2022 (11) TMI 1091 - HC - Central Excise

CENVAT Credit - capital goods used in the factory (Power Plant of KMCL) meant for another company/assessee (NINL) for manufacture of final products which are different and distinct - Department contended that the CC Rules specifically mentioned that capital goods and inputs for the purposes of the said Rules should be used in or in relation to the manufacture of final products within the factory of production - HELD THAT - The definition of Factory does not preclude the possibility of there being two or more premises which can be segregated by public road, canal or railway line. How the two premises are to be considered to be part of the same factory by the Commissioner of the Central Excise has been set out in the above instructions of the CBEC. It only shows that as long as the two portions are integrally connected and inter-linked with the manufacturing process of excisable goods, it can be considered to be part of the same factory premises. In other words, merely because the Coke Oven Plant and the CPP may have been in two separate locations would not result in there being considered to be not part of the same factory premises. An important factor which has to be taken note of in this context is that an agreement was executed between the Government of Odisha and KMCL on 28th June, 2000 where under a land to an extent of 249.45 acres on which both the Coke Oven Plant as well as the CPP Plant were located had subsequently been transferred to KMCL. Selling of 75% of the power to NINL - HELD THAT - There is indeed no restriction under the CENVAT Scheme that after captive use of power, the surplus power cannot be sold to any other party. The only restriction is that the capital goods are not to be exclusively used for manufacture of exempted products . It is nobody s case that the final manufactured products of KMCL or that of NINL are exempted products . In this context, it should be noticed that power/ electricity is not a final product. It is generated in the CPP of KMCL and is used in the manufacture of excisable goods in the Coke Oven Plant. In COMMISSIONER OF CENTRAL GOODS AND SERVICE TAX, JAIPUR VERSUS SHREE CEMENT LIMITED 2018 (9) TMI 822 - RAJASTHAN HIGH COURT , a similar question arose. There, one factory manufactured duplex board and the other paper. They were separately registered with the Central Excise Department. The question that arose was whether the excess electricity cleared by the Assessee in favour of its sister concern units would make it ineligible for CENVAT Credit. The Court answered the question in the negative. It was held that electricity generated by the CPP was being used for the sister concern which was part of the company itself and, therefore, would still constitute captive consumption of electricity. In other words, the Assessee was held to be eligible for the CENVAT Credit. Thus, the power generated in the CPP of KMCL is used in the manufacture of the excisable goods by KMCL - the mere fact that the surplus power may have been sold to NINL would not disentitle KMCL to the benefit of CENVAT Credit on capital goods. Appeal dismissed.

Summary

Issues Involved:
1. Eligibility of CENVAT Credit on capital goods used in KMCL's Power Plant for NINL's manufacturing.
2. CENVAT Credit admissibility under Rule 57AA of the Central Excise Rules, 1944 and Rule 2 of the CENVAT Credit Rules, 2001.
3. Eligibility of CENVAT Credit for a Captive Power Plant situated within another company's premises.
4. Definition of "Factory" under Section 2(e) of the Central Excise Act, 1944 in the context of KMCL's Captive Power Plant.

Issue-wise Detailed Analysis:

1. Eligibility of CENVAT Credit on Capital Goods:
The primary issue is whether CENVAT Credit can be allowed on capital goods used in KMCL's Power Plant, which supplies power to NINL for manufacturing different final products. The Court noted that KMCL set up a Metallurgical Coke Plant and a Captive Power Plant (CPP) for its own consumption and for supplying power to NINL. The Department argued that since 75% of the power generated was used by NINL, KMCL should not be eligible for CENVAT Credit. However, the CESTAT held that the power plant's location and the sale of power to NINL did not disentitle KMCL from availing CENVAT Credit, as the power generated was used in the manufacturing process of KMCL's excisable goods.

2. CENVAT Credit Admissibility under Relevant Rules:
The Department contended that under Rule 57AA of the Central Excise Rules, 1944 and Rule 2 of the CENVAT Credit Rules, 2001, the capital goods should be used within the factory premises of the manufacturer of the final products. The Commissioner disallowed the CENVAT Credit, imposing a penalty on KMCL. The CESTAT, however, found that the credit eligibility on inputs was not pressed by the respondent, and granted credit for capital goods, emphasizing that the power generated was used in the manufacturing process of KMCL's excisable goods.

3. Captive Power Plant within Another Company's Premises:
The Court examined whether KMCL's Captive Power Plant, located within NINL's premises, could be considered part of KMCL's factory. The Department argued that the CPP did not satisfy the definition of "Factory" under Section 2(e) of the Central Excise Act, 1944, as it was located within NINL's premises. The CESTAT disagreed, noting that the CPP and Coke Oven Plant were interlinked and part of the same manufacturing unit, thus making KMCL eligible for CENVAT Credit.

4. Definition of "Factory" under Section 2(e) of the Central Excise Act, 1944:
The Court referred to the definition of "Factory" under Section 2(e) of the Central Excise Act, 1944, and the CBEC's Manual of Supplementary Instructions. It was highlighted that premises separated by public roads, canals, or railway lines could still be considered part of the same factory if the processes were interlinked. The Court found that KMCL's CPP and Coke Oven Plant were part of the same factory, as they were technologically interdependent and the land on which both plants were located had been transferred to KMCL.

Conclusion:
The Court concluded that the power generated in KMCL's CPP was used in the manufacture of excisable goods by KMCL, and the surplus power sold to NINL did not affect KMCL's eligibility for CENVAT Credit. The questions framed by the Court were answered in favor of the respondent (KMCL), affirming that CENVAT Credit was admissible for the capital goods used in the CPP. The appeal was dismissed with no order as to costs.