2018 (5) TMI 1707 - AT - Central Excise

CENVAT credit - electricity produced in the factory premises and consumed for production of excisable goods - common input for excisable and exempt goods - captive consumption of electricity - non-maintenance of separate records - Held that - It is now settled law that electricity produced in the factory premises and consumed for production of excisable goods, assessee is entitled to avail Cenvat credit on inputs used for generation of electricity or steam and that if any surplus electricity is wheeled out, to that extent assessee is not entitled to avail Cenvat Credit in respect of inputs utilized for generation of electricity which is not used within factory premises. Appellant having reversed the entire Cenvat Credit attributable to the common inputs used in production of electricity is sufficient compliance of law and hence provision of Rule 6(3) are not attracted in the case in hand. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Utilization of common inputs for power generation and sale of surplus power.
2. Liability to pay an amount for not maintaining separate records for duty paid common inputs.
3. Availment of Cenvat Credit on inputs used for electricity generation.
4. Applicability of demand for payment based on the value of exempted goods.
5. Compliance with retrospective amendment regarding payment for common inputs.

Analysis:

1. The appeal was filed against an Order-in-Original regarding the utilization of common inputs for power generation and sale of surplus power. The appellant had used common inputs to generate power from November 2006 to December 2010, consuming it for manufacturing dutiable products and selling surplus power to the state grid. The revenue claimed that since electricity is not excisable goods and separate records were not maintained for duty paid common inputs, the appellant was liable to pay an amount based on the value of exempted goods sold.

2. After hearing both sides and reviewing the records, it was established that the appellant had indeed sold surplus electricity to the state grid after availing Cenvat Credit on common inputs without maintaining separate accounts. The adjudicating authority concluded that the appellant was liable to pay an amount based on the value of electricity cleared to the state grid.

3. The Tribunal noted that the law allows for the availing of Cenvat credit on inputs used for electricity generation for manufacturing excisable goods. However, if surplus electricity is sold outside the factory premises, the assessee cannot avail Cenvat Credit for inputs used in generating that surplus electricity. The appellant had reversed the entire Cenvat Credit availed on common inputs for the period in question, indicating non-availment of Cenvat Credit.

4. Referring to a previous case law, the Tribunal found that the reversal of the amount on which Cenvat Credit was not eligible is equivalent to non-availment of Cenvat Credit. Therefore, the demand for payment based on the value of exempted goods was deemed incorrect in this case, as the appellant had effectively not availed Cenvat Credit on common inputs.

5. The Tribunal also considered a retrospective amendment introduced by the Finance Act 2010, which required payment equivalent to the Cenvat Credit attributable to the proportionate utilization of common inputs in exempted goods. Since the appellant had reversed the entire Cenvat Credit attributable to common inputs used in electricity production, the Tribunal concluded that the provision of Rule 6(3) was not applicable in this case. Consequently, the impugned order was set aside, and the appeal was allowed.