2023 (9) TMI 179 - AT - Central Excise

Reversal of CENVAT Credit - eligibility to proportionate credit in respect of naphtha used for generation of electricity to the extent such electricity was used for production purposes in the power plant i.e. to run the power plant itself - period April 2006 to January 2011 - suppression of facts or not - extended period of limitation - HELD THAT - Having regard to the ratio of the judgment of the Hon ble Supreme Court in M/S. MARUTI SUZUKI LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, DELHI-III 2009 (8) TMI 14 - SUPREME COURT , it is indisputable that naphtha used in the power plant to produce electricity which was used in the power plant itself for the production of electricity is an 'inpu' within the meaning of rule 2(k) of the 2004 Rules. As held by the Hon ble Supreme Court, electricity generation also forms part of the manufacturing activity and the input used in that electricity generation is an input used in the manufacture of final product . Period from April 1, 2008 to January 31, 2011 - HELD THAT - As held by the Hon'ble Supreme Court in the case of M/S. MARUTI SUZUKI LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, DELHI-III 2009 (8) TMI 14 - SUPREME COURT and by the Tribunal in Appellant's own case, the naphtha used for generation of electricity, which is consumed within the factory of production is an eligible 'input'. Accordingly, the Appellant is eligible for the Cenvat credit availed on naphtha, which is used for generation of electricity and consumed within the factory of production. Period from April 1, 2006 to March 31, 2008 - HELD THAT - The impugned order has held that Cenvat credit was not admissible in respect of naphtha used to produce electricity which was used for production purposes in the power plant itself, on a totally different ground. The Commissioner sought to distinguish the reported decision in Appellant's own case HALDIA PETROCHEMICALS LTD. VERSUS COMMISSIONER OF C. EX., HALDIA 2005 (1) TMI 306 - CESTAT, NEW DELHI on the ground that in the instant case electricity was also sent to the housing colony and Praxair India Ltd. and was also used in the power plant for administrative purposes - It is observed that this was also the case during the period involved in the reported decision. During the earlier period also, the Appellant had reversed the proportionate Cenvat credit in respect of naphtha referable to electricity so used and such use of electricity cannot be a reason for not following the reported decision in Appellant's own case - the grounds raised by the Commissioner in the impugned order to deny the credit availed on naphtha sent for job work for generation of electricity is not tenable. Extended period of Limitation - suppression of facts or not - HELD THAT - A perusal of the copy of working details relating to reversal of credit for the months of January 2005 and February 2005 submitted by the Appellant to the Superintendent of Central Excise vide letter dated April 28, 2005, indicate that the Appellant has separately given the bifurcation of the quantum of electricity consumed in the power plant for its production operations. Accordingly, the grounds raised in the impugned order for invoking extended period not tenable. As there is no suppression of fact involved and the entire issue was within the knowledge of the department, it is held that the demand confirmed in the impugned order is not sustainable on the ground of limitation also. The demand confirmed in the impugned order is not sustainable and is set aside - appeal allowed on merit as well as on limitation.

Summary

Issues Involved:

1. Eligibility of Cenvat credit on naphtha used for generating electricity consumed within the factory.
2. Reversal of Cenvat credit for electricity used outside the factory.
3. Invocation of the extended period of limitation for demand.

Issue 1: Eligibility of Cenvat Credit on Naphtha Used for Generating Electricity Consumed Within the Factory

The Appellant, engaged in the manufacture of petrochemical products, used naphtha to generate electricity and steam. The Tribunal held that naphtha used for generating electricity consumed within the factory qualifies as an "input" under Rule 2(k) of the Cenvat Credit Rules, 2004. The Tribunal relied on the Supreme Court's judgment in Maruti Suzuki Ltd. v Commissioner, which stated that electricity generation forms part of the manufacturing activity, and inputs used in electricity generation are considered inputs for manufacturing final products.

Issue 2: Reversal of Cenvat Credit for Electricity Used Outside the Factory

The Tribunal noted that the Appellant reversed proportionate credit for electricity used in the power plant's administrative operations, supplied to Praxair India Ltd., and sent to the housing colony of its employees. The Tribunal emphasized that credit was admissible for electricity used within the factory for manufacturing activities. The Appellant's practice of reversing credit for electricity used outside the factory was consistent with legal provisions.

Issue 3: Invocation of Extended Period of Limitation for Demand

A Show Cause Notice dated 08.04.2011 proposed the reversal of Cenvat credit for naphtha used to generate electricity for production purposes in the power plant, invoking the extended period of limitation. The Tribunal found that the Appellant had regularly reversed proportionate credit and submitted detailed workings to jurisdictional authorities. The Tribunal held that the extended period of limitation could not be invoked as there was no suppression of facts, and the entire issue was within the department's knowledge.

Judgment Summary:

Period from April 1, 2008 to January 31, 2011:

The Tribunal held that naphtha used within the factory for generating electricity consumed in manufacturing final products qualifies as an eligible input. The Appellant was entitled to Cenvat credit on such naphtha.

Period from April 1, 2006 to March 31, 2008:

For this period, the power plant operated under a job work arrangement. The Tribunal referred to Rule 4(5)(a) of the Cenvat Credit Rules, 2004, which allowed sending inputs to a job worker for further processing. The Tribunal noted that the Appellant's practice of reversing credit for electricity used outside the factory was consistent with legal provisions. The Tribunal dismissed the Commissioner's grounds for denying credit and held that the demand was not sustainable.

Limitation:

The Tribunal found merit in the Appellant's contention that the Show Cause Notice was barred by limitation. The Appellant had regularly communicated credit reversals to the department, and there was no suppression of facts. The Tribunal held that the demand was unsustainable on the ground of limitation.

Conclusion:

The Tribunal set aside the impugned order on merit and limitation, allowing the appeal filed by the Appellant. Consequently, the demand for Cenvat credit reversal, interest, and penalty was quashed.