2005 (10) TMI 12 - AT - Central Excise

Cenvat credit - Electricity generated by using inputs on which credit was availed partly supplied to residential colonies

Summary

Issues:
1. Applicability of Cenvat Credit Rules on electricity consumed and supplied by the appellants.
2. Recovery of 8% value of electricity supplied outside under Rule 6 of Cenvat Credit Rules.
3. Imposition of penalties under Rule 13 and Section 11AC.

Analysis:

Issue 1: Applicability of Cenvat Credit Rules on electricity consumed and supplied

The appellants, engaged in paper manufacturing, availed Cenvat Scheme benefits on inputs used for demineralization of water for electricity generation. The Revenue proposed recovery of 8% value of electricity supplied outside, alleging common inputs used for dutiable and exempted goods. The Tribunal held that electricity is not excisable goods under the Central Excise Act, thus Rule 6 of Cenvat Credit Rules does not apply to non-excisable goods. Citing precedents, the Tribunal rejected the Revenue's claim, finding no justification to consider electricity as excisable goods.

Issue 2: Recovery of 8% value of electricity supplied outside

The Commissioner confirmed the demand based on Rule 6, leading to penalties under Rule 13 and Section 11AC. However, the Tribunal disagreed, stating that electricity does not fall under excisable or exempted goods as per definitions in Cenvat Credit Rules and Central Excise Act. The Tribunal emphasized that since electricity is not excisable, it cannot be considered a final product under the Cenvat Credit Rules, making the demand for recovery unjustifiable. The Tribunal upheld the appellants' reversal of credit related to electricity supplied outside, rendering the excess duty demand unrecoverable.

Issue 3: Imposition of penalties under Rule 13 and Section 11AC

The Tribunal ruled in favor of the appellants, disallowing the penalties under Section 11AC and interest under Section 11AB, as the demands were not upheld. By setting aside the impugned order, the Tribunal allowed the appeal, emphasizing that when the demands are not justified, corresponding penalties and interests cannot be upheld. The Tribunal's decision was based on the inadmissibility of credit on inputs used for electricity generation supplied outside the factory, aligning with the definition of excisable goods and exempted goods under the relevant rules and acts.

In conclusion, the Tribunal's judgment clarified the non-applicability of Cenvat Credit Rules to electricity, leading to the dismissal of recovery demands and associated penalties. The decision underscored the importance of aligning demands with legal definitions and precedents to ensure fair and accurate application of tax laws in industrial settings.