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Issues: (i) whether the appellant was liable to pay an amount equal to 8% of the value of electricity sold to outsiders where separate accounts were not maintained for inputs used for captive consumption and for electricity sold outside; (ii) whether penalty was imposable and whether the demand was confined to the normal period of limitation.
Issue (i): Whether the appellant was liable to pay an amount equal to 8% of the value of electricity sold to outsiders where separate accounts were not maintained for inputs used for captive consumption and for electricity sold outside.
Analysis: The input credit principle recognised for electricity used captively did not extend to inputs used in generating electricity sold outside. As the appellant had not maintained separate records to identify the quantum of inputs relatable to captive consumption and to sale outside, the entitlement to credit for the latter category could not be established. In that situation, the prescribed consequence under the Cenvat scheme was attracted for the electricity cleared to outsiders.
Conclusion: The appellant was liable to pay 8% of the value of the electricity sold to outsiders, and the demand was sustained to that extent.
Issue (ii): Whether penalty was imposable and whether the demand was confined to the normal period of limitation.
Analysis: The liability to reverse or pay an amount on the electricity sold outside was regarded as contentious and unsettled for the relevant period. In the absence of material showing deliberate intention to evade duty, the longer period and penal consequence were not justified. The recovery was therefore restricted to the normal period, and penalty was held unwarranted.
Conclusion: The demand stood confined to the normal period of limitation and penalty was set aside.
Final Conclusion: The appellant succeeded on penalty and limitation, but failed on the substantive liability relating to inputs used for electricity sold outside; the matter was sent back only for working out the demand for the normal period.
Ratio Decidendi: Where separate records are not maintained for inputs used in generating captive electricity and electricity sold outside, credit may be denied for the latter, but in the absence of deliberate suppression or evasion, penalty and extended limitation are not warranted.
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