2015 (10) TMI 1637 - AT - Central Excise

Denial of CENVAT Credit - appellant has sold a portion of the electricity produced by the DG set to another unit - Held that - It can be seen that Cenvat credit can be disallowed only when capital goods are used exclusively in the manufacture of exempted goods or in providing exempted services. That being the position, when there is no dispute that the appellants have not used DG set exclusively for manufacture of electricity which is in turn used for manufacture of exempted goods, credit could not have been denied. Electricity is in any case exempted but nevertheless the capital goods which are used for producing electricity which is in turn used for manufacture of duty paid goods in any case is eligible as per law. That being the position, just because appellants have sold a portion of electricity generated to others, credit cannot be denied unless it is shown that electricity generated has been used only in the manufacture of exempted goods - Decided in favour of assessee.

Issues: Disallowance of Cenvat credit on Diesel Generating Sets and Air Compressor due to sale of electricity generated.

Analysis:
1. The issue involved in this case is the disallowance of Cenvat credit amounting to &8377; 9,94,214/- availed by the appellant on Diesel Generating Sets and Air Compressor in 2006, along with the imposition of interest and penalty equal to the credit availed. The disallowance was based on the contention that the appellant sold a portion of the electricity produced by the DG set to another unit, rendering the credit inadmissible.

2. The relevant rule in question is Rule 6(4) of the Cenvat Credit Rules, which states that no Cenvat credit shall be allowed on capital goods used exclusively in the manufacture of exempted goods or in providing exempted services. The crucial point to note is that Cenvat credit can only be disallowed if the capital goods are used solely for manufacturing exempted goods or services. In this case, as it is undisputed that the appellant did not use the DG set exclusively for manufacturing exempted goods, the denial of credit is unwarranted.

3. The Tribunal emphasized that even though electricity is an exempted product, the capital goods (DG set) used to generate electricity for manufacturing duty-paid goods are eligible for credit as per the law. Therefore, the mere fact that the appellant sold a portion of the electricity does not justify the denial of credit unless it is proven that the electricity generated was solely used in the manufacture of exempted goods.

4. Consequently, the Tribunal held that since there was no evidence to show that the electricity generated was used exclusively for exempted goods, the denial of credit was unjustified. The appeal was allowed in favor of the appellant, with any consequential relief granted accordingly.

In conclusion, the judgment by the Appellate Tribunal CESTAT Bangalore ruled in favor of the appellant, allowing the Cenvat credit on Diesel Generating Sets and Air Compressor that was initially disallowed due to the sale of electricity generated. The decision was based on the interpretation of Rule 6(4) of the Cenvat Credit Rules, emphasizing that credit can only be denied if the capital goods are used exclusively for manufacturing exempted goods, which was not the case here.

← Previous Next →