2024 (9) TMI 384 - HC - Central Excise

Court Upholds Cenvat Credit on Surplus Electricity for Manufacturing, Aligns with Previous Interpretation of 'Factory'.

The HC dismissed the Revenue's appeal under section 35G of the Central Excise Act, 1944, affirming the CESTAT's decision. The court held that the ... Denial of credit of input and input services used for generation of the electricity - definition of ‘factory’ in section 2 (e) of the Act is read with rules 2(k)(iii) and rule 3 in Cenvat Credit Rules, 2004 - HELD THAT:- Both units of respondent correspond or come within the meaning of ‘factory’ given in the Act. Input includes all goods used for generation of, inter alia, electricity for captive use. Apart from surplus electricity sold to Gridco, electricity that was surplus in the generating unit was transmitted to the other unit for use in manufacture of the dutiable goods. Hence, it cannot be said that the transmitted electricity was not captively used. The Tribunal, by impugned final order relied on final order made in M/S. SHREE CEMENT LTD. VERSUS C.C.E. JAIPUR-II [2017 (6) TMI 502 - CESTAT NEW DELHI] where it was held that 'Considering that the electricity has been used in the manufacture of dutiable final products and also the fact that all units belong to the appellant the denial of credit is not justifiable in the present case.' Thus, no substantial question of law arises regarding use of the electricity manufactured in one unit of respondent but transmitted for use by another for use in manufacture of dutiable goods, to obtain cenvat credit. Appeal dismissed. Issues:- Appeal under section 35G in Central Excise Act, 1944- Entitlement to cenvat credit on input and input services for surplus electricity supplied- Interpretation of 'factory' in relation to Cenvat Credit Rules, 2004- Captive use of electricity within the same manufacturer's units for manufacturing dutiable goods- Application of a precedent from M/s. Shree Cement Ltd. v. CCE, Jaipur-IIAnalysis:The judgment pertains to an appeal under section 35G in the Central Excise Act, 1944, where the Revenue sought to appeal against a final order passed by the Customs, Excise and Service Tax Appellate Tribunal. The issue revolved around the entitlement of cenvat credit on input and input services for surplus electricity supplied by the respondent to its other unit. The Revenue contended that the surplus electricity transmission did not entitle the respondent to cenvat credit, leading to show cause notices being issued to deny the credit. The Tribunal set aside the appellate order, prompting the appeal. The definition of 'factory' in section 2(e) of the Act, read with relevant rules, was crucial in determining the eligibility for cenvat credit.The respondent had two units engaged in manufacturing activities, with one unit producing surplus electricity for captive use. The surplus electricity was both sold to Gridco and transmitted to the other unit for manufacturing dutiable goods. The question arose whether the transmitted electricity qualified as captively used for cenvat credit purposes. The Tribunal's decision was influenced by a precedent from M/s. Shree Cement Ltd. v. CCE, Jaipur-II, emphasizing that cenvat credit on input services used in electricity generation is eligible as long as the electricity is utilized in manufacturing dutiable final products, regardless of the unit within the same manufacturer.Ultimately, the High Court found no substantial question of law regarding the use of transmitted electricity between the respondent's units for manufacturing dutiable goods. The court dismissed the appeal, affirming the Tribunal's decision. The judgment highlighted the importance of the definition of 'factory' and the interpretation of captively used electricity for cenvat credit eligibility, aligning with the principles established in the cited precedent.