2017 (4) TMI 93 - AT - Central Excise

CENVAT credit - electricity - captive consumption - denial on the ground that the input, input services and capital goods were not fully utilized in the manufacture of the final product and some quantity of the generated electricity is wheeled out from the factory - Held that - the embargo created in Rule 6 ibid has no application for payment of amount of 6% on the electricity wheeled out from the factory - Since some portion of generated electricity has been sold by the appellant to the grid on payment of consideration, Cenvat credit attributable to the electricity wheeled out from the factory will not be available for the Cenvat benefit - since the quantum of generation of electricity and actual use within the factory captively have not been discussed in the adjudication order and no documents were produced by the appellant to that effect, the matter should go back to the original authority for ascertaining such aspect - The appellant should reverse proportionate Cenvat credit of the electricity not used within the factory for the intended purpose - appeal allowed by way of remand.

Summary

Issues:
1. Availment of Cenvat credit on electricity wheeled out from the factory.
2. Interpretation of Rule 6 of the Cenvat Credit Rules, 2004.
3. Adjudication of Cenvat credit utilization in the manufacture of final product.
4. Quantum of electricity generation and captive use within the factory.

Analysis:
1. The appellant, engaged in manufacturing sponge iron, generates surplus electricity within its factory premises for captive use and wheels out the excess to the grid. The Department objected to the availment of full Cenvat credit due to the partial utilization of the credit in manufacturing and the sale of electricity. The Tribunal noted that electricity, though excisable, is not exempted or nil-rated, thus not falling under the category of exempted goods as per Rule 6 of the Cenvat Credit Rules, 2004. Consequently, Cenvat credit attributable to the wheeled-out electricity cannot be claimed, and the matter was remanded for quantifying the electricity wheeled out for appropriate credit reversal.

2. Rule 6 of the Cenvat Credit Rules, 2004 imposes conditions for manufacturers dealing with both dutiable and exempted final products. In this case, the Tribunal clarified that since electricity does not have a prescribed duty rate and is not exempted, it does not qualify as exempted goods under Rule 2(d) of the Rules. Therefore, the restrictions under Rule 6 do not apply to the electricity wheeled out from the factory. The appellant acknowledged that not all generated electricity was used for manufacturing, leading to the conclusion that Cenvat credit related to the wheeled-out electricity cannot be availed without proper documentation on captive use.

3. The Tribunal observed that the adjudication order lacked discussion on the quantum of electricity generation and captive consumption within the factory. As the appellant admitted to selling a portion of the electricity, the Tribunal deemed it necessary for the original authority to determine the exact amount of electricity wheeled out for calculating the proportionate Cenvat credit reversal. The absence of documented evidence on the captive use of electricity within the factory necessitated a remand for further assessment.

4. Consequently, the impugned order was set aside, and the appeal was remanded to the original authority for quantifying the electricity wheeled out from the factory. The appellant was directed to reverse the proportionate Cenvat credit related to the electricity not used for the intended manufacturing purpose. The Tribunal disposed of the appeal with these instructions, emphasizing the need for accurate assessment and documentation regarding electricity generation and utilization within the factory premises.