2018 (9) TMI 822 - HC - Central Excise

Court allows full CENVAT credit for electricity used in captive power plant

Commissioner of Central Goods and Service Tax, Jaipur Versus Shree Cement Limited

The High Court of Rajasthan upheld the Tribunal's decision allowing full CENVAT credit for inputs and input services used in the captive power plant. The ... CENVAT Credit - input/input service used in Captive power plant - captive consumption of power generated - electricity generated partly consumed captively and partly supplied to other plants - Whether the ld. CESTAT was right in law in holding that the assessee was entitled to avail the full credit of Excise Duty/service tax paid on input/input services under in their captive power plant when all the power generated through the captive power plant was not used by them for the manufacture of finished goods but part of the power generated was also supplied/wheeled out to the other plants? Held that:- Revenue placed reliance in the case of Supreme Court in Maruti Suzuki India Limited [2009 (8) TMI 14 - SUPREME COURT] where SC came to the conclusion that if the product namely electricity sold to third party or even sister concern, then it will not be entitled to Cenvat credit - the judgement do not apply to the facts of the present case, and CENVAT credit cannot be denied. Reliance placed in the case of Hindustan Zinc Ltd. vs. CCE Jaipur-II [2017 (4) TMI 841 - CESTAT NEW DELHI], where it was held that the electricity has been used in the manufacture of dutiable final products and also the fact that all units belong to the appellant the denial of credit is not justifiable. The decision which is taken by the Tribunal that the captive power plant of the sister concern, the same is against the fuel and fuel is used for the sister concern which is a part of the company itself. In that view of the matter, we are of the considered opinion that the view taken by the Tribunal is just and proper - credit remains allowed. Appeal dismissed - decided against Revenue. Issues Involved:1. Entitlement to full credit of Excise Duty/service tax on input/input services in a captive power plant when part of the power generated is supplied to other plants.Detailed Analysis:Issue 1: Entitlement to Full Credit of Excise Duty/Service Tax on Input/Input ServicesThe primary issue was whether the assessee was entitled to avail full CENVAT credit on input/input services used in their captive power plant when part of the power generated was supplied to other plants.Arguments by Appellant:- The appellant argued that the Tribunal erred in allowing full CENVAT credit for inputs and input services used in the captive power plant as the electricity generated was not entirely used for manufacturing finished goods within the factory but was also supplied to sister concerns.- The appellant cited the definition of 'input' under Rule 2(k) and 'input service' under Rule 2(l) of the CENVAT Credit Rules, 2004, emphasizing that inputs and input services should be directly used in the manufacturing process within the factory premises.- The appellant referenced several Supreme Court decisions, including Maruti Suzuki Ltd. vs. CCE, Delhi-III, which held that CENVAT credit is not available for inputs used to generate electricity supplied to other units or sold.Tribunal's Findings:- The Tribunal had allowed full CENVAT credit, reasoning that the inputs and input services were ultimately used in the manufacture of dutiable final products, either by the assessee or their sister concerns.- It was noted that if the assessee had followed the procedure for input service distribution, the credit eligibility for electricity cleared to sister units would not have been questioned.High Court's Observations:- The High Court examined the Tribunal's reliance on the definition of 'input' and 'input service' and previous decisions, including the Maruti Suzuki case.- The Court highlighted that the Supreme Court's judgment in Maruti Suzuki Ltd. clarified that CENVAT credit is only available for inputs used in the generation of electricity to the extent it is used within the factory for manufacturing final products.- The Court noted that the Tribunal's decision was consistent with the principle that electricity generation for captive use forms part of the manufacturing activity, and inputs used in such generation qualify for CENVAT credit.Conclusion:- The High Court upheld the Tribunal's decision, concluding that the captive power plant's electricity used within the factory for manufacturing final products entitles the assessee to full CENVAT credit.- The Court dismissed the appeal, affirming that the Tribunal's view was just and proper, and the issue was resolved in favor of the assessee.Summary:The High Court of Rajasthan upheld the Tribunal's decision allowing full CENVAT credit for inputs and input services used in the captive power plant. The Court concluded that electricity generated and used within the factory for manufacturing final products qualifies for CENVAT credit, even if part of the electricity is supplied to sister concerns. The appeal by the department was dismissed, and the issue was resolved in favor of the assessee.