2008 (8) TMI 332 - AT - Central Excise

Tribunal rules in favor of steel manufacturers in electricity input credit dispute

The Tribunal allowed the appeals, ruling in favor of the appellants engaged in manufacturing steel products. It was found that the appellants used inputs ... Cenvat – use of furnace oil in generation of electricity - appellants availed credit in respect of inputs used in generation of electricity - The appellants entered into agreement with the State Electricity Board termed as Wheeling Agreement by which the appellants were permitted to clear electricity generated in the captive power plant and simultaneously to receive equal quantity of electricity from the Electricity Board. The fact that the appellants received same quantity of electricity which were cleared to the Electricity Board is not in dispute. - the inputs used in generation of electricity which was cleared to the State Electricity Board and the same quantity was received back from the Electricity Board and used in the manufacture of excisable goods cleared on payment of duty - the demand on the ground that the inputs were used in generation of electricity which was cleared outside the factory of production is not sustainable. Issues:1. Denial of credit in respect of inputs used in generation of electricity.2. Demand of central excise duty confirmed and penalties imposed.3. Interpretation of the Wheeling Agreement with the State Electricity Board.4. Dispute over whether credit can be denied due to electricity being cleared outside the factory of production.Analysis:The appellants, engaged in manufacturing steel products, installed a captive power plant for generating electricity to be used in the production of excisable goods. They purchased furnace oil on duty payment for this purpose and availed credit. The generated electricity, due to its fluctuating nature, was cleared to the State Electricity Board under a 'Wheeling Agreement,' with an equal quantity received back for use in manufacturing. The Revenue issued show-cause notices, denying credit on the grounds of clearing electricity outside the factory.The appellants argued that all fuel used was for electricity generation, but due to poor quality electricity, a portion was cleared to the Electricity Board as per the agreement. They contended that since the electricity generated was used within the factory for manufacturing dutiable goods, credit denial was unjustified. The Revenue's stance was that credit was rightly denied as part of the generated power was cleared outside the factory.The Tribunal found that the appellants indeed used inputs for electricity generation and had a valid Wheeling Agreement with the Electricity Board. The arrangement ensured that the same quantity of electricity cleared was received back for manufacturing excisable goods. As the electricity generated was unsuitable for certain manufacturing processes, the agreement facilitated maintaining a uniform frequency of electricity. Consequently, the demand based on the inputs being used for electricity cleared outside the factory was deemed unsustainable, leading to the allowance of the appeals.