2017 (12) TMI 1365 - AT - Central Excise

CENVAT credit - intermediate goods - generation of electricity - reversal of attributable credit on the inputs and input services consumed for generation of electricity used in colony, guest house, bank, canteen et cetera for non-manufacturing activity or pay an amount equal to 10% of sale price of such electricity sold to U.P.Power Corporation Ltd. - Held that - But on query from the bench, whether the revenue have filed further appeal in respect of the aforementioned ruling of this Tribunal, the ld. A.R. stated that he is not aware about the same. The ld. Counsel for the appellant submits that till date, they have not received any notice in respect of any appeal filed by revenue before Higher Court - appeal allowed - decided in favor of appellant.

Issues Involved:

1. Non-payment of 10% of the sale price of exempted final product (electricity) or reversal of proportionate CENVAT credit.
2. Application of Rule 6(3) of CENVAT Credit Rules (CCR) 2004.
3. Classification of electricity as exempted goods.
4. Reversal of CENVAT credit on inputs and input services used in the generation of electricity.
5. Applicability of extended period of limitation for recovery.

Issue-wise Detailed Analysis:

1. Non-payment of 10% of the Sale Price of Exempted Final Product (Electricity) or Reversal of Proportionate CENVAT Credit:

The appellant, engaged in the manufacture of sugar and molasses, was noticed during an audit for the period March 2007 to December 2007, to have not made the payment of 10% of the sale price of electricity sold to U.P. Power Corporation Ltd. nor reversed the proportionate CENVAT credit availed on inputs and input services used in the generation of electricity. The appellant argued that electricity is primarily generated for captive consumption and only surplus electricity is sold. Thus, the provisions of Rule 6 are not attracted as electricity is not the final product but an intermediate one.

2. Application of Rule 6(3) of CENVAT Credit Rules (CCR) 2004:

The revenue's contention was based on Rule 6(3) of CCR 2004, which requires the reversal of attributable credit on inputs and input services consumed for the generation of electricity used for non-manufacturing activities or payment of an amount equal to 10% of the sale price of such electricity. The appellant contested this interpretation, relying on the definition provided under CENVAT Credit Rules and previous rulings, arguing that electricity is neither chargeable to duty nor exempted goods.

3. Classification of Electricity as Exempted Goods:

The appellant argued that electricity, though mentioned in the Central Excise Tariff Act (CETA) with effect from 28/2/05, has no specified rate of duty, making it non-excisable. They relied on the ruling in Ex. Appeal No. E/52882/2014-Ex (SM) [2015 (329) E.L.T. 295 (Tri.)], where it was held that electricity generated from bagasse is not covered under Chapter 27 of CETA and thus not an excisable or exempted good. The Tribunal in this case observed that electricity generated from bagasse does not fall within the ambit of excisable goods.

4. Reversal of CENVAT Credit on Inputs and Input Services Used in the Generation of Electricity:

The appellant claimed that they had already reversed the CENVAT credit attributable to inputs and input services used in the generation of electricity sold to U.P. Power Corporation Ltd., complying with Rule 6 of CCR 2004. The Tribunal noted that since electricity is not excisable, 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.

5. Applicability of Extended Period of Limitation for Recovery:

The show cause notice issued invoked the extended period of limitation, proposing to recover ?1,59,23,841/- under Rule 14 of CCR 2004, read with proviso to sub-section 1 of Section 11A of the Central Excise Act, 1944. The Tribunal, however, found that the issue was already settled in favor of the appellant in previous rulings, and thus the extended period of limitation was not applicable.

Conclusion:

The Tribunal allowed the appeal, setting aside the impugned order. It was held that the appellant is not required to pay 10% of the value of electricity sold to U.P. Power Corporation Ltd., as they had already reversed the CENVAT credit attributable to inputs and input services used in the generation of electricity. The Tribunal's decision was based on the precedent that electricity generated from bagasse is not excisable goods and does not qualify as a tariff item under Chapter 27 of CETA.

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