2005 (1) TMI 306 - AT - Central Excise

Eligibility of Cenvat credit on inputs - Job work - Demand - Limitation - Extended period - HELD THAT - The Cenvat credit is admissible when the inputs are received in the factory and used in or in relation to the manufacture of final products. The inclusion clause in the Rule does not restrict or reduce the scope of the main clauses in the Rule. Moreover, the expression availing the benefit of exemption specified in the Notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 214/86-C.E., dated 25th March 1986 is only an enabling provision which permits credit on inputs to the principal manufacturer, even in cases where the input is not received by it, but is received directly by the job worker and provides for taking Cenvat credit of the duty paid on the inputs used in the manufacture of intermediate products even when no duty is required to be paid on the intermediated products.., Rule 57AC of the 2000 Rules and Rule 4(5)(a) of July 2001 Rules provide an additional facility, and do not lay down any requirement that the following of Notification 214/86-C.E. is precondition for availment of Cenvat credit, in any case, where the intermediate product is not excisable or otherwise exempted from payment of duty, the question of availing the benefit of Notification No. 214/86 does not arise. We, therefore, do not see any force in the contention of the Revenue. We, therefore, hold that the appellant was entitled to take Cenvat credit on the duty paid on Naphtha, sent as such, or after being partially processed (CLS) to the power plant for generation of steam or electricity, which was sent to the petrochemical complex of the appellant for use or in relation to the manufacture of final products under Rule 57AC or Rule 4(5)(a) of the Central Excise Rules or Cenvat Credit Rules. We are also of the view that no relevant facts were suppressed by the appellant as is evident from various letters and discussions with the Departmental Officers, and, therefore, the extended period of limitation cannot be invoked under the proviso to Section 11A(1) of the Central Excise Act, 1944. There is also no case for imposition of penalty, firstly for the reason that the demand of duty is unsustainable and secondly for the reason that the case involves a question of interpretation of law. We, therefore, set aside the order passed by the Commissioner of Central Excise and allow Appeal and grant consequential relief, if any. In view of the decision that we have taken in Appeal, it is not necessary to decide the issues involved in Appeal and accordingly this appeal is dismissed as infructuous.

Summary

Issues Involved:
1. Whether the power plant is located within the factory premises of the appellant and consequently whether Cenvat credit is admissible.
2. Whether the appellant is entitled to Cenvat credit on the basis that the inputs are being supplied to a job worker, namely the power plant, for generation of steam and electricity which are returned back to the appellant's factory for production of the final products.

Summary:

Issue 1: Location of the Power Plant
The appellant contended that the power plant is situated within the factory of production of final products and is shown in the ground plan approved by Central Excise. The appellant emphasized that the power and steam generation process is highly integrated with the Naphtha Cracking Unit. The power plant is dedicated to the appellant's factory, with all raw materials supplied by the appellant free of charge. The power plant only recovers facilitation charges and does not sell steam or electricity to any outside user.

Issue 2: Cenvat Credit on Inputs Supplied to Job Worker
The appellant argued that they are entitled to Cenvat credit under the job work procedure, even if the character of the inputs changes. They cited multiple judgments to support their claim that the change in identity of the input does not bar the admissibility of Cenvat credit. The Commissioner denied the benefit of Rule 4(5)(a) of the Cenvat Credit Rules, stating that the rule emphasizes the return of inputs or partially processed inputs and not their complete conversion into a different entity, such as electricity.

Findings:
1. Location of the Power Plant: The Tribunal found it unnecessary to give a finding on this issue due to its findings on the second issue.
2. Cenvat Credit on Inputs Supplied to Job Worker: The Tribunal held that the definition of "input" covers goods used for the generation of electricity or steam used for the manufacture of final products. The Tribunal found that the power plant is indeed a job worker as it performs operations on raw materials supplied by the appellant, with the intermediate products returned to the appellant's factory. The expressions "further processing" and "any other purpose" in Rule 4(5)(a) are wide enough to include the generation of electricity or steam as intermediate products.

The Tribunal also held that the appellant was entitled to take Cenvat credit on the duty paid on Naphtha sent to the power plant for generating steam or electricity, which was used in the manufacture of final products. The Tribunal found no suppression of relevant facts by the appellant and ruled that the extended period of limitation could not be invoked. Consequently, the imposition of penalty was also deemed unwarranted.

Conclusion:
The Tribunal set aside the order passed by the Commissioner of Central Excise, allowed Appeal No. E/4001/04-A, and dismissed Appeal No. E/4210/04-A as infructuous.