Electricity CENVAT credit for residential colony near factory allowed as industrial township but must reverse credit for power wheeled to RSEB

CESTAT NEW DELHI ruled that appellant was not liable to reverse CENVAT credit for electricity used in residential colony situated near factory, as it constituted an industrial township necessary for factory operations requiring technicians and workmen on call. However, appellant must reverse proportionate CENVAT credit for power wheeled out to RSEB. Extended period of limitation was held inapplicable due to interpretational nature of issue and proper record maintenance by appellant. Matter remanded to Original Adjudicating Authority for recalculation of reversal amount limited to power wheeled out to RSEB only.

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Issues Involved:
The issues involved in the judgment include the demand for reversal of cenvat credit on electricity used in a residential colony and wheeled out to a state electricity board, applicability of penalty under Rule 15(2) of the Cenvat Credit Rules, and interpretation of whether certain services are directly attributable to a captive power plant.

Demand for Reversal of Cenvat Credit on Electricity:
The appellant, a manufacturer of cement and clinker, availed cenvat credit for inputs and services used in its three captive power plants. The Department contended that electricity generated was exempt from central excise duty, leading to a demand for reversal of cenvat credit on common input services. The show cause notice proposed an amount for reversal, which was confirmed in the order-in-original, including the imposition of a penalty under Rule 15(2) of the Act.

Appellant's Grounds and Arguments:
The appellant contested the demand, arguing that the extended period of limitation was not applicable as proper records were maintained. It was asserted that the residential colony was an industrial township necessary for the plant's operation, citing precedents where supplying power to such townships was considered part of manufacturing activity. The appellant also contended that certain services were not directly related to the captive power plant and that the expenditure on common services formed part of the final product cost.

Decision and Findings:
The Tribunal held that the extended period of limitation was not available to the Revenue, limiting the demand to the normal period. It ruled that the appellant was not required to reverse cenvat credit for power used in the residential colony, considering it an industrial township essential for plant operations. However, the appellant was directed to reverse cenvat credit for power wheeled out to the state electricity board. The matter was remanded for recalculation of the amount to be reversed only for power wheeled out, granting the appellant consequential benefits and setting aside the imposed penalty. The appeal was allowed with consequential benefits.

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