2020 (1) TMI 529 - AT - Central Excise

Tribunal rules in favor of appellant on electricity sale tax liability

The tribunal held that the appellant is not liable to pay 6% of the sale value of electricity sold outside the factory as they had already reversed the ... CENVAT credit - waste/by-product - exempt goods - ‘waste gas’, also known as ‘tail gas’ / ‘off gas’, is generated as by-product / waste which being poisonous in nature cannot be flared into the open air for pollution reasons - whether appellant is liable to pay the amount calculated @ 6% of the sale value of electricity sold outside the factory when admittedly the appellant has reversed the proportionate credit of inputs and input services attributable to sale of electricity? HELD THAT:- Hon’ble Allahabad High Court as relied upon by the appellant in the case of GULARIA CHINI MILLS AND OTHERS VERSUS UNION OF INDIA AND OTHERS [2013 (7) TMI 159 - ALLAHABAD HIGH COURT] in which case, the electricity was generated from bagasse which is a waste product. It has been held by the Hon’ble High Court to be not classifiable under chapter 27 of the Central Excise Tariff - The Hon’ble High Court has clearly held that since electrical energy generated from waste i.e. bagasse is not excisable, the same cannot be said to be exempted goods. The waste / tail gas used in generation of electricity also cannot be said to be classifiable under chapter 27 and therefore, since the same is not excisable, the question of being exempt also does not arise - for the purpose of reversal of CENVAT credit, non excisable goods would be considered to be exempted goods and the assessee will be liable to reverse the proportionate credit w.e.f. 1st March, 2015 onwards and not for the prior period - Since admittedly, the reversal has been made by the appellant in adjudication stage, they cannot be penalised by way of demanding the prescribed percentage of sale value of electricity merely because the procedure has not been followed under Rule 6 of the Credit Rules. Time Limitation - HELD THAT:- The Tribunal in the case of M/S COMPARK E SERVICES P. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE & S.T., GHAZIABAD [2019 (5) TMI 1230 - CESTAT ALLAHABAD] has observed that when the assessee is subject to compliance and monitoring with other statutory bodies and the transactions have been disclosed in the financial statements, it cannot be said that there was any suppression. The interpretation that since the return has not been filed or tax has not been paid would be only for reasons of fraud or suppression will render the provisions relating to limitation otiose and infructuous. In the present case, there are no ingredient to show that the appellant has wilfully suppressed any information from the department. Mere fact that they have not followed the procedure under Rule 6 of the Credit Rules to reverse the proportionate credit, that too only w.e.f. 1st March, 2015, cannot lead to the conclusion that they have wilfully suppressed any material information from the department - Moreover, in the instant case, the appellant is not manufacturing any exempted goods but is generating electricity from the waste received during carbon black manufacturing process which is a statutory requirement under the pollution laws. Therefore, in the facts of the case, extended period of limitation is not available to the Department. Since the appellant has already reversed the proportionate credit attributable to sale of electricity for 2015-16 which fact is not in dispute as would be seen from the findings made by the Ld. Commissioner in para no. 4.4 and 4.25 of the impugned order, the appellant cannot be made liable to pay the amount @ 6% of the sale value of electricity under Rule 6(3), which in any case will be highly dis-proportionate to the credit amount actually availed, which is legally not permissible. Appeal allowed - decided in favor of appellant. Issues Involved:1. Whether the appellant is liable to pay 6% of the sale value of electricity sold outside the factory.2. Classification of electricity generated from waste gas/tail gas under Chapter 2716 00 00.3. Applicability of Rule 6 of the CENVAT Credit Rules, 2004, to the electricity generated from waste gas/tail gas.4. Reversal of proportionate CENVAT credit for the period prior to March 2015.5. Limitation and suppression of facts by the appellant.6. Disproportionate demand relative to the actual CENVAT credit availed.Detailed Analysis:1. Liability to Pay 6% on Sale Value of Electricity:The central issue is whether the appellant must pay 6% of the sale value of electricity sold outside the factory under Rule 6(3) of the CENVAT Credit Rules. The tribunal held that since the appellant has already reversed the proportionate credit of inputs and input services attributable to the sale of electricity, they are not liable to pay the amount calculated at 6% of the sale value of electricity. The tribunal referenced the case of Jai Balaji Industries Ltd. vs. CCE, Raipur, which established that mere failure to follow the prescribed procedure should not negate the substantial benefit of proportionate reversal.2. Classification of Electricity under Chapter 2716 00 00:The tribunal examined whether electricity generated from waste gas/tail gas is classifiable under Chapter 2716 00 00 and can be considered 'exempted goods.' It referred to the decision of the Allahabad High Court in Gularia Chini Mills vs. UOI, which held that electricity generated from bagasse (a waste product) is not classifiable under Chapter 27 and is not excisable. The tribunal concluded that electricity generated from waste gas/tail gas is similarly not classifiable under Chapter 2716 00 00 and, therefore, is not excisable or exempted.3. Applicability of Rule 6 of the CENVAT Credit Rules:The tribunal noted the amendment to the definition of 'exempted goods' under the CENVAT Credit Rules, which included non-excisable goods from 1st March 2015. Therefore, for the period prior to March 2015, the appellant was not liable to reverse the credit. The tribunal emphasized that since the appellant reversed the proportionate credit during adjudication, they cannot be penalized for not following the procedure under Rule 6.4. Reversal of Proportionate CENVAT Credit:The tribunal highlighted that the appellant had already reversed the proportionate credit for the period 2015-16, covering the normal period of limitation. This fact was not disputed by the department, and thus, the appellant cannot be made liable to pay the amount at 6% of the sale value of electricity.5. Limitation and Suppression of Facts:The tribunal addressed the issue of limitation and suppression of facts. It was argued that the appellant’s production process was well within the knowledge of the department, and they were subject to regular audits and monitoring by statutory bodies. The tribunal found no evidence of wilful suppression or fraud by the appellant. The tribunal cited the case of Compark E Services Pvt Ltd vs. CCE, which held that mere non-filing of returns or non-payment of tax does not automatically imply suppression unless there is positive evidence of mala fide intent.6. Disproportionate Demand:The tribunal noted that the demand of Rs. 2.33 Crores was highly disproportionate to the actual CENVAT credit availed, which was Rs. 11.2 lakhs. It referenced decisions in Goyal Proteins Ltd. vs. CCE and CCE vs. Maize Products, which established that an assessee cannot be burdened with a duty demand disproportionate to the credit amount actually availed.Conclusion:The tribunal set aside the impugned order and allowed the appeal with consequential relief as per law, stating that the appellant had already reversed the proportionate credit and the demand was disproportionate and not legally sustainable.