2018 (4) TMI 893 - AT - Central Excise

Tribunal rules in favor of appellant, Cenvat credit not liable on electricity value, show cause notice not maintainable

The Tribunal ruled in favor of the appellant on all issues. It held that the appellant was not liable to reverse Cenvat credit on the value of electricity ... CENVAT credit - electricity supplied to the guest house and residential colony - production of electricity in its captive power generation unit - Rule 6(3) of CCR - Held that: - the residences located adjacent to the factory premises, which is located in a remote location and meant for the workers working in the factory. Similarly guest house is also located adjacent to the factory premises and is used for the visiting officials and or other persons in connection with the business of the appellant company - use of electricity in the residential colony and in the guest house was also for business purposes and no reversal of input credit is required under Rule 6 of CCR, 2004 - appeal allowed - decided in favor of appellant. Issues:1. Liability to reverse Cenvat credit under Rule 6(3) on the value of electricity supplied to the guest house and residential colony.2. Admissibility of Cenvat credit on common input/input services used in the Bagasse produced in the sugar factory.3. Maintainability of show cause notice under Rule 6(3) of Cenvat Credit Rules on the sale value of Bagasse and electricity.Analysis:Issue 1: Liability to reverse Cenvat credit on electricity supplied to guest house and residential colonyThe appellant, a manufacturer of Sugar & Molasses, used bagasse for electricity production in its captive power generation unit. The issue revolved around whether they were liable to reverse Cenvat credit under Rule 6(3) on the value of electricity supplied to the guest house and residential colony. The appellant's counsel argued that the Hon'ble Supreme Court's ruling in DSCL Sugar Ltd. case clarified that bagasse is not excisable as it does not pass the test of manufacture. The Court held that bagasse, being a waste and residue of agricultural produce, does not undergo a manufacturing process and, therefore, Rule 6 of Cenvat Credit Rules, 2004 is not applicable. Consequently, the denial of credit on electricity due to bagasse being excisable was deemed unsustainable, and Rule 6 of CCR was not attracted. The Tribunal concurred with this interpretation and ruled in favor of the appellant, stating that no reversal of input credit was required for electricity used in the residential colony and guest house, as it was for business purposes.Issue 2: Admissibility of Cenvat credit on common input/input services used in Bagasse productionAnother show cause notice was issued to the appellant for the same period, proposing demand under Rule 6(3) of Cenvat Credit Rules on the sale value of Bagasse and electricity. The Commissioner adjudicated the notice, emphasizing that since bagasse was an excisable product attracting nil rate of duty, Cenvat credit was not admissible to the appellant on common input/input services used in the sugar factory. However, the Commissioner, following the Apex Court's ruling in Balrampur Chini Mills case, concluded that the show cause notice was not maintainable and dropped it. The Tribunal, considering the similar circumstances, allowed the appeal and set aside the impugned order, granting the appellant consequential benefits in accordance with the law.Issue 3: Maintainability of show cause notice under Rule 6(3) of Cenvat Credit RulesThe show cause notice issued to the appellant for demand under Rule 6(3) of Cenvat Credit Rules on the sale value of Bagasse and electricity was contested on the grounds that bagasse was considered an exempted good, making Cenvat credit inadmissible. However, the Commissioner, guided by the Supreme Court's ruling, deemed the notice not maintainable and dropped it. The Tribunal concurred with this decision, highlighting that since bagasse did not undergo a manufacturing process and was not excisable, the provisions of Rule 6 of CCR were not applicable. Consequently, the appeal was allowed, and the appellant was entitled to consequential benefits as per the law.In conclusion, the Tribunal ruled in favor of the appellant on all issues, emphasizing that the use of electricity in the residential colony and guest house was for business purposes, exempting the appellant from reversing any amount for electricity under Rule 6 of CCR, 2004.