Appellant wins CENVAT credit reversal case under Rule 6(3A) for free electricity supply to sister unit

CESTAT Mumbai ruled in favor of the appellant regarding CENVAT credit reversal under Rule 6(3A) of CENVAT Credit Rules, 2004. The appellant supplied electricity generated from inputs and input services to its sister unit free of cost without any commercial sale to MSEDCL during the disputed period. The Tribunal held that no credit reversal was required as the electricity was transferred free to sister concern and inputs/input services were ultimately used in manufacturing dutiable final products. The decision was supported by precedents including Rajasthan HC ruling in Shree Cement Limited case. The impugned order was set aside and appeal allowed.

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Issues involved: Determination of admissibility of Cenvat Credit on inputs and input service used for the generation of electricity transferred to sister unit for manufacturing dutiable goods.

Summary:
The appeal challenged an order rejecting Cenvat Credit for inputs and input services used in generating electricity transferred to a sister unit. The appellant, engaged in manufacturing dutiable goods, transferred excess electricity to the sister unit at Urse. The dispute arose when the department issued show cause notices for improper calculation of Cenvat Credit. The Adjudicating Authority confirmed the demand for certain periods, citing non-furnishing of required information. The Commissioner partially allowed the appeal but rejected Cenvat Credit entitlement based on Rule 6(3A) provisions and a Supreme Court decision. The appellant argued against the valuation method used by the department, emphasizing no sale of electricity to MSEDCL occurred during the period in question.

The Tribunal noted the appellant's prior submission regarding Cenvat Credit calculation and referenced a previous case supporting proportional reversal benefits. The main issue was the reversal of Cenvat Credit on electricity transferred to the sister unit. The Tribunal disagreed with the valuation method based on a Supreme Court decision involving sale of electricity, as no such sale occurred in this case. Citing a similar case, the Tribunal held that no reversal was required for electricity supplied to the sister unit free of cost. Referring to a Rajasthan High Court decision, the Tribunal confirmed the admissibility of Cenvat Credit for inputs used in generating electricity transferred to the sister unit for manufacturing dutiable goods. In alignment with previous decisions, the Tribunal allowed the appeal, granting Cenvat Credit on inputs and input services used for electricity production transferred to the sister unit.

The Tribunal set aside the impugned order and allowed the appeal in favor of the appellants, pronouncing the decision in open court on 24.04.2024.

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