2024 (2) TMI 302 - HC - Central Excise

Reversal of proportionate CENVAT credit - generation of electricity - CENVAT credit of Counterveiling Duty (CVD) on import of Coal - quantum of power wheeled out to sister units - HELD THAT - The narration of facts as captured in paragraphs 1 and 7 of the judgment in Maruti Suzuki 2009 (8) TMI 14 - SUPREME COURT is to the effect that the supply of electricity in that case was to sister concerns, vendors and third parties, and at cost. Thus, the Court was concerned with the factual scenario where the power was sold to other units and whether, in such circumstances, such sale would qualify for the claim of CENVAT credit. In the present case, the electricity has not been sold but has been supplied though wheeling by TANGEDCO to sister units located elsewhere. All units are engaged in manufacture/grinding of cement and form part of the same group of companies. They admittedly hold separate licenses for manufacture and are independent assessees - the facts that the power in this case has not been sold for consideration and has only been shared with the sister units will be a relevant consideration. Importantly, a distinction has been envisaged between the goods used 'in the factory' by the 'manufacturer of the final product' and the goods used for 'generation of power'. While the former insists that the goods must be used 'in the factory' , there is no stipulation of place as regards the goods in clause (iii). Therefore, there are merit in the position that electricity captively generated is an input, wherever used by the assessee concerned. The use of the term captive is, in our view a qualification of the location where it is generated and not of the location where it is used. The appellant must succeed on the specific fact pattern as arising in this appeals. These appeals are allowed.

Summary

Issues Involved:
1. Entitlement to full credit of duty on inputs and input services used for generation of electricity at the Captive Power Plant (CPP).
2. Liability to pay an amount equal to 6% of the value of electricity wheeled out to the grid of TANGEDCO in terms of Rule 6(3)(i) of CENVAT Credit Rules (CCR).

Summary:

Entitlement to Full Credit of Duty on Inputs and Input Services:
The appellants, manufacturers of cement, set up a CPP and wheeled out a portion of the generated electricity to sister units under an agreement with TANGEDCO. They availed CENVAT credit on imported coal used in the CPP. The department alleged contravention of Rule 6(1), 6(2), and 6(3) of CCR, proposing the demand of duty, interest, and penalty, arguing that the wheeled-out electricity does not qualify as 'input service' under Rule 2(k) and Rule 2(i) of CCR. The appellants refuted this, maintaining separate accounts for coal import and utilization, and reversed the proportionate credit towards inputs and input services attributable to the power transferred to sister units.

Liability to Pay 6% of the Value of Electricity Wheeled Out:
The department's reliance on the Supreme Court's judgment in Maruti Suzuki Ltd. v. Commissioner of Central Excise, Delhi, was distinguished by the appellants, who cited other judgments supporting their entitlement to full credit. The appellants argued that electricity qualifies as an input for CENVAT credit and that the excess electricity was not sold but transferred to their duty-paying sister units. They also contended that the demand for 6% on the notional value of the wheeled-out electricity was arbitrary, as electricity is neither excisable nor exempt under the Act.

Court's Analysis and Decision:
The court examined the definition of 'input' under Rule 2(g) of CCR 2002 and 2004, which mandates that inputs must be consumed within the factory of production. The judgment in Maruti Suzuki Ltd. was considered, emphasizing that inputs used for generation of electricity are admissible for CENVAT credit only if the electricity is used within the factory. However, the court noted that the definition of 'input' was amended in 2011, removing the requirement of usage in a particular location. The court found merit in the appellants' position that electricity generated captively is an input, irrespective of its usage location within the company's units.

Conclusion:
The court concluded that the appellants are entitled to full credit on the specific fact pattern of the case, as the electricity generated was used within the appellant group of companies, albeit at different locations. The appeals were allowed, and miscellaneous petitions were closed with no order as to costs.