2019 (11) TMI 485 - AT - Central Excise

CENVAT Credit - credit of capital goods on TG-2 denied - Rule 6(4) of CCR 2004 - HELD THAT - Rule 6(4) of CCR 2004 prohibits availment of Cenvat credit on capital goods used exclusively for manufacture of exempted goods. In other words, if they are used for both manufacture of dutiable products and exempted products, the Cenvat credit on capital goods can be availed - In the present case, TG-2 has been installed in an island mode exclusively for supply of power to the grid as per the PPA. In fact, the clauses in the PPA indicate that there will be two TG sets and TG-2 has to run in an island mode and is meant only for supply of power to the grid. There is nothing on record to show that PPA entered into has been modified and the clause requiring TG-2 to be in an island (isolated) mode has been modified to enable it to be interconnected with the sugar plant for use in the manufacture of sugar. Considering the contradictory pieces of evidence both made available by the appellant, it is found that the PPA is more authentic document. Even if the appellant has connected TG-2 with their sugar plant, for a short time in violation of the agreement, that does not make it capital good used in manufacture of sugar. There is also no evidence to substantiate that during the short interval when such connection is made, whether any excisable products have been manufactured. Extended period of limitation - Penalties - HELD THAT - In this case, when the appellant has consciously entered into an agreement with APTRANSCO indicating that TG-2 set is to be isolated from the plant and to be used exclusively for generation of electricity to be whole out to the grid, they should not have taken the Cenvat credit on capital goods under Rule 6(4). They have taken ineligible Cenvat credit with an intent to illegally avail Cenvat credit and to that extent evade payment of duty - the extended period of limitation has been correctly invoked and also the penalties have been correctly imposed upon the appellant. Appeal dismissed - decided against appellant.

Summary

Issues:
1. Denial of Cenvat credit on capital goods used in the production of electricity for sale to the grid.
2. Interpretation of Rule 6(4) of CCR 2004 regarding availment of Cenvat credit on capital goods.
3. Authenticity of Power Purchase Agreement (PPA) between the appellant and APTRANSCO.
4. Applicability of extended period of limitation and imposition of penalties.

Analysis:
1. The appellant, a cooperative sugar mill, appealed against the denial of Cenvat credit on capital goods used in generating electricity for sale to the grid. The appellant argued that since the electricity generated was also used for their sugar plant, they should be entitled to the credit. However, the departmental representative contended that the Power Purchase Agreement (PPA) clearly stated that the second turbine generator (TG-2) was exclusively meant for supplying power to the grid, making it an exempted product. The Tribunal noted the PPA's provisions and found that the appellant's use of TG-2 for the sugar plant was in violation of the agreement, and no evidence showed excisable products were manufactured during this connection. Consequently, the appellant was not entitled to Cenvat credit on TG-2.

2. Rule 6(4) of CCR 2004 was examined, which prohibits Cenvat credit on capital goods used exclusively for manufacturing exempted goods. The Tribunal emphasized that if the capital goods were used for both dutiable and exempted products, the credit could be availed. Despite the appellant's arguments and reliance on case laws, the Tribunal found that TG-2, as per the PPA, was exclusively meant for supplying power to the grid, making it ineligible for Cenvat credit based on the factual matrix of the case.

3. The authenticity of the PPA between the appellant and APTRANSCO was crucial in determining the purpose of TG-2. The Tribunal noted the clauses in the agreement specifying the isolation and alignment of TG-2 with the grid for power supply. Despite some log books indicating connection to the sugar plant, the Tribunal deemed the PPA as the more authentic document. The inconsistent evidence provided by the appellant did not support their claim for Cenvat credit on TG-2.

4. Regarding the extended period of limitation and penalties imposed, the Tribunal upheld their invocation. The appellant's conscious decision to take ineligible Cenvat credit, as evidenced by the PPA terms, constituted a violation with the intent to evade duty payment. Thus, the extended period of limitation was correctly applied, along with penalties, leading to the rejection of the appeal.

In conclusion, the Tribunal upheld the impugned order, denying Cenvat credit on capital goods used for electricity generation for sale to the grid, based on the terms of the Power Purchase Agreement and Rule 6(4) of CCR 2004.