2014 (2) TMI 279 - HC - Central Excise

Court directs reconsideration on Modvat credit rules for electricity and steam production

The Court set aside the CESTAT order in a case involving interpretation of Modvat credit rules for inputs used in electricity and steam production. The ... Recovery of MODVAT Credit availed - Availment on inputs used in the generation of electricity and transferred outside the factory premises - Imposition of interest and penalty - Held that:- assessee is entitled to credit of inputs utilized in the generation of electricity only to the extent to which they are used to produce electricity within their factory - definition of “input” brings within its fold, inputs used for generation of electricity or steam, provided such electricity or steam is used within the factory of production for manufacture of final products or for any other purpose. The important point to be noted is that, in the present case, excess electricity has been cleared by the assessee at the agreed rate from time-to-time in favour of its joint ventures, vendors, etc. for a price and has also cleared such electricity in favour of the grid for distribution. To that extent, in our view, the assessee was not entitled to Cenvat credit - Following decision of Maruti Suzuki Limited v. Commissioner of Central Excise, Delhi-III [2009 (8) TMI 14 - SUPREME COURT] - Decided partly in favour of Revenue. Issues:Challenge to order passed by CESTAT dismissing appeal against Commissioner of Central Excise's decision. Interpretation of Modvat credit rules for inputs used in generation of electricity and steam. Claim of duty credit on specific inputs used for various purposes. Manufacture and clearance of DM Water and DAS Water without declaration under Rule 173B.Analysis:Background Facts:The case involves M/s. Indian Organic Chemicals Ltd., a manufacturer of polyester staple fiber and Polyethylene terephthalate. The Central Excise Department inspected the premises based on a report suggesting improper duty credit on inputs used in electricity generation and steam production. The Commissioner issued a show cause notice regarding duty credit on inputs, leading to multiple issues framed for consideration.Issues Considered:The Commissioner framed four issues, with conflicting decisions on each. The Tribunal upheld the assessee's position on some issues and rejected the Revenue's contentions on others. The Commissioner ultimately disallowed duty credit on specific inputs used for electricity generation and imposed recovery and penalty, leading to appeals and further legal proceedings.Substantial Questions:The Court framed substantial questions of law related to the eligibility of Modvat credit for inputs used in electricity generation and the reliance on previous Tribunal decisions. The Court analyzed the arguments presented by both parties in light of legal provisions and precedents.Discussion on Issues:The Court delved into the interpretation of Modvat credit rules and the application of such rules to inputs used for electricity generation and steam production. The Court referred to a Supreme Court decision in Maruti Suzuki case, which clarified the criteria for claiming credit on inputs utilized in electricity generation.Conclusion:The Court found discrepancies in the Tribunal's decision based on the Maruti Suzuki judgment, leading to the setting aside of the CESTAT order. The Court directed the Tribunal to reconsider the third issue regarding the use of Modvat availed on furnace oil for steam production. The Court emphasized the importance of legal precedents and correct interpretation of rules in deciding such matters.This detailed analysis of the judgment highlights the complexities involved in interpreting Modvat credit rules and the significance of legal precedents in resolving disputes related to duty credit on inputs used in manufacturing processes.