CENVAT Credit

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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.

AI Summary

CENVAT Credit Dispute: Power Plant's Tax-Exempt Status Challenges Credit Use for Ferro Alloys Production, Proportional Reversal Advised A company operating a thermal power plant and Ferro Alloys furnaces in Andhra Pradesh is facing a CENVAT credit issue. The power plant, which benefits from tax exemptions, generates electricity, half of which is used for Ferro Alloys production (taxable) and the rest sold to AP TRANSCO. The Central Excise department claims the company cannot use CENVAT credit from Ferro Alloys sales due to the power plant's tax-exempt status. A respondent advises that CENVAT credit on capital goods is valid for dutiable goods production, and partial electricity use in Ferro Alloys supports credit eligibility, with input service credit requiring proportional reversal.