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TMI Blog2022 (6) TMI 3X X X X Extracts X X X X X X X X Extracts X X X X ..... against the order dropping the proceedings for imposition of penalty on the employees of respondent. Appeals filed by the Revenue are dismissed. - Excise Appeal No. 1214-1216 of 2012 - A/85393-85395/2022 - Dated:- 2-3-2022 - MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL) AND MR. P. DINESHA, MEMBER (JUDICIAL) Shri Shamshad Alam, Additional Commissioner, Authorised Representative for the Appellant Shri Gajendra Jain, Advocate, for the Respondent ORDER These appeals filed by the Revenue are directed against Order-in-Original No. 14/CEX/COMMR/KOP/2012 dated 30.03.2012 passed by the Commissioner of Central Excise, Kolhapur. By the impugned order Commissioner has held as follows: ORDER I drop the proceedings in respect of demand cum show cause notice bearing F No V (39) 15-59/ADJ/KOP/2011/10 dtd 15/6/2011. (All the legal provisions cited above are as they stood at the relevant time) 2.1 The respondents are engaged in manufacture of PVC resin, PVC pipes and pipe fittings. In the process of manufacture, uninterrupted power supply is required, for which they had erected and installed a captive power plant. They claimed the CENVAT credit of the Capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... December 2009 and there was no intention to utilize the electricity so generated in the CPP for the PVC plant as there was no provision of any connection line of electricity from the CPP to the PVC Plant during the relevant period. 12. It appears that the fact of Commissioning of the CPP and sale of total electricity generated in the CPP to M/S MSEDCL via grid of M/s MŞETCL, which started with effect from December 2009, was never reported by the assessee to the department. It was only on an inquiry about the same by the Superintendent of Central Excise, Ratnagiri, vide his letter No.CEX/RTN/FIL/EPP/10-11/20 dtd. 18.1.2011 assessee confirmed the same vide their letter dtd. 21.2.2011. This act of omission by the assessee, lead to suppression of the material fact of non utilization of the electricity generated in the CPP, in the manufacture of their final dutiable product and also proved their intention to sale the same for cash consideration. The assessee was well aware of the fact that CENVAT Credit was availed by them on Capital Goods used for erection of the CPP under the provisions of rule 3 of CENVAT Credit rules and they were also aware of the provisions of rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus, it appears, by the acts of commissions and omissions as above, assessee have contravened the provisions of Rule 6(4) of the CENVAT Credit Rules 2004 in as much as they availed CENVAT Credit on capital goods used in the erection of Captive Power Plant, which was used exclusively in the manufacture of electricity, an exempted product and NO unit of said electricity so generated was used for their captive consumption but was sold to M/s MSEDCL for monetary consideration as per Electricity Purchase Agreements signed between assessee and M/s MSEDCL. 14. Thus it appears that, by suppressing the material facts from the knowledge of the department, as detailed above, the assessee has wrongly availed an amount of Rs. 17,06,34,666/- (Rs. Seventeen Crore Six Lakh Thirty four thousand Six hundred sixty six only.) as CENVAT Credit lying in balance as on December 2009 and subsequent credit availed till December 2010 and the said amount is liable to be demanded and recovered along with interest from the assessee under the provisions of Rule 14 of CENVAT Credit Rules 2004 read with provisions of proviso to Section 11A (1) of the Central Excise Act. 1944 and provisions of Section 11AB of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 such a case, it cannot be said that 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 wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... generated in their factory of manufacture. The noticee have availed CENVAT Credit on capital goods received for erection of the CPP, from 2006-07 to 2010- 11(Up to Dec 2010). The banking agreement with MSEDCL for transmission and utilization of electricity generated in power plant were entered in Month of March, 2011 as admitted by the noticee in their submissions. Prior to this date. beginning from the Commissioning of the CPP Plant from December, 2009, the noticee had only agreement of sale of electricity generated in the CPP, with the MSEDCL. It is amply clear that the noticee entered into banking agreement with the MSEDCL after a lapse of considerable time period only when the Department started enquiry. Thus, at the time of receipt of capital goods the noticee did not use electricity generated out of CPP plant in the manufacture of dutiable goods. The inference drawn by the adjudicating authority that the noticee had intention to use the capital goods in manufacturing of dutiable product is based on 'subsequent development and is therefore against the decision of the Hon'ble Tribunal as cited above. The judgments relied by the adjudicating authority are not applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l has held that transaction of delivery of power to electricity board and sale of power by electricity board are two independent transactions. There is no direct nexus between services received in the power plant and items manufactured in factory and hence power plant cannot be treated as capital goods. Respondents uploaded electricity in the grid of MSETCL and subsequently obtained electricity separately for their consumption. They have sold the entire electricity to MSEDCL during the period December 2009 to February 2011 and since capital goods were used exclusively for manufacture of exempted goods, i.e. electricity, cenvat credit could not have been allowed. The following decisions relied upon by the respondent are not applicable in their case. Arvind Mills Ltd. [2005 (182) ELT 362 (T)] ST Cottex Exports (P) Ltd. [2010 (261) ELT 807 (T)] ST Cottex Exports (P) Ltd. [2018 (2) TMI 1313 (T)] As these decisions are in relation to textile industry where the capital goods have been used for manufacture of both dutiable and exempted goods whereas in the present cast, the goods have been used exclusively for manufacture of exempted electricity. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AHMEDABAD Mohit Industries Ltd. [2019 (11) TMI 292-CESTAT AHMEDABAD Orient Syntex [2020 (12) TMI 634-CESTAT NEW DELHI. Further, steam generated in the captive plant was always used within their factory for use in manufacture of final product. The captive power plant is a co-generation unit capable of producing both steam and power. Therefore the capital goods installed in CPC were never used exclusively in the manufacture of electricity which was wheeled out. For this reason also, the provisions of Rule 6(4) are not applicable. Major portion of demand is time barred as the same is beyond normal period of limitation. Accordingly he submits that the appeals be dismissed. 