2014 (9) TMI 768 - AT - Central Excise

CENVAT Credit - Generation of electricity from bagasee - Non maintenance of separate records - Reversal of credit - Held that - electrical energy which is mentioned in Chapter 27 of the Central Excise Tariff Act covers only such electrical energy which is generated from mineral fuels, mineral oil and products obtained therefrom and electrical energy produced from bagasse is not covered under Chapter 27 and hence, such electrical energy is not excisable goods nor is it exempted goods as defined in Section 2(d) of the Act. It was further held that Rule 6 of the CENVAT Credit Rules, 2004 refers to both dutiable/excisable goods and exempted goods. Only then, it is necessary for the manufacturer to maintain separate accounts. Rule 6(3) of the said Rules provides that when CENVAT credit is taken on the inputs/input service which are used for manufacture of dutiable as well as exempted final products, then the assessee is required to reverse proportionate credit or pay 5% amount of the value of the exempted final products. As regards electricity which is not excisable goods, the provisions of Rule 6 would not ab initio apply. Appellant has generated electricity from bagasse. Bagasse on burning generates heat and with the help of heat, steam is generated which is used to rotate turbines as a result of which electricity is generated. In view of the above, the impugned demands confirmed against the appellant @ 5% of the value of the electricity supplied to MSEB is clearly unsustainable in law. However, since electricity is not excisable goods , the appellant is not eligible to take any CENVAT credit on the inputs/input services used in the generation of such non-excisable electricity sold to MSEB. CENVAT credit is available only when input/input services are used in or in relation to the manufacture of excisable goods or for providing taxable services. Inasmuch as the appellant has utilized part of the inputs/input services in or in relation to the generation of electricity which has been sold, to that extent the appellant would not be eligible for taking of CENVAT credit on such inputs/input services used in the generation of electricity which has been sold to MSEB. Therefore the appellant would be liable to reverse the credit, if any, taken on such inputs/input services which have been used in the generation of electricity which have been sold to MSEB. - decided partly in favour of assessee.

Summary

Issues:
1. Liability of excise duty on electricity generated and sold.
2. Maintenance of separate records for dutiable and exempted goods.
3. Eligibility for CENVAT credit on inputs and input services used in electricity generation.

Issue 1: Liability of excise duty on electricity generated and sold
The appellant, a sugar/molasses manufacturer, generated electricity from bagasse and sold part of it to the electricity board. The department demanded payment of sums for not maintaining separate records on inputs used in electricity production. The appellant argued that electricity is not excisable goods as per the Central Excise Tariff Act and relied on a High Court decision. The Tribunal held that electricity generated from bagasse is not excisable goods, making the demand unsustainable.

Issue 2: Maintenance of separate records for dutiable and exempted goods
The department contended that since the appellant did not maintain separate records for dutiable and exempted goods, they are liable to pay a sum based on the value of exempted goods sold. The Tribunal referred to Rule 6 of CENVAT Credit Rules, stating that since electricity is not excisable goods, the provisions of Rule 6 do not apply. The demand based on lack of separate records was set aside.

Issue 3: Eligibility for CENVAT credit on inputs and input services used in electricity generation
The Tribunal held that the appellant is not eligible for CENVAT credit on inputs used in generating non-excisable electricity sold to the electricity board. The appellant was directed to reverse the credit taken on inputs used in electricity generation. However, the Tribunal specified that only inputs with a nexus to electricity generation need credit reversal. The matter was remanded to the adjudicating authority for re-computation of the demand based on inputs and input services with a nexus to electricity generation.

In conclusion, the Tribunal allowed the appeals partly, stating that the demands based on the value of electricity sold were unsustainable in law. The appellant was directed to reverse CENVAT credit on inputs with a nexus to electricity generation, subject to re-computation based on evidence provided.