CENVAT Credit

[Guest]

Dear All,

We have a thermal power plant with 108 MW capacity and 6 Ferro Alloys furnaces with a total capacity of 54 MW ( each 9 MW) in A.P. !

Out of 108 MW power generated, we use 54 MW i.e. 50% for our Ferro Alloys captive consumption and balance power is sold to AP TRANSCO at a prior negotiated rate. The power plant is having the benefit of tax exemption under Income Tax Act, where as Ferro Alloys unit profits are taxable. We have incurred huge amounts in payment of Excise duties on capital goods for Power plant and utilizing the CENVAT credit from the Ferro Alloys sales made.

Recently there was a visit of Central Excise department people and their contention was that we cant use the CENVAT credit of the capital goods from Ferro Alloys sales since the power plant is tax exempted.

We argued that we are using part of the electricity generated in our Ferro Alloys plant, which is taxable, hence we are eligible for CENVAT credit to the extent of power used in our Ferro Alloys unit.

I sincerely request the group members to share their valuable opinion.

Thanks.

[Rajesh Nathoo]

Dear Rk Mishra ,

Cenvat Credit on capital goods for the generation of electricity which is capitively consumed provided final product is dutiable .

In your case , Cenvat Credit of capital goods is being used in the manufacture of dutiable goods ( through captive consumption of electricity in your plant ) as well as in the manufacture of exempted goods ( though sale of power to AP transco ).

As per Rule 6 of CCR, 2004, Cenvat Credit on Capital good can be denied if it is exclusively used in the manufacture of exempted goods .

This is not your case as you are using part of electricity in captive consumption .

Hence you need not to reverse the Cenvat Credit on Capital goods .

However if you are taking input service credit on the installation or maintenance of power plant , it has to be reversed proportionally on the basis of turnover of Electricity capitively consumed and electricity sold .

[Guest]

Dear Rajesh ji,

Thank you for your valuable advice.

Regards,

AI Summary

Cenvat credit eligibility: capital goods credit allowed when power fuels dutiable manufacture; service credit needs proportional reversal. Cenvat credit on capital goods used to generate electricity remains admissible where part of the power is used in manufacturing dutiable products and part is sold as exempted supply; credit is denied only if exclusively used for exempted goods. Input service credit for installation or maintenance must be proportionately reversed, using turnover of captive consumption versus electricity sold as the apportionment basis.