2018 (3) TMI 180 - AT - Central Excise

CENVAT credit - it appeared that the appellants have availed Cenvat credit on input and input services used for generation of electricity in their Captive Power Plant (CPP) without adhering to the provisions of Rule 6 of CCR, in respect of excess quantum of electricity wheeled out to TANGEDCO - Rule 6 (3) (i) of CCR - Held that - on the eligibility of availment of Credit in respect of eligible inputs used for generating electricity, there cannot be any doubt. The important takeaway from the definition in Rule 2 (k) (iii) of CCR, however is that the eligibility of input credits will however be restricted to goods used for generation of electricity for captive use. No doubt, there is no definition of captive use in CCR. In such a situation, the meaning of the phrase captive use as understood when used in central excise law and notifications will prevail. The interpretation of the phrase captive use in respect of manufacture of excisable goods will only mean consumption of goods within the factory of manufacture and, more importantly, the fact that such goods are not sold of otherwise removed from the factory of manufacture. In Rule 2 k of CCR, in the Sub rule (I iv), apart from sub rule (iii), the only other provision related to manufacture of excisable goods is sub-rule (i) which concerns all goods used in the factory by the manufacturer of final products. On the same analogy, the goods used in the production of electricity for captive use will then mean the goods used for generation of electricity for consumption of manufacturer within his own factory of manufacture but definitely not electricity which is sold outside the factory. Penalty - Held that - the ingredients attracting imposition of penalty equal to tax demanded under Rule 15 (1) of CCR are not attracted to the facts of the present case - the equal penalty imposed under Rule 15(1) is set aside. Appeal allowed in part.

Issues Involved:
1. Eligibility of Cenvat credit on inputs and input services used for generation of electricity wheeled out to TANGEDCO.
2. Applicability of Rule 6 of the Cenvat Credit Rules (CCR), 2004, regarding separate accounts for production of electricity.
3. Demand of 6% of the value of electricity wheeled out.
4. Imposition of penalty under Rule 15(1) of CCR.

Issue-wise Detailed Analysis:

1. Eligibility of Cenvat Credit on Inputs and Input Services:
The appellants argued that they are eligible for Cenvat credit on inputs and input services used for generating electricity wheeled out to TANGEDCO, as the excess electricity was utilized by their own duty-paying units. They contended that electricity is neither excisable nor exempted goods as per Section 2(d) of the Act, and thus, the credit is fully eligible. They cited various judgments to support their claim, including M/s. Ultra Tech Cement Ltd. Vs. CCE, Ahmd., Arvind Mills Ltd. Vs. CCE, Ahmd., and others. However, the Tribunal referred to the Supreme Court's judgment in Maruti Suzuki Ltd. Vs. CCE, which held that inputs used for generating electricity wheeled out to vendors are not eligible for Cenvat credit. The Tribunal concluded that the eligibility of input credits is restricted to goods used for generation of electricity for captive use, meaning consumption within the factory of manufacture.

2. Applicability of Rule 6 of CCR:
The department's view was that the appellants should have maintained separate accounts for the receipts, consumption, and inventory for the production of electricity used within the factory and wheeled out to TANGEDCO. Rule 6 of CCR mandates that Cenvat credit shall not be allowed on inputs or input services used in the manufacture of exempted goods or services, unless separate accounts are maintained. The Tribunal found that Rule 2(k)(iii) of CCR allows credit on inputs used for generating electricity for captive use, but this does not include electricity sold or wheeled out. The Tribunal emphasized that the definition of "captive use" in excise law means consumption within the factory and not for electricity sold outside the factory.

3. Demand of 6% of the Value of Electricity Wheeled Out:
The department issued a Show Cause Notice (SCN) demanding ?2,66,09,847/- being 6% of the value of electricity wheeled out to TANGEDCO, as the appellants did not maintain separate accounts. The Tribunal upheld this demand, stating that the appellants are liable to pay the amount equal to 6% of the value of electricity not used within the factory of production, along with interest. The Tribunal referred to the Supreme Court's judgment in Maruti Suzuki Ltd., which clarified that Cenvat credit is not admissible for inputs used in generating electricity wheeled out to vendors or the grid.

4. Imposition of Penalty under Rule 15(1) of CCR:
The adjudicating authority had imposed an equal penalty under Rule 15(1) of CCR. The appellants argued that the issue involved legal interpretation and cited several judgments in their favor. The Tribunal noted that the issue of eligibility of inputs used in generating electricity wheeled out was mired in litigation for quite some time. Referring to the Supreme Court's judgment in Maruti Suzuki Ltd., which waived the penalty due to the conflicting views and amendments in Cenvat Credit Rules, the Tribunal set aside the equal penalty imposed under Rule 15(1), acknowledging the mitigating factors applicable to the present case.

Conclusion:
The Tribunal upheld the demand of ?2,66,09,847/- along with interest but set aside the penalty imposed under Rule 15(1) of CCR. The appeal was partly allowed on these terms.

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