TaxTMI 
TaxTMI 
2018 (3) TMI 180
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.... into an agreement dated 31.08.2012 with TANGEDCO for wheeling out a part of the electricity generated in their CPP through TANGEDCO for distribution to and drawal by other units of the appellant at Salem District and Perambalur District and the grinding unit at Chennai. Department took the view that the appellants should have maintained separate accounts for the receipts, consumption and inventory for the production of electricity which is used within the factory, ie., for captive use and for the production of electricity wheeled out to TANGEDCO, hence they are liable to pay 6% of the value of the exempted goods wheeled out of the factory in terms of Rule 6 (3) (i) of CCR. Accordingly, SCN dated 30.09.2013 was issued to the appellants interalia proposing demand of Rs. 2,66,09,847/- being the amount equal to 6% of the value of electricity not captively consumed by the appellant, along with interest thereon and imposition of penalty under Rule 15(1) of CCR. In adjudication, vide impugned order dated 08.12.2014, proposal for demand of Rs. 2,66,09,847/- with interest was confirmed; equal penalty under Section 15(1) of CCR was also imposed. Aggrieved, appellants are before this forum. ....
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.... has been prescribed for electricity, they would have paid the same which would have been available as credit in other plants. Thus, the entire issue would have been revenue neutral. Even in the present circumstances, the Hon'ble Tribunal has held in the case of Sanghi Industries Vs. CCE, Rajkot 2014 (302) ELT 564 (Tri.-Ahmd.) that the exercise is revenue neutral only. vii) The proposal for imposing penalty is also not sustainable in law as the issue involves legal interpretation of statutory provisions and there are overwhelming number of case laws in favour of availing credit in similar circumstances, which judgments are tabulated vide para 3 above. We also submit that even in the case of Maruti Suzuki (which is the foundation for the subject issue raised by the department), penalty has been set aside. viii) As per Rule 2 (k) (iii) of CCR, all goods used for generation of electricity or wheeling for captive use are eligible inputs. There is no definition for capitive use in the Rules. However, Captive generating plant is defined in Electricity Act, 2003 in Section 8 is as follows:- "Captive generating plant means a power plant set up by any person to ge....
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....of exempted goods; (ii) in or in relation to the manufacture of dutiable final products excluding exempted goods; (iii) for the provision of exempted services (iv) for the provision of output services excluding exempted services; and (b) the receipt and use of input services (i) in or in relation to the manufacture of exempted goods and their clearance upto the place of removal; (ii) in or in relation to the manufacture of dutiable final products, excluding exempted goods, and their clearance upto the place of removal; (iii) for the provision of exempted services; and (iv) for the provision of output services excluding exempted services, and shall take Cenvat credit only on inputs under sub-clauses (ii) and (iv) of clause (a) and input services under sub-clauses (ii) and (iv) of clause (b). (3) Notwithstanding anything contained in sub-rules (1) and (2), the manufacturer of goods or the provider of output service, opting not to maintain separate accounts, shall follow either of the following options, as applicable to him, namely:- (i) pay an amount equal to six per cent of value of the exempte....
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.... use. This being so, it is not necessary to delve into the aspect of whether electricity is non-excisable or exempted for the purpose of determining whether inputs used for generating electricity are eligible for availment of Cenvat credit. Rule 2 k (iii) specifically allows availment of Cenvat credit on all inputs used for generation of electricity subject to the exclusions listed as under:- As per Rule 2 (k) of CCR, input means:- " (k) input means - (i) all goods used in the factory by the manufacturer of the final product; or (ii) any goods including accessories, cleared along with the final product, the value of which is included in the value of the final product and goods used for providing free warranty for final products; or (iii) all goods used for generation of electricity or steam for captive use; or (iv) all goods used for providing any output service; but excludes - (A) light diesel oil, high speed diesel oil or motor spirit, commonly known as petrol; (B) any goods used for - (a) construction of a building or a civil structure or a part thereof; or (b) laying of foundation....
