Appellant's CENVAT Credit Dispute Resolved: Tribunal Rules on Duty Payment on Steam

The appellant availed CENVAT credit on inputs used as fuel for generating electricity, used in manufacturing both dutiable and exempted goods. The Commissioner (Appeals) set aside the demand to deny and recover credit for the period before 16.05.2005, citing an exception under Rule 6(2) of the CENVAT Credit Rules, 2004. The Tribunal held that the appellant's reversal of 10% of the value of steam was adequate, setting aside demands for further reversal. The matter was remanded for verification of credit reversal and duty payment on captively consumed soda ash. Appeals challenging duty payment on steam are pending before the High Court.

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Issues Involved:
1. Denial and recovery of CENVAT credit on inputs used as fuel for the generation of electricity supplied for the manufacture of exempted goods.
2. Applicability of Rule 6 of CENVAT Credit Rules, 2004, and the requirement to maintain separate accounts for common inputs.
3. Reversal of CENVAT credit on inputs used for the manufacture of exempted goods.
4. Invocation of extended periods of limitation for raising demands.
5. Adequacy of duty payment on steam and the requirement to reverse 8%/10% of the value of exempted goods.

Issue-wise Detailed Analysis:

1. Denial and Recovery of CENVAT Credit on Inputs Used as Fuel:
The appellant used pet coke and furnace oil as fuel for generating electricity in their captive power plant (CPP). This electricity was used in the manufacture of both dutiable (soda ash) and exempted (salt) goods. Prior to 16.05.2005, the appellant availed CENVAT credit on the entire amount of furnace oil and pet coke without reversing any credit. A Show Cause Notice dated 09.03.2006 proposed to deny and recover proportionate CENVAT credit for the period 01.10.2001 to 15.05.2005. The demand was set aside by the Commissioner (Appeals) on the ground that there was an exception for inputs used as fuel under Rule 6(2) of the CENVAT Credit Rules, 2004.

2. Applicability of Rule 6 of CENVAT Credit Rules, 2004:
Rule 6 was amended on 16.05.2005, removing the exception for inputs used as fuel. From this date, the appellant started availing proportionate CENVAT credit only for the electricity used in the manufacture of dutiable goods and reversed credit for the electricity used in the manufacture of exempted goods. The appellant followed this practice until the introduction of the GST regime.

3. Reversal of CENVAT Credit on Inputs Used for Manufacture of Exempted Goods:
The appellant reversed proportionate CENVAT credit on inputs used for generating electricity supplied to the salt plant and residential colony. Another Show Cause Notice dated 19.05.2006 proposed a total demand of Rs. 25,34,77,735/- for various periods, including 10% of the value of exempted goods under Rule 6(3)(i) and denial of CENVAT credit on HDPE bags used for packing soda ash. The Tribunal set aside these demands, holding that the reversal of 10% of the value of steam was adequate.

4. Invocation of Extended Periods of Limitation:
In appeals E/12446/2019 and E/10669/2020, the appellant argued that the demands were raised beyond the normal period of limitation. The demands were based on the requirement to reverse 8%/10% of the value of steam used in the manufacture of exempted products. The Tribunal had previously held that duty payment on steam was adequate.

5. Adequacy of Duty Payment on Steam:
The Tribunal had held that the duty payment on steam was adequate in terms of Rule 6 and set aside the demand for reversing 8%/10% of the value of salt. Both the appellant and Revenue have challenged this order before the Hon’ble High Court of Gujarat, and the matter is pending.

Judgment:
The Tribunal found that the appellant had been reversing CENVAT credit on a monthly basis but had not followed the exact procedure prescribed under Rule 6(3A). However, the substantial benefit available in the law cannot be denied due to procedural lapses. The Tribunal remanded the matter to the original authority for verification of the credit reversal and duty payment on captively consumed soda ash.

For appeals E/12446/2019 and E/10669/2020, the Tribunal set aside the impugned orders and remanded the matters back to the original adjudicating authority to decide afresh after the Hon’ble High Court decides the fundamental issue regarding the amount to be reversed.

The appeals were allowed by way of remand to the Adjudicating Authority.

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