2018 (2) TMI 564 - AT - Central Excise

CENVAT credit - Naphtha which is used in their factory for generation of electricity and a part of such electricity so generated had been wheeled out to their sister unit - denial of proportionate credit of Naptha amounting ₹ 1,04,371/- used in the generation of electricity wheeled outside the factory - Held that - the Appellants are not eligible to the credit on Naphtha used for generation of electricity wheeled outside the factory - reliance placed in the case of M/s. Maruti Suzuki Ltd. Versus Commissioner of Central Excise, Delhi-III 2009 (8) TMI 14 - SUPREME COURT , where it was held that appellant are not entitled to CENVAT credit to the extent of the excess electricity cleared at the contractual rates in favor of joint ventures, vendors etc., which is sold at a price - proportionate credit required to be reversed. Penalty - Held that - due to conflicting views on the issue, imposition of penalty is uncalled for. Appeal allowed in part.

Summary

Issues:
- Eligibility of CENVAT credit on Naphtha used for generation of electricity wheeled outside the factory premises.
- Imposition of penalty on the Appellant.

Analysis:
1. Eligibility of CENVAT credit on Naphtha:
The case involved an appeal against the denial of CENVAT credit on Naphtha used for generating electricity that was wheeled outside the factory premises. The Appellant argued that the waste heat generated during the electricity generation process was utilized within the factory, justifying the credit availed. Reference was made to the judgment of the Hon’ble Supreme Court in UOI Vs. Hindustan Zinc Ltd. The ld. A.R. for the Revenue contended that the denial of credit was in line with the judgment in Maruti Suzuki Ltd. case. The Tribunal noted that the issue was settled by the Supreme Court in Maruti Suzuki Ltd. case, ruling against the eligibility of credit for Naphtha used in generating electricity wheeled outside the factory. Consequently, the Appellants were deemed ineligible for the credit as per the impugned order.

2. Imposition of Penalty:
Regarding the imposition of penalty, the Appellant argued that penalty should not be imposed, citing the judgment in Maruti Suzuki Ltd. case, which observed that due to conflicting views on the issue, penalty imposition was unwarranted. The Tribunal agreed with this contention and set aside the penalty imposed on the Appellants. The impugned order was modified to reflect this decision, partially allowing the Appeal. The Tribunal pronounced the judgment on 22.12.2017, providing clarity on both the eligibility of CENVAT credit and the imposition of penalty in the case at hand.