2023 (3) TMI 1478 - AT - Central Excise

Electricity wheeling not trading in goods, CENVAT reversal under Rule 3(5) not Rule 6, procedural lapses shouldn't deny proportionate benefits

M/s. Finolex Industries Ltd. Versus Commissioner of CGST, Kolhapur

The CESTAT Mumbai held that removal of inputs (electricity) by the appellant cannot be considered trading in goods and should be dealt under Rule 3(5) of ... CENVAT Credit - removal of inputs can be said to be trading of goods or not - non-payment of 6% amount on value of electricity supplied to the MSEDCL for period from Sept. 2013 to June 2014 - HELD THAT:- Undisputedly EDC is an input for the appellant and they could have cleared the same on reversal of credit taken on the said inputs as per Rule 3 (5) of the Cenvat Credit Rules, 2004. Such removal of the inputs cannot be said to be trading in the inputs and the clearance of inputs against which the appellants have taken the credit need to be dealt in terms of the said rule 3 (5) and not in the terms of Rule 6, ibid. In case of COMMISSIONER OF CENTRAL EXCISE, CHANDIGARH VERSUS PUNJAB STEELS [2010 (7) TMI 252 - PUNJAB AND HARYANA HIGH COURT], Hon'ble High Court held that Once the rule-making authority has defined the terms specifically and used the same in different provisions consciously, the argument of learned counsel for the Revenue that merely by analogy even if in one provision both the terms have been used, the same should be read in the other provision as well, where it has not been specifically mentioned, has no legs to stand, as the tax cannot be levied merely by inference or presumption. There are no merits in the impugned order whereby the reversal has been sought to be made in terms of the Rule 6 of the CENVAT Credit Rules, 2004 by treating such removals to be trading in inputs. It is also settled position in law as per the following decisions that the substantial benefit of proportionate reversal should not be disallowed to the appellants just for reason of procedural irregularities such as non filing of prior declaration or intimation - the demand raised under Rule 6(3)(i) on the ground that the appellants have not filed declaration under Rule 6(3)(ii) read with Rule 6(3A) of CCR, 2004 is erroneous. The matter needs to be reconsidered by the original authority for determination of the amount to be reversed against the electricity wheeled out to MSEDCL against a price, by application of the formula as prescribed by Rule 6 (3) (ii) read with Rule 6 (3A) - Appeals is allowed and the matter remanded back to original authority to re-determine the amounts to be reversed on the electricity wheeled out. Appeal allowed by way of remand. Issues Involved:1. Nonpayment of 6% amount on electricity sold to MSEDCL and trading of goods.2. Nonpayment of 6% amount on sale of electricity to MSEDCL.3. Propriety of demand under Rule 6(3) of Cenvat Credit Rules, 2004.4. Reversal of credit for inputs and input services used in the generation of electricity wheeled out.Detailed Analysis:1. Nonpayment of 6% amount on electricity sold to MSEDCL and trading of goods:The Commissioner confirmed the demand of Rs. 13,67,96,730/- for the period 2010-11 to August 2013 under Rule 14 of the Cenvat Credit Rules, 2004, read with Section 11A of the Central Excise Act, 1944, for nonpayment of 6% on electricity sold to MSEDCL and trading of goods. The appellants argued that inputs cleared as such cannot be termed as 'Trading Activity' and that the demand under Rule 6(3) is not maintainable. They contended that the removal of Ethylene Dichloride (EDC) as such should be dealt with under Rule 3(5) of the Cenvat Credit Rules, 2004, and not under Rule 6. The Tribunal agreed with this view, citing various precedents, and set aside the demand related to EDC cleared as such.2. Nonpayment of 6% amount on sale of electricity to MSEDCL:The Commissioner confirmed a demand of Rs. 76,24,644/- for the period from September 2013 to June 2014 for nonpayment of 6% on the sale of electricity to MSEDCL. The appellants argued that electricity is not an excisable good and hence, the provisions of Rule 6 would not apply. The Tribunal, however, referred to the Supreme Court's decision in Maruti Suzuki, which held that Cenvat credit is not admissible for inputs used in the generation of electricity sold outside the factory. Thus, the Tribunal remanded the matter back to the original authority to re-determine the amount to be reversed for electricity wheeled out to MSEDCL.3. Propriety of demand under Rule 6(3) of Cenvat Credit Rules, 2004:The appellants argued that the demand under Rule 6(3) was erroneous as the removal of EDC should be dealt with under Rule 3(5). The Tribunal supported this argument, stating that the removal of inputs against which credit has been taken should be handled under Rule 3(5) and not Rule 6. The Tribunal cited multiple decisions to reinforce this position and set aside the demand made under Rule 6(3).4. Reversal of credit for inputs and input services used in the generation of electricity wheeled out:The appellants contended that they had already reversed the proportionate credit of inputs and input services attributable to the electricity wheeled out. The Tribunal agreed that procedural irregularities such as non-filing of prior declarations should not disallow the substantive benefit of proportionate reversal. The Tribunal remanded the matter back to the original authority to determine the correct amount to be reversed using the prescribed formula under Rule 6(3)(ii) read with Rule 6(3A). Furthermore, the Tribunal agreed that no reversal was needed for electricity wheeled out to sister concerns, citing relevant case law.Conclusion:The appeal was allowed in part, setting aside the demand related to EDC cleared as such and remanding the matter back to the original authority to re-determine the amounts to be reversed for electricity wheeled out to MSEDCL. The original authority was directed to complete the re-determination within three months.