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....ords and it is not proper to lay emphasis on one word disjuncted from its preceding and succeeding words as qualified by the Hon'ble Supreme Court in K. Bhagirathi G. Shenoy Vs. K.P. Ballakuraya 1999 (4) SCC 135. 5.3 Ld. Advocate has placed reliance on the ratio laid down by the Hon'ble Supreme Court in the case of Vikram Cement Vs. CCE - 2006 (194) ELT 3 (S.C). We however find that the Hon'ble Apex Court in that judgment has only clarified that only goods used into generation of electricity/steam which is used within the factory would be an input for the purpose of obtaining credit. The relevant portion of the judgment is reproduced as under:- "4. We observe that Rule 57B commences with a non obstante clause. It allows credit to be taken by a manufacturer on inputs used in or in relation to the manufacture of the final products whether directly or indirectly and whether contained in the final products or not. There is no qualification as to where the inputs must be used in the main body of sub-rule (1). Qualifications have been introduced to the extent stated in Clauses (i) to (vi) read with the Explanation. Thus Clause (i) provides for inputs which are manufactured an....
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....tated above, electricity generation is more of a process having its own economics. Applying the said test, we hold that when the electricity generation is a captive arrangement and the requirement is for carrying out the manufacturing activity, the electricity generation also forms part of the manufacturing activity and the input used in that electricity generation is an input used in the manufacture of final product. However, to the extent the excess electricity is cleared to the grid for distribution or to the joint ventures, vendors, and that too for a price (sale) the process and the use test fails. In such a case, the nexus between the process and the use gets disconnected. In such a case, it cannot be said that electricity generated is used in or in relation to the manufacture of final product, within the factory . Therefore, to the extent of the clearance of excess electricity outside the factory to the joint ventures, vendors, grid etc. would not be admissible for CENVAT credit as such wheeled out electricity, cleared for a price, would not fall within the definition of input in Rule 2(g) of the CENVAT Credit Rules, 2002. This view is also expressed in para 9 of the judgmen....
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....e Court as reported in 2015 (320) ELT A259 (S.C) as follows:- "1. Leave granted. 2. For the reasons given in our judgment delivered today in the case of M/s. Maruti Suzuki Ltd. v. Commissioner of Central Excise, Delhi-III - Civil Appeal No. 5554 of 2009 - (arising out of S.L.P. (C) No. 3826 of 2009), the civil appeals herein filed by the Department are allowed and the matters stand remitted to the Adjudicating Authority who will in each case ascertain whether any excess electricity was wheeled out/cleared at a price in favour of joint ventures, vendors, sister companies etc. and, if so, the Adjudicating Authority will calculate and charge duty or reverse credit to that extent alone. However, as stated above, the Department will not impose penalty in that regard for the disputed period(s). 3. Subject to above, the civil appeals filed by the Department are accordingly allowed with no order as to costs." The Appellate Tribunal in its impugned order had held that the Cenvat credit on fuel, i.e., Naptha and furnace oil used for generating electricity, surplus of which was wheeled out to other units of the appellant and subsidiary company, could not be....
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....rties was, obviously, not used in the manufacture of the assessee s final product. Therefore on the definition of the words input service itself, the LNG, to the extent used for production of electricity wheeled out to third parties, was not an input and the service of inward transportation thereof was not an input service. 18. Even on facts, the appellant cannot succeed. There is nothing on record to establish that it was the electricity wheeled out that was used by the third parties to manufacture the products used by the appellant in turn for the manufacture of its final product. Electricity like money would lose its identity once it is used with electricity obtained from other sources. The question of apportionment would, however, arise for instance if some nexus is established between the final product of the third party sold to the assessee and the electricity sold to it by the assessee. A case to this effect is not established. 22. The assessee having sold the electricity to the third parties lost all control or rights in respect thereof. They supplied the electricity and were paid for the same. The assessee could not be said, therefore, to have used the sa....