2018 (10) TMI 889 - AT - Central Excise

CENVAT Credit - input/input services/capital goods - credit denied on the ground that these were not fully utilized in the manufacture of the final product and some quantity of the generated electricity is wheeled out from the factory - Held that - The appellant should reverse proportionate Cenvat credit of the electricity not used within the factory, after adjusting amount already reversed or deposited, for the intended purpose - reliance placed in the case of Shree Shyam Ispat (India) Pvt. Ltd. 2018 (6) TMI 1537 - CESTAT NEW DELHI - appeal allowed - decided in favor of appelant.

Summary

Issues:
- Availment of Cenvat credit on surplus electricity generated and wheeled out
- Application of Rule 6 of Cenvat Credit Rules, 2004
- Adjudication of penalty under Rule 15 of Cenvat Credit Rules, 2004

Availment of Cenvat credit on surplus electricity generated and wheeled out:
The appellant, engaged in manufacturing activities, generated surplus electricity within its factory premises. The surplus electricity was wheeled out to Chhattisgarh Grid on payment of consideration. The Department objected to the availment of the entire Cenvat credit due to the surplus electricity generation. The show cause notice led to an order where a specific amount was confirmed, and a penalty imposed under Rule 15 of Cenvat Credit Rules, 2004 read with Section 11AC (1) (c) of the Central Excise Act, 1944. The Tribunal heard both sides and referred to a similar case where it was established that Cenvat credit attributable to the electricity wheeled out from the factory would not be available for the Cenvat benefit. The Tribunal set aside the impugned order and allowed the appeal based on the precedent, emphasizing the need to ascertain the quantum of electricity wheeled out from the factory.

Application of Rule 6 of Cenvat Credit Rules, 2004:
The discussion revolved around Rule 6 of the Cenvat Credit Rules, 2004, which deals with the obligations and conditions for manufacturers engaged in the production of both dutiable and exempted final products. Electricity, though classified as excisable goods, had no prescribed duty rate and was not exempted from Central Excise duty. The Tribunal, based on the precedent case, concluded that the embargo created in Rule 6 did not apply to the electricity wheeled out from the factory. It was noted that the generated electricity not entirely used within the factory for manufacturing the final product would impact the availability of Cenvat credit, necessitating a proportionate adjustment and reversal of credit.

Adjudication of penalty under Rule 15 of Cenvat Credit Rules, 2004:
The penalty imposed under Rule 15 of Cenvat Credit Rules, 2004 was a subject of contention. The Tribunal, after considering the arguments and the precedent case, set aside the penalties imposed. The decision was aligned with the findings related to the availment of Cenvat credit on surplus electricity generation and wheeled-out electricity. The Tribunal emphasized the need for a thorough assessment of the quantum of electricity wheeled out from the factory to determine the proportionate Cenvat credit adjustment. Consequently, the penalties were revoked in line with the decision to allow the appeal.