the approved factory premises and without bringing the same in their factory and without using the same in the manufacturing of finished goods? Held that - Section 6 read with Rule 9 of the Central Excise Rules, 2002, requires a person such as the assessee-engaged in production or manufacture or any processes of production or manufacture of specified goods (sugar and molasses in the present case), has to compulsorily obtain registration. Certain notifications have also been issued under Rule 9 providing for conditions, safeguards, procedure etc. pertaining to grant of registration - Clearly if a person is manufacturing two different items at two different premises, he is required to obtain separate registrations in respect of such separate process involving separate premises. In the instant case, it has been found by the Tribunal that the bagasse produced at the premises engaged in manufacture of sugar and molasses, was consumed in entirety at the other premises being the co-generation power plant. Also, the Tribunal found that the electricity produced at the co-generation power plant at the other premises was used at the sugar and molasses plant and it was only in the off season that some part of electricity may have been sold to the State Electricity Department which as a fact was not found verified on record. In view of the provision of Section 2(e) of the Act read with Rule 2(t) of the Rules and as self classified by the CBEC circular/instructions, the activities of the assessee at the two separate premises in question were clearly interlinked. Factory under Section 2(e) of the Act, means any premises where part of manufacturing processes connected with the production of goods is carried on. Therefore, once it had been found that electricity produced at one premise of the assessee had been used to manufacture of sugar and molasses at the other premise and also that the bagasse manufactured at the other premises of the assessee (sugar and molasses plant) had been used to generate electricity at the premise of the assessee generating electricity, it appears the two premises together would constitute the factory of the assessee under Section 2(e) of the Act. While, there is no dispute that CENVAT credit had arisen to the assessee on the capital goods used to generate electricity, it is to be seen whether the said capital goods had been received in the factory of manufacture of final product for the purpose of Rule 3(1), as above. Here, it is noted that the phrase factory of manufacture of final product has not been defined under the Rules. By virtue of Rule 3(t) of the Rules read with Section 2(e) of the Act, the term factory used in Rule 3(1) has to be given the same meaning as has been given to that word under the Act - the Tribunal has made no error in allowing the assessee to utilize CENVAT credit on capital goods against the duty payment on sugar and molasses. Appeal dismissed - decided against appellant-Revenue.

Summary

Issues Involved:
1. Whether the co-generation plant situated across a public road qualifies as part of the sugar factory for common registration.
2. Whether CENVAT credit on capital goods installed in the co-generation power plant is admissible when the plant is situated outside the approved factory premises.

Issue-wise Detailed Analysis:

1. Common Registration for Co-generation Plant and Sugar Factory:
The primary issue was whether the co-generation plant used for generating electricity, situated across a public road from the sugar factory, could be considered part of the sugar factory for the purpose of common registration. The Tribunal allowed the appeal filed by the assessee, which was initially rejected by the Commissioner (Appeals) and the Assistant Commissioner of Central Excise. The Tribunal found that the processes at the two plants were interlinked, as the bagasse produced at the sugar factory was used at the co-generation plant to produce steam and electricity. The electricity generated was used in the sugar manufacturing process, and the surplus was sold to the State Electricity Board. The Tribunal relied on a CBEC circular and noted that the two plants were connected by an overhead conveyor belt and shared common administration and labor. Therefore, the Tribunal concluded that the assessee was entitled to a single registration for both premises.

2. Admissibility of CENVAT Credit for Co-generation Plant:
The second issue was whether the assessee could avail CENVAT credit on capital goods installed in the co-generation power plant, which was outside the approved factory premises. The Tribunal held that the assessee was entitled to CENVAT credit on the capital goods used to establish the co-generation power plant against the duty payment on sugar and molasses. The revenue objected, arguing that the co-generation plant was a separate entity and some electricity was sold externally. The Tribunal rejected this objection, noting no evidence that the co-generation plant operated during the off-season. The Tribunal also referenced a previous decision by the Bangalore bench in a similar case, supporting the admissibility of CENVAT credit for capital goods used in a co-generation plant. The Tribunal concluded that both premises constituted a single factory under Section 2(e) of the Act, allowing the assessee to utilize CENVAT credit on capital goods for duty payment on sugar and molasses.

Conclusion:
The High Court upheld the Tribunal's findings, affirming that the processes at the two premises were interlinked and the assessee was entitled to a single registration. The Court also upheld the Tribunal's decision allowing the assessee to utilize CENVAT credit on capital goods installed in the co-generation plant against the duty payment on sugar and molasses. The appeals filed by the revenue were dismissed, and the questions of law were answered in favor of the assessee.