2024 (2) TMI 302 - HC - Central Excise

Reversal of proportionate CENVAT credit on captive power wheeled to sister units held allowable where power not sold; appeal allowed

Reversal of proportionate CENVAT credit on CVD paid for imported coal used in on-site generation of electricity is addressed by distinguishing sale of ... CENVAT credit entitlement for inputs used for generation of electricity for captive use - definition of 'input' under the CENVAT Credit Rules - substituted definition of 'input' w.e.f. 01.04.2011 - captive use - wheeling of electricity - Maruti Suzuki ratio on inputs used within the factoryCENVAT credit entitlement for inputs used for generation of electricity for captive use - definition of 'input' under the CENVAT Credit Rules - substituted definition of 'input' w.e.f. 01.04.2011 - wheeling of electricity - Maruti Suzuki ratio on inputs used within the factory - Whether the appellant is entitled to CENVAT credit of duty paid on inputs used for generation of electricity in its CPP, notwithstanding that a portion of such electricity was wheeled through TANGEDCO for use by sister units at different locations, for the period September 2012 to May 2013. - HELD THAT: - The Court examined the 2002 Rules and the substituted definition of 'input' effective 01.04.2011. Under the earlier definition the place of use ('within the factory of production') was material; Maruti Suzuki applied that test and denied credit to the extent electricity was cleared outside the factory for a price. The substituted Rule (clause (iii)) expressly covers 'all goods used for generation of electricity or steam for captive use' and contains no stipulation as to the place of use. On the admitted facts - the CPP set up at substantial cost, electricity wheeled gratis to sister units through a transparent wheeling arrangement with TANGEDCO, utilization within the group, and the ability for departmental verification - the Court held that the term 'captive' qualifies generation and not the location of use. Consequently, electricity captively generated qualifies as an input wherever used by the assessee for the purposes of the substituted definition. Maruti Suzuki was distinguished on its facts and the earlier definition. Applying the substituted Rule to the period in question, the appellant was entitled to succeed. [Paras 31, 32, 33, 34]Appeals allowed; appellant entitled to CENVAT credit for the inputs used to generate electricity for captive use for the period Sep, 2012 to May, 2013; no order as to costs.Final Conclusion: On the facts and for the period Sep, 2012 to May, 2013 the substituted definition of 'input' (w.e.f. 01.04.2011) covers goods used for generation of electricity for captive use irrespective of the location of consumption; the appellant's appeals are allowed and there shall be no order as to costs. Issues Involved:1. Entitlement to full credit of duty on inputs and input services used for generation of electricity at the Captive Power Plant (CPP).2. Liability to pay an amount equal to 6% of the value of electricity wheeled out to the grid of TANGEDCO in terms of Rule 6(3)(i) of CENVAT Credit Rules (CCR).Summary:Entitlement to Full Credit of Duty on Inputs and Input Services:The appellants, manufacturers of cement, set up a CPP and wheeled out a portion of the generated electricity to sister units under an agreement with TANGEDCO. They availed CENVAT credit on imported coal used in the CPP. The department alleged contravention of Rule 6(1), 6(2), and 6(3) of CCR, proposing the demand of duty, interest, and penalty, arguing that the wheeled-out electricity does not qualify as 'input service' under Rule 2(k) and Rule 2(i) of CCR. The appellants refuted this, maintaining separate accounts for coal import and utilization, and reversed the proportionate credit towards inputs and input services attributable to the power transferred to sister units.Liability to Pay 6% of the Value of Electricity Wheeled Out:The department's reliance on the Supreme Court's judgment in Maruti Suzuki Ltd. v. Commissioner of Central Excise, Delhi, was distinguished by the appellants, who cited other judgments supporting their entitlement to full credit. The appellants argued that electricity qualifies as an input for CENVAT credit and that the excess electricity was not sold but transferred to their duty-paying sister units. They also contended that the demand for 6% on the notional value of the wheeled-out electricity was arbitrary, as electricity is neither excisable nor exempt under the Act.Court's Analysis and Decision:The court examined the definition of 'input' under Rule 2(g) of CCR 2002 and 2004, which mandates that inputs must be consumed within the factory of production. The judgment in Maruti Suzuki Ltd. was considered, emphasizing that inputs used for generation of electricity are admissible for CENVAT credit only if the electricity is used within the factory. However, the court noted that the definition of 'input' was amended in 2011, removing the requirement of usage in a particular location. The court found merit in the appellants' position that electricity generated captively is an input, irrespective of its usage location within the company's units.Conclusion:The court concluded that the appellants are entitled to full credit on the specific fact pattern of the case, as the electricity generated was used within the appellant group of companies, albeit at different locations. The appeals were allowed, and miscellaneous petitions were closed with no order as to costs.