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2023 (10) TMI 729 - AT - Central ExciseDenial of retention of credit - supplying excess production to the Tamil Nadu Electricity Board (TNEB) - generation of electricity and steam in the coal fired 50 MW captive power plant installed for consumption in the factory. It is common ground that the entire production of steam and bulk of electricity were utilized in manufacture of various excisable goods. HELD THAT - The reviewing authority has placed emphasis in rule 2 of CENVAT Credit Rules, 2004 even though the proposal was for reversal of proportional credit by recourse to rule 6 of CENVAT Credit Rules, 2004 which is the mechanism restrictedly applicable to taking of credit correctly in terms of rule 3 therein read with rule 2(l) but to be retained subject to subsequent usage only. For denial of retention of credit after such licit availment, the provisions of rule 6 of CENVAT Credit Rules, 2004 would alone be applicable. The appellant has not been able to demonstrate, by reference to the proportionate reversal mechanism therein, that the activity of the respondent herein is susceptible to such denial. The appeal is without merit and is dismissed.
Issues Involved:
1. Entitlement to CENVAT Credit for services used in the generation of electricity and steam. 2. Applicability of Rule 6(5) of CENVAT Credit Rules, 2004. 3. Proportional reversal of CENVAT Credit for electricity sold to third parties. 4. Interpretation of 'input services' under Rule 2(l) of CENVAT Credit Rules, 2004. Summary: 1. Entitlement to CENVAT Credit for services used in the generation of electricity and steam: The appeal by Revenue challenged the order of the Commissioner of Central Excise (Appeals), Mumbai-I, which allowed M/s DCW Ltd to retain CENVAT credit of Rs. 34,30,643, Rs. 39,92,426, and Rs. 17,41,354 taken under Rule 3 of CENVAT Credit Rules, 2004 for services provided by M/s Thermax Ltd for 'operation and maintenance' and 'goods transport agency' services. The entire production of steam and bulk of electricity was utilized in manufacturing excisable goods, with excess electricity sold to Tamil Nadu Electricity Board (TNEB). 2. Applicability of Rule 6(5) of CENVAT Credit Rules, 2004: The appellate authority accepted the plea of the assessee, citing that sub-rule (5) of Rule 6 of CENVAT Credit Rules, 2004 allows full credit of service tax paid on specified taxable services unless used exclusively for exempted goods or services. Maintenance or repair services under sub-clause 65(105)(zzg) are covered under Rule 6(5), allowing the entire amount of credit even if part of the service is used for exempted goods. The adjudicating authority's denial of credit on the grounds that it was used for exempted electricity production was found incorrect since a substantial portion of electricity was used in manufacturing finished goods. 3. Proportional reversal of CENVAT Credit for electricity sold to third parties: The Revenue's argument, based on the decision in Maruti Suzuki India Limited v. Commissioner of Central Excise, Delhi-III, was that electricity supplied to third parties for consideration should not entitle the assessee to full CENVAT credit. However, the Tribunal found that this decision pertained to 'inputs' and not 'input services', which receive special treatment under Rule 6(5) of CENVAT Credit Rules, 2004, as clarified by a CBEC circular. 4. Interpretation of 'input services' under Rule 2(l) of CENVAT Credit Rules, 2004: The Tribunal upheld that 'input services' include services used in relation to business activities, not limited to the manufacture of final products. The High Court judgments in Ultratech Cement and Coca Cola India Pvt. Ltd. supported this broader interpretation. The Tribunal also referenced the decision in Union of India v. HEG Ltd, which allowed CENVAT credit for capital goods used in power plants, even when a major portion of electricity was sold. Similar logic applied to input services under Rule 6(5). Conclusion: The Tribunal dismissed the Revenue's appeal, affirming that M/s DCW Ltd is entitled to full CENVAT credit for the services used in their cogeneration plant, including the portion of electricity sold to TNEB. The order of the appellate authority was upheld, and the appeal was found to be without merit.
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