2017 (4) TMI 786 - AT - Central Excise

Tribunal upholds Commissioner's decision on Cenvat Credit Rules in favor of respondent.

The Tribunal upheld the decision of the Commissioner (Appeals), dismissing the Revenue's appeal. The respondent was entitled to any consequential benefits ... Reversal of Cenvat credit for inputs used in manufacture of goods cleared without payment - Exception for fuel under Rule 6(2) of Cenvat Credit Rules - Steam not treated as final product for purposes of Rule 6(2) - Requirement to maintain separate accounts for inputs - Invocation of extended period of limitation based on disclosure in booksException for fuel under Rule 6(2) of Cenvat Credit Rules - Reversal of Cenvat credit for inputs used in manufacture of goods cleared without payment - Whether Cenvat/Modvat credit taken on furnace oil (used as fuel) was required to be reversed under Rule 6(2) of the Cenvat Credit Rules/Rule 57CC where surplus steam was cleared without payment of duty. - HELD THAT: - The Tribunal found that furnace oil was used as fuel in the manufacture of Carbon Black and for generation of steam/electricity and there was no finding by Revenue that furnace oil was not used as fuel. The Commissioner (Appeals) and the Tribunal relied on earlier Tribunal precedents holding that inputs used as fuel are excepted from the obligation to reverse credit when a part of the output is cleared without payment of duty. Given the factual position that furnace oil functioned as fuel, the rigours of Rule 6(2)/Rule 57CC did not mandate reversal of the credit availed on furnace oil nor liability to pay the prescribed percentage on the value of the cleared surplus steam.No reversal of Cenvat/Modvat credit was required in respect of furnace oil used as fuel; the demand and penalty based on such reversal are not sustainable.Steam not treated as final product for purposes of Rule 6(2) - Requirement to maintain separate accounts for inputs - Whether the surplus steam sold to adjacent units constituted a final product such that Rule 6(2) would apply, and whether absence of separate accounts for inputs precluded the exception. - HELD THAT: - The Tribunal accepted the factual finding that steam was not the assessee's final product but a by-product/utility arising from the cogeneration process used to produce electricity and to run manufacturing machinery; only surplus steam was cleared. The mere absence of separate accounts for inputs common to production of Carbon Black and generation of steam did not alter the characterisation of furnace oil as fuel or convert steam into a final product for the purposes of Rule 6(2). Consequently, the rule's provisions requiring reversal did not apply.Surplus steam is not a final product for the purpose of Rule 6(2); absence of separate input accounts did not require reversal or sustain the demand.Final Conclusion: Revenue's appeal is dismissed; the orders confirming the demand and penalty are set aside insofar as they require reversal of credit in respect of furnace oil and levy on surplus steam, and the respondent is entitled to consequential benefits as per law. Issues:1. Interpretation of Rule 6(2) of Cenvat Credit Rules regarding reversal of amount on steam sales.2. Applicability of Rule 57CC of Central Excise Rules on the sale of surplus steam.3. Treatment of furnace oil as fuel for the purpose of Cenvat Credit Rules.4. Maintenance of separate accounts for inputs used in the generation of steam.5. Availability of extended period of limitation to Revenue for raising demands.Analysis:1. The appeal involved a dispute regarding the applicability of Rule 6(2) of the Cenvat Credit Rules on the respondent-assessee's sale of surplus steam generated using furnace oil. The Revenue contended that the respondent should reverse an amount on the value of steam cleared during the disputed period. The Commissioner (Appeals) held that furnace oil, being fuel, falls under an exception exempting it from the provisions of Rule 6(2). The Commissioner relied on previous tribunal decisions to support this interpretation, concluding that the demand made by the Revenue was not sustainable.2. The issue of invoking Rule 57CC of Central Excise Rules on the sale of surplus steam by the respondent was raised. The Revenue argued that the respondent should reverse an amount based on the value of steam sold without duty payment. However, the Commissioner (Appeals) found that the rules created an exception for inputs used as fuel, such as furnace oil, which exempted the respondent from the requirement to reverse any credit on such inputs.3. The treatment of furnace oil as fuel for the purpose of Cenvat Credit Rules was a crucial aspect of the case. The respondent argued that since furnace oil was used as fuel for generating steam and not as an input for the final product, it should be exempt from reversal under Rule 6(2). The Commissioner (Appeals) agreed with this interpretation, emphasizing that fuel used in the manufacturing process was not subject to reversal under the rules.4. The issue of maintaining separate accounts for inputs used in the generation of steam was raised by the Revenue. The appellant did not keep separate records for furnace oil used in both the final product, Carbon Black, and the generation of steam. However, the Commissioner (Appeals) considered the nature of furnace oil as fuel and the absence of steam as a final product of the respondent, concluding that the rules did not require reversal in this scenario.5. Regarding the availability of the extended period of limitation for raising demands, the respondent argued that proper disclosures were made in their accounts, and the Revenue had knowledge of the steam sales from the balance-sheet. The Commissioner (Appeals) found that the extended period was not applicable in this case, further supporting the dismissal of the Revenue's appeal.In conclusion, the Tribunal upheld the decision of the Commissioner (Appeals), dismissing the Revenue's appeal and entitling the respondent to any consequential benefits according to the law.