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TMI Blog2014 (2) TMI 280X X X X Extracts X X X X X X X X Extracts X X X X ..... electricity generated is “used in or in relation to the manufacture of final product, within the factory. Therefore, to the extent of the clearance of excess electricity outside the factory to the joint ventures, vendors, grid, etc. would not be admissible for Cenvat credit as such wheeled out electricity, cleared for a price, would not fall within the definition of “input” in Rule 2(g) of the Cenvat Credit Rules, 2002 - Therefore, assessee is entitled to credit on the eligible inputs utilised 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 - Following decision in the case of Maruti Suzuki Limited [2009 (8) TMI 14 - SUPREME COURT] - Decided in favour of Revenue. - C.M.A. No. 948 of 2006 - - - Dated:- 12-9-2011 - D. Murugesan and K.K. Sasidharan, JJ. Shri T.R. Senthil Kumar, for the Appellant. Shri K.S. Venkatagiri for Lakshmi Kumaran, for the Respondent. JUDGMENT This civil miscellaneous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as dismissed. 6. The order dated 15 April, 2004 on the file of the Commissioner (Appeals) was taken up in appeal before the CESTAT. 7. The CESTAT found that input used by the assessee in the generation of electricity and the electricity generated was used in the manufacture of excisable goods. The question regarding the use of electricity outside the premises was answered by the CESTAT by holding that tax laws should be interpreted in conformity with normal commercial practice and therefore, the manner of use should be accepted as to the economical, efficient and convenient manner of use. In short, CESTAT, opined that generation of electricity in one unit for use in all the neighbouring units of a manufacturer is more efficient and economical than generating electricity at each and every factory. Accordingly, the appeal was allowed. Feeling aggrieved by the said order, the Revenue is before this Court. Question of Law :- 8. The appeal was admitted on the following substantial question of law. (a) Whether the Appellate Tribunal has correctly interpreted Rule 2(g) of Cenvat Credit Rules, 2002 in holding that Cenvat credit is admissible on the portion of Furnace Oil used fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee should have reversed the credit of duty on furnace oil used for generation of electricity supplied to the other units up to August, 2002 by adopting the lowest value of furnace oil procured during the relevant period. This resulted in the Department arriving at a conclusion that there was a short payment or short debit of duty to the tune of Rs. 3,27,135/- on the furnace oil used for generation of electricity supplied to other units during the period March, 2002 to August, 2002. Therefore, a show cause notice was issued to the assessee calling upon them to show cause as to why the credit of duty of Rs. 3,27,135/- short paid/short reversed should not be recovered. The assessee in their reply contended that they are eligible for the total credit, of duty on furnace oil and lubricating oil used by them for generation of electricity within the factory of production irrespective of the fact that wheeling of power has been done to their other units. The explanation was not accepted by the original authority which resulted in passing an order on 26 December, 2003, directing recovery of differential credit with interest and penalty. The said order was unsuccessfully challenge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n relation to the manufacture of final product. The Supreme Court observed :- 42. The question which still remains to be answered is : whether an assessee would be entitled to claim Cenvat credit in cases where it sells electricity outside the factory to the joint ventures, vendors or gives it to the grid for distribution? 43. In CCE v. Rajasthan State Chemical Works - 1991 (55) E.L.T. 444 (S.C.) the test laid down by this Court is whether the process and the use are integrally connected. As stated above, electricity generation is more of a process having its own economics. Applying the said test, we hold that when the electricity generation is a captive arrangement and the requirement is for carrying out the manufacturing activity, the electricity generation also forms part of the manufacturing activity and the input used in that electricity generation is an input used in the manufacture of final product. However, to the extent the excess electricity is cleared to the grid for distribution or to the joint ventures, vendors, and that too for a price (sale) the process and the use test fails. In such a case, the nexus between the process and the use gets disconnected. In su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o element of sale. 18. The order passed by the CESTAT does not contain any discussion about the contention now raised by the assessee or the distinguishing features. CESTAT by following the earlier decision of the Tribunal, held that the assessee is entitled to credit in spite of the fact that electricity so generated was used in the other units also. The CESTAT has not decided the question as to whether the electricity supplied to the other units of the assessee situated in different premises are also entitled to the credit. The sale made to the other concern was also not made referred to in the order passed by the Tribunal. 19. Since the judgment in Maruti Suzuki was rendered subsequent to the decision of the CESTAT and the distinguishing features now pointed out by the learned counsel for the assessee requires factual adjudication, we are of the considered view that the matter requires fresh consideration by CESTAT. 20. In the result, by answering the question of law in favour of the revenue and against the assessee, impugned order is set aside the matter is remanded to the CESTAT for fresh consideration. 21. The Civil Miscellaneous Appeal is allowed as indicated above. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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