5.1 We have considered the impugned orders along with the submissions made by both sides during the course of argument. 5.2 Undisputed facts are that the respondents have set up the captive power plant and on receipt of capital goods for captive power plant, they had availed the cenvat credit during the period 2006-07 to 2010-11 (upto December 2010). Electricity and exempted non-excisable goods were generated within the CPP and were sold during the period December 2009 to 02.05.2011 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded. It is evident that this compensation of quantity of electricity is against the quantity of electricity downloaded and used for manufacture of excisable goods. In other words, the uploaded electricity has been compensated being used by the assessee for manufacture. There is no separate grid for transmission of electricity and it is not directly used is not relevant. In fact, to avoid multiple transmission grids, the banking system which is nothing but a barter system is employed. Further, making or receiving payments will not alter the fact that the electricity generated in CPP plant has been utilized in the manufacture of good at PVC plant. I am of the opinion that the electricity generated by utilizing the capital good in CPP plants is utilized for manufacture of dutiable excisable goods in PVC plant. 5.4 Even if there was no direct connection between the captive power plant and PVC plant, the Commissioner has concluded that it was through a banking arrangement that entire electricity uploaded from captive power plant was supplied to the PVC plant. 5.5 The Commissioner has not disputed that during the period December 2009 to February 2011 electricity was supplied to M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the sand decision is also applicable in the present case. I, therefore, hold that the capital goods have been used by the assessee in dutiable as well as exempted products and hence, the credit cannot be denied under Rule 6(4) of the Cenvat credit Rules, 2004. 5.6 The decision of the Hon ble Apex Court in the case of Maruti Suzuki was rendered in case of inputs used for generation of electricity ion the captive power plant. Part of the electricity so generated was used for manufacture of the finished goods cleared on payment of duty, and remaining was sold either to the electricity board or the joint ventures. Electricity being the excisable commodity subject to nil rate of duty, Supreme Court held that the credit on the inputs used in that part of the electricity that is wheeled out and not used captively credit will not be admissible. However Supreme Court has no occasion to consider the case of Capital Goods credit in this case. The ratio of the decision of the Hon ble Apex Court is exactly what Rule 6 of CENVAT Credit Rules, 2004 provided for. Since Supreme Court has not even considered the case in respect of Capital Goods, for which no provision like Rule 6, ibid, is av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iable goods were manufactured since October, 2006 which fact has been noted in Paragraph No. 8 of the judgment of the Tribunal. The Tribunal had denied the benefit on the pretext that the certificate of the manufacturer relied upon by the appellant also confirms that the plant is usable for manufacture of aerated waters only after modification . The certificate which was relied upon by the appellant before the authorities dated 4-1-2007 was to the following effect as under :- This is to confirm that the Krones PET line installed and operating at Barielly at the fruit juice Maaza plant and the Filler VP-L-PET is designed to handle carbonated/aerated soft drinks. This is achieved by software changes and minor adjustments. Krones has supplied several similar equipment and fillers which are operating at various sites across the world. The manufacture had certified that machine is designed to handle carbonated/aerated soft drinks by software changes and minor adjustments. The certificate never said that the object can be achieved only after modification. The certificate did not use the word modification which has crept in the order of the Tribunal. More so, before us now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In terms of the provisions of sub-Rule (4) of Rule 6 of the Cenvat Credit Rules, 2004 Cenvat credit shall not be admissible on capital goods which are used exclusively in the manufacture of exempted goods or in providing exempted services, other than the final products which are exempt from the whole of the duty of excise leviable thereon under any notification, where the exemption is granted based on the value or quantity or clearances made in a financial year. From a perusal of this sub- Rule, it is clear that capital goods Cenvat credit would be admissible when the capital goods are used either only for dutiable final product or for dutiable as well as exempted final product. The capital goods Cenvat credit is also admissible when a manufacturer is availing full duty exemption based on the value or quantity of the goods cleared in a financial year, in which case, while initially the manufacturer will be availing full duty exemption (for some months or for several financial years at a stretch) but subsequently at some point of time when he crosses the threshold limit for exemption, his final product becomes dutiable and in such a case, even during the period of full exemptio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was started, the Cenvat credit in respect of capital goods cannot be denied and the Tribunal s judgment in case of M/s. Surya Roshni Ltd. (supra) would not be applicable. 8. In the present case the capital goods had been received during period from September 2004 to August 2005 when the Cenvat credit had been taken and according to the appellant at that time, they had intention to use these goods for the manufacture of fruit pulp based soft drink (exempted goods) as well as for manufacture of aerated waters (dutiable goods) and for this reason only, they had availed capital goods Cenvat credit, while initially using the machinery only for manufacture for the exempted final product. This aspect has to be verified on the basis of records. If the appellant at the time of receipt of the capital goods during September 2004 to August 2005 period, had filed any declaration to the Department or had sent some letter to the Department intimating that they would be using this machinery for manufacture of dutiable final product (aerated waters) as well as exempted final product (the fruit pulp based soft drinks), or there is any other evidence indicating that at the time of receipt, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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