TaxTMI 
TaxTMI 
2018 (3) TMI 180
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....NGEDCO 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. 2. Today when the matter came up for heari....
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....ants. 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 generate electricity primarily ffor his own use and includes a power plant set up by any co-operative society or association of persons for gene....
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.... 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 exempted goods exempted services; or (ii) pay an amount as determined under sub-rule (3 A); or (iii) maintain separate accounts for the receipt, consumption and inventory of inputs as provided for in clause (a) of sub-rule (2), take Cenvat credit only on inputs....
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.... 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 or making of structures for support of capital goods, except for the provision of any taxable service specified in sub-clauses (zn), (zzl), (zzm), (zzq), (zzzh) and (zzzza) of clause (105) of section 65 of the Finance Act; (c) capital goods except when used as parts or components in the manufacture of a final product; (d) motor vehicles; (e) any goods, such as food items....
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....t 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 and used within the factory of production. Paints, fuel, packing materials and accessories are also treated as inputs under clauses (ii), (iii), (v) and (iv) without any requirement for user within the factory. Clause (iv) provides for credit on inputs used for generation of electricity or steam used for manufacture of the final products or for any other purposes within the factory of production . It appears to us on a plai....
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....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 judgment of this Court in the case of Collector of Central Excise v. Solaris Chemtech Limited - 2007 (214) E.L.T. 481 (S.C.). Further, our view is supported by the observations of this Court in the case of Vikram Cement v. Commnr. of Central Excise, Indore - 2006 (194) E.L.T. 3 (S.C.) which is quoted below :- "It appears to us on a plain reading of the clause that the phrase within the factory of production means only such generation ....
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....e 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 denied on the ground that the credit was taken by the unit generating electricity but the electricity was not used in their factory but used in other places." 5.6 In the grounds of appeal filed by the appellants, it has been conceded that portion of power electricity/power generated was wheeled out to TANGEDCO under an agreement dated 31.08.2012 . As per para-5 of the terms and conditions mentioned in the agreement, net energy consumption should be adjusted on unit to ....
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....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 same either directly or even indirectly. Even if the electricity was by chance used for the manufacture of the final product sold by the third parties to the assessee, it would make no difference for it cannot be said that the same was used by the assessee itself." 6. In the light of the discussions herein above, we do not find any infirmity in the decision of the adjudicating authority that the appellants are liable to pay an amount of Rs. 2,66,09,847/- being the amount equal to 6% of the valu....