Tribunal sets aside demands & penalties on Cenvat credit, iron articles, waste clearance duty.

The Tribunal allowed the appeal, setting aside the demands and penalties on all four issues regarding the admissibility of Cenvat credit on capital goods and input services used in the Captive Power Plant, eligibility of Cenvat credit on iron and steel articles, and liability to pay duty on the clearance of waste and scrap. The order was pronounced on 11 December 2019.

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Issues Involved:
1. Admissibility of Cenvat credit on capital goods used in the Captive Power Plant (CPP).
2. Availability of Cenvat credit on input services used in the CPP.
3. Eligibility of Cenvat credit on iron and steel articles used for repair and maintenance of plant and machinery.
4. Liability to pay duty on the clearance of waste and scrap under Rule 3(5A) of the Cenvat Credit Rules (CCR).

Detailed Analysis:

First Issue – Cenvat Credit on Capital Goods in CPP:
The Appellant contended that capital goods used in the CPP, which generated electricity for both internal use in manufacturing dutiable goods (Sugar and Molasses) and for wheeling out to the Bihar State Electricity Board, should not be considered as exclusively used for exempted goods. The Tribunal noted that the electricity generated was used within the factory premises for manufacturing dutiable goods, thus the capital goods could not be said to be exclusively used for exempted goods. The Tribunal referenced the Board Circular dated 25 September 2002 and the decision in HEG Ltd., which supported the view that capital goods used in generating electricity for dutiable goods cannot be denied Cenvat credit. Consequently, the Tribunal allowed the credit on capital goods used in the CPP.

Second Issue – Cenvat Credit on Input Services in CPP:
The Appellant argued that input services covered by Rule 6(5) of the CCR, which were used in the generation of electricity within the CPP, should be eligible for Cenvat credit as they were not exclusively used for exempted goods. The Tribunal agreed, noting that these services were used in the manufacture of electricity, which was further used in manufacturing dutiable goods. The Tribunal referenced the Board Circular dated 1 October 2017 and the Indo Rama Synthetics case, concluding that the input services could not be considered as exclusively used for exempted goods. Hence, the Tribunal allowed the credit on input services used in the CPP.

Third Issue – Cenvat Credit on Iron and Steel Articles:
The Appellant claimed that iron and steel articles used for repair and maintenance of capital goods should qualify for Cenvat credit. The Tribunal noted that similar demands for earlier periods had been dropped by the Adjudicating Authority and the Appellate Commissioner, and these decisions were not appealed against. The Tribunal found that the department had full knowledge of the facts from earlier audits and could not claim suppression to justify the extended period of limitation. Consequently, the Tribunal dropped the demand on this count as barred by limitation, following the decision in Nizam Sugar Factory. The Tribunal refrained from examining the merits further.

Fourth Issue – Duty on Clearance of Waste and Scrap:
The Appellant argued that no capital goods were cleared as waste and scrap during the relevant period, and the waste and scrap were not from capital goods. The Tribunal agreed, noting that the affidavit from the Chief General Manager and the evidence provided did not indicate that the scrap was from capital goods. The Tribunal found that the Commissioner had overstepped by holding that duty was payable under Section 11A of the Central Excise Act without any allegation in the Notice. The Tribunal referenced the UP State Sugar case, concluding that the demand for central excise duty on waste and scrap could not sustain. Thus, the Tribunal set aside the demand on this issue.

Conclusion:
The Tribunal allowed the appeal, setting aside the demands and penalties on all four issues. The order was pronounced in the open court on 11 December 2019.

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