TaxTMI 
TaxTMI 
2026 (3) TMI 972
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....re of dutiable products and the surplus is wheeled out to the Tamil Nadu Electricity Board grid and other locations. The appellant availed CENVAT credit on inputs and input services used in manufacture, while certain services such as professional, consultancy, telephone and security services were used commonly for manufacturing activities as well as electricity generation. 1.2 On undertaking audit for the period from March 2015 to March 2016, the department noticed that part of the electricity generated in the COGEN Plant was wheeled out to the grid and other locations such as guest houses and corporate offices. Treating such electricity as "exempted goods", the department alleged that the appellant had not maintained separate accounts for common inputs and input services as required under Rule 6(2) of the CENVAT Credit Rules, 2004. Accordingly, show cause notices dated 27.04.2017 proposed recovery of 6% of the value of electricity cleared outside the factory under Rule 6(3)(i) along with interest and penalties. The appellant contended that proportionate CENVAT credit attributable to common input services had already been reversed under Rule 6(3A) along with applicable interest,....
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....erms of Rule 6(3A) and had also intimated the department regarding such reversal through letters dated 23.01.2017. 4.5 It was further submitted that once proportionate credit is reversed under Rule 6(3A), the department cannot compel the assessee to pay 6% of the value of exempted goods under Rule 6(3)(i). Rule 6 provides multiple options to the assessee and it is for the assessee to choose the appropriate option. 4.6 The Ld. counsel also relied upon various decisions of the Tribunal wherein it was held that reversal of proportionate credit under Rule 6(3A) satisfies the requirement of Rule 6 and the department cannot insist upon payment of 6% of the value of exempted goods. 4.7 It was also argued that failure to intimate the department in writing regarding exercise of option under Rule 6(3A) is merely a procedural lapse and cannot result in denial of the substantive benefit. 4.8 The Ld. counsel therefore submitted that the impugned orders confirming demand of 6% of the value of electricity are unsustainable and liable to be set aside. 5. The Ld. Authorised Representative Mr. M. Selvakumar appearing for the Revenue reiterated the findings recorded in the impugned ord....
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....e case including the show cause notices, the impugned Orders-in-Original, the written submissions of the appellant and the comments filed by the department. The first issue that arises for determination is whether electricity generated in the co-generation plant and wheeled out to the electricity grid or other locations can be treated as exempted goods so as to attract the provisions of Rule 6 of the CENVAT Credit Rules, 2004. 8.2 The Ld. counsel for the appellant submitted that the electricity generated in the co-generation plant is not the result of an independent manufacturing activity but arises as a consequence of the sugar manufacturing process. It was submitted that bagasse emerging during crushing of sugarcane is used as fuel in the boilers to generate steam which in turn drives the turbines to produce electricity. A portion of such electricity is consumed captively in the manufacture of dutiable final products such as sugar and denatured ethyl alcohol while the surplus electricity is wheeled out to the State Electricity Board grid. The learned counsel therefore submitted that electricity generation is only incidental to the manufacturing process and cannot be treated as....
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....- "Bagasse emerges as a waste product in the course of manufacture of sugar and therefore cannot be considered as a manufactured final product." Though the said judgment relates to bagasse, the principle laid down therein clearly indicates that inevitable byproducts or incidental outputs arising during the manufacturing process cannot automatically be treated as independent manufactured goods for the purpose of denying credit benefits. 8.7 Therefore, while electricity cleared outside the factory would fall within the definition of "exempted goods" under Rule 2(d) of the CENVAT Credit Rules, the liability under Rule 6 would arise only to the extent that CENVAT credit has been availed on common inputs or input services used in relation to both dutiable goods and such exempted electricity. ISSUE NO. (ii) Whether the appellant, having reversed proportionate CENVAT credit under Rule 6(3A), can still be required to pay 6% of the value of electricity cleared outside the factory 9.1 The next issue for consideration is whether the appellant, having reversed proportionate credit attributable to common input services in terms of Rule 6(3A), can still be required to pay an....
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.....L.T. 641 (S.C.), wherein the Court explained the concept of nexus between inputs or input services and manufacturing activity and held that CENVAT credit is admissible only where such nexus exists. The said judgment underscores that the scope of credit and the obligations arising under Rule 6 must be examined in the context of the actual use of inputs or input services. 9.8 Applying the above principles to the facts of the present case, we find that the appellant has reversed proportionate credit attributable to common input services used in relation to electricity generation. Once such credit stands reversed the object of Rule 6 stands achieved. 9.9 Requiring the appellant to pay an amount equivalent to 6% of the value of electricity cleared outside the factory would result in recovery far exceeding the credit actually availed and would therefore defeat the very objective of the CENVAT credit scheme which is intended to avoid cascading of taxes. ISSUE NO. (iii) Whether failure to intimate the department regarding exercise of option under Rule 6(3A) disentitles the appellant from proportionate reversal 10.1 The next issue that arises for determination is whether the ap....
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.... counsel therefore argued that since the extended period of limitation has not been invoked in the show cause notices and there is no allegation of fraud, suppression of facts or wilful misstatement with intent to evade payment of duty, the entire demand is liable to be set aside on the ground of limitation alone. 11.2 We have carefully considered the above submissions and examined the records of the case. From the show cause notices and the impugned orders, we find that the demands have been raised for the period March 2015 to March 2016, whereas the show cause notices have been issued only on 27.04.2017. We also note that the department has not invoked the extended period of limitation under the proviso to Section 11A of the Central Excise Act, 1944, nor are there any allegations of fraud, suppression of facts or wilful misstatement with intent to evade payment of duty. 11.3 We further observe that during the relevant period the normal period of limitation prescribed under Section 11A(1) of the Central Excise Act, 1944 was one year. The said provision was amended by the Finance Act, 2016, whereby the normal limitation period was extended to two years with effect from 14.05.....