2022 (6) TMI 3 - AT - Central Excise

Admissibility of CENVAT Credit - capital goods used for setting up, erection and commissioning of the power plant - period December 2009 to February 2011 - penalty - HELD THAT - Undisputedly the captive power plant was set up by the respondent for supply of uninterrupted power to their PVC plant and was supplying power to the PVC plant after stabilization of power supply therefrom. Since the fact of supply of the power to the PVC plant is not in dispute the availment of CENVAT Credit on the Capital Goods used for setting up the same cannot be disputed. There are no merits in the submissions of the Revenue that just because for some time in the initial stages of installing and commissioning of the plant, the respondents had supplied electricity to MSEDCL on commercial basis from their captive power plant the same can be a reason for denial of the cenvat credit in respect of the Capital Goods used for setting up the Captive Power Plant. Penalty - HELD THAT - There are no merits in the appeals filed by the revenue against the order dropping the proceedings for imposition of penalty on the employees of respondent. Appeals filed by the Revenue are dismissed.

Issues Involved:
1. Admissibility of CENVAT credit on capital goods used for setting up a Captive Power Plant (CPP).
2. Allegation of suppression of facts by the respondent.
3. Applicability of Rule 6(4) of the CENVAT Credit Rules, 2004.
4. Relevance of previous judicial decisions cited by both parties.
5. Imposition of penalties and confiscation of capital goods.

Issue-wise Detailed Analysis:

1. Admissibility of CENVAT Credit on Capital Goods:
The respondents, engaged in manufacturing PVC resin, pipes, and fittings, claimed CENVAT credit for capital goods used in setting up a CPP. The Revenue disputed this, arguing that the electricity generated was sold to MSEDCL and not used in manufacturing dutiable goods. The Commissioner, however, found that the CPP was intended to ensure uninterrupted power supply to the manufacturing unit. It was noted that the electricity was initially sold but later used for manufacturing dutiable goods, thus making the credit admissible.

2. Allegation of Suppression of Facts:
The Revenue alleged that the respondents suppressed the fact of selling electricity and not using it for manufacturing dutiable goods. The Commissioner, however, noted that the respondents had availed credit with the intent to use the electricity in their manufacturing process. The Commissioner concluded that the initial sale of electricity did not negate the eventual use of the electricity for manufacturing dutiable goods.

3. Applicability of Rule 6(4) of the CENVAT Credit Rules, 2004:
Rule 6(4) disallows CENVAT credit on capital goods used exclusively for manufacturing exempted goods. The Commissioner found that the CPP was not exclusively used for exempted goods as the electricity was eventually used in manufacturing dutiable goods. The decision was supported by the retrospective amendment to Rule 6(4) by Notification No. 13/2016-CE(NT) dated 01.03.2016, which provided that the bar applies only if capital goods are used exclusively for exempted goods for two years from installation or commencement of production.

4. Relevance of Previous Judicial Decisions:
The Revenue cited various judicial decisions, including Maruti Suzuki Ltd. and Ellora Tiles Ltd., to support their case. However, the Commissioner found these decisions inapplicable as they pertained to inputs used for electricity generation, not capital goods. The decision in Ellora Tiles was also overruled by the Madras High Court in Ashok Leyland. The Commissioner relied on decisions such as Arvind Mills Ltd. and Brindavan Beverages Pvt. Ltd., which supported the respondents' case that credit is admissible if capital goods are eventually used for manufacturing dutiable goods.

5. Imposition of Penalties and Confiscation of Capital Goods:
The Revenue sought penalties and confiscation of capital goods under Rule 15(2) of the CENVAT Credit Rules, 2004, and Section 11AC of the Central Excise Act, 1944. The Commissioner dropped these proceedings, finding no merit in the Revenue's arguments. The appeals against the order dropping penalties on the respondents' employees were also dismissed.

Conclusion:
The appeals filed by the Revenue were dismissed, affirming the Commissioner's order that the respondents were entitled to CENVAT credit on the capital goods used for setting up the CPP. The Commissioner found no suppression of facts and ruled that the initial sale of electricity did not affect the admissibility of the credit. The retrospective amendment to Rule 6(4) and relevant judicial decisions supported the respondents' case. The proceedings for penalties and confiscation were also dropped, finding no merit in the Revenue's arguments.

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