2024 (12) TMI 598 - AT - Central Excise

Reversal of Cenvat credit for common inputs and input services used for electricity generation - procedure as per Rule 6 (3) of the Cenvat Credit Rules not followed - non-maintenance of separate records - levy of penalty - HELD THAT - The issue involved in the present case is vis- -vis reversal of Cenvat credit availed in respect of common input and input services used for generation of electricity, which is partly consumed captively and partly wheeled out is no longer res-integra and Hon ble Supreme Court in the case of M/S. MARUTI SUZUKI LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, DELHI-III 2009 (8) TMI 14 - SUPREME COURT have held that ' assessee is entitled to credit on the eligible inputs utilized in the generation of electricity to the extent to which they are using the produced electricity within their factory (for captive consumption). They are not entitled to CENVAT credit to the extent of the excess electricity cleared at the contractual rates in favour of joint ventures, vendors etc., which is sold at a price.' In the present case, it is observed that appellant has reversed an amount of Rs. 44,05,397/- which has been appropriated by the Original Authority, this reversal was made even prior to issuance of show cause notice. If this reversal was the actual reversal was to be made in terms of Rule 6 (3) of the Rules and in view of the decision of Hon ble Supreme Court in the case of M/s Maruti Suzuki Ltd. then there could have been no case for imposition of penalty. The impugned order do not record anything with regard to correctness of this amount as it confirms the demand by application of 6% of the value of the electricity wheeled out. In case for ascertaining the credit amount that was to be reversed by the appellant. The matter is being remanded to the Original Authority in case the amount is within the amount already reversed, the proceedings should be closed without any final liabilities. Appellant has raised various issues which are not considered for the reason that the issue is squarely covered by the decision of Hon ble Supreme Court referred above. Appeal is partly allowed and remanded back to the Original Authority.

Summary

Issues Involved:

1. Reversal of Cenvat credit for common inputs and input services used for electricity generation.
2. Compliance with Rule 6(3) of the Cenvat Credit Rules, 2004.
3. Imposition of penalty under Rule 15(2) of the Cenvat Credit Rules, 2004 and Section 11AC of the Central Excise Act, 1944.
4. Appropriation of the amount already reversed by the appellant.

Detailed Analysis:

1. Reversal of Cenvat Credit for Common Inputs and Input Services:

The core issue revolves around the reversal of Cenvat credit availed on common inputs and input services used for generating electricity, which was partly consumed captively and partly wheeled out. The tribunal referred to the Supreme Court's decision in the case of Maruti Suzuki Ltd., which clarified that Cenvat credit is not admissible for inputs used in generating electricity that is sold outside the factory. The Supreme Court held that when electricity is cleared to the grid or sold, the nexus between the process and use gets disconnected, thus failing the "process and use test" necessary for availing Cenvat credit.

2. Compliance with Rule 6(3) of the Cenvat Credit Rules, 2004:

The appellant did not follow the procedure outlined in Rule 6(3) of the Cenvat Credit Rules, which requires maintaining separate accounts for inputs used in the manufacture of both dutiable and exempted goods/services. The tribunal noted that the appellant's failure to adhere to this rule should not automatically result in the denial of proportionate reversal benefits. The tribunal cited the decision in Mercedes Benz India (P) Ltd., which allowed for the reversal of credit based on actual usage, even if the procedural requirements were not strictly followed.

3. Imposition of Penalty:

The tribunal considered whether the imposition of a penalty was justified. The Supreme Court in Maruti Suzuki Ltd. indicated that due to the complex nature of Cenvat Credit Rules and conflicting tribunal decisions, penalties should not be imposed when there is genuine confusion about the rules. The tribunal in this case noted that if the appellant's reversal of Rs. 44,05,397/- was accurate, then imposing a penalty might not be appropriate.

4. Appropriation of the Amount Already Reversed:

The appellant had reversed Rs. 44,05,397/- prior to the issuance of the show cause notice, which was appropriated by the Original Authority. The tribunal observed that if this amount was indeed the correct reversal as per Rule 6(3) and the Supreme Court's decision in Maruti Suzuki Ltd., then further liabilities should not be imposed. The tribunal remanded the case back to the Original Authority to verify the correctness of the reversed amount and to close proceedings if the amount was sufficient.

Conclusion:

The appeal was partly allowed, and the matter was remanded to the Original Authority for verification of the reversed amount. The tribunal emphasized that penalties should not be imposed in cases where the appellant has already complied with the reversal requirements, albeit belatedly, and where the issue is covered by the Supreme Court's decision.