Book adjustment as consideration supports proportionate Cenvat credit reversal on electricity wheeled to a sister unit

Book adjustment reflected in the assessee's accounts was treated as consideration for electricity wheeled to a sister unit, so proportionate Cenvat credit on Naphtha used to generate that electricity was upheld. The Tribunal accepted that absence of cash payment did not defeat recovery of the credit where the transfer was evidenced through journal entries and supporting records. On interest, the factual question whether the credit had actually been utilised during the relevant period required reconsideration, so that issue was remanded for fresh adjudication.

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Issues: (i) Whether proportionate Cenvat credit was recoverable on Naphtha used for generation of electricity wheeled out to the sister unit, where the transfer was reflected through journal entries and book adjustment. (ii) Whether the interest demand required fresh examination on the question of utilisation of credit during the relevant period.

Issue (i): Whether proportionate Cenvat credit was recoverable on Naphtha used for generation of electricity wheeled out to the sister unit, where the transfer was reflected through journal entries and book adjustment.

Analysis: The dispute centered on whether the electricity supplied to the sister concern was effectively cleared for consideration through book entries. The adjudicating authority had relied on the assessee's own records and chartered engineer's certificate to determine the portion of Naphtha attributable to electricity wheeled out. Relying on the principle that book adjustment is a form of payment and may evidence a taxable transfer, the Tribunal held that absence of cash payment did not negate recovery of proportionate credit.

Conclusion: The recovery of proportionate Cenvat credit was upheld against the assessee.

Issue (ii): Whether the interest demand required fresh examination on the question of utilisation of credit during the relevant period.

Analysis: On interest, the Tribunal found the factual position unclear as to whether the credit had actually been utilised during the material period. Since the liability to interest depended on that factual inquiry and competing authorities had taken different views, the Tribunal held that the matter required reconsideration by the adjudicating authority after examining the facts and the cited decisions.

Conclusion: The interest demand was remanded for fresh adjudication.

Final Conclusion: The substantive duty-related credit demand was sustained, while the question of interest was sent back for reconsideration on the factual issue of utilisation of credit.

Ratio Decidendi: Book adjustment reflected in the assessee's accounts can constitute consideration for clearance to a sister unit, justifying proportionate reversal of Cenvat credit on inputs used to generate the electricity so transferred.

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