Chartered Accountant
Bookmark and Share
click here to subscribe our newsletter
 
 
Corporate News *  Dept. Can’t Classify Product as Zarda Scented Tobacco After Repeatedly Approving It As Chewing Tobacco: CESTAT *  Mere Uploading Of GST Order On Portal Is Not “Valid” Service: Tripura HC *  CGST Can Proceed Even If SGST Closed Similar Case Earlier: Delhi HC *  SC upholds 28% GST on online gaming with retrospective effect. *  West Bengal Govt cuts E-way Bill Threshold limit to Rs. 50,000 for intra-state goods movement. *  Criminal Prosecution Under Central Excise Act Can’t Continue After CESTAT Sets Aside Duty Demand on Merits: Punjab & Haryana High Court. *  Madras High Court Quashes GST Assessment Orders for Denial of Personal Hearing; Remands Matter Subject to 10% Deposit *  Ex Parte GST Order: Madras High Court Directs Immediate Removal of Bank/ITC Attachment Upon 25% Deposit *  J.K. Cement Receives GST Demand Order of Rs 8,02,113/- from Ahmedabad Tax Authority *  Delhi Police EOW Busts Alleged Rs. 128 Crore GST Fake Invoice Network. *  REPLY TO SCN CAN’T BE TREATED AS “EMPTY FORMALITY”: ORISSA HIGH COURT QUASHES GST DEMAND OF RS. 57.30 LAKH *  Challenge to CGST Provisions restricting ITC to Bonafide Purchasers : Allahabad HC issues notice *  CBIC Notifies Revised Customs Tariff Values for Edible Oils, Gold, Silver, Brass Scrap and Areca Nuts *  Delhi HC Orders Removal of GST Attachment After Statutory 1 Year Period Expired *  GSTAT Extends Relaxed Appeal Filing Guidelines till December 31, 2026 *  AO fails to Provide Import - Export Data from DGFT to Taxpayer for Reconciliation *  Gold, Silver Imports To Get Costlier As Govt Raises Customs Duty To 10%  *  GSTAT Enables Pre-Payment Access to Document Upload and Checklist for GST Appeal Filing *  GST Portal Restrictions Can’t Override Statute: Gujarat HC Allows Cross-State Transfer Of CGST ITC After Amalgamation *  Centre Revises HS Codes for Large Diameter Steel Pipes Used in Oil & Gas Pipelines *  Customs Duty Liability Arises On Warehouse Clearance Date: Supreme Court *  Government lifts export ban on de-oiled rice bran *  CESTAT Grants 12% Interest on Pre-Deposit for Investigation from Date of Deposit till Refund and Denies Interest on Interest. *  Government Overhauls GST Classification Framework for Non-Alcoholic Beverages; Fruit Juice Drinks, Milk-Based Beverages and Caffeinated Drinks to Attract Revised 5% and 40% GST Rates from May 1, 2026 *  India’s gross GST collections hit a record Rs 2.42 lakh crore in April, up 8.7% *  Customs clearance stalled, revenue hit over MRP dispute *  Shipping Corporation explores Middle East routes as Hormuz tensions disrupt cargo movement *  India, Kenya signs MoU for exchange of pre-arrival customs information *  No demand of Taxes under Reverse Charge if Tax Already Discharged by Service Provider under forward charge *  The India-New Zealand Free Trade Agreement, signed "once-in-a-generation" deal that eliminates tariffs on 100% of Indian exports to New Zealand
Subject News *  Consignment Sales Can’t Be Reclassified as Inter-State Sales Based on Pre-Agreement Evidence: CESTAT *  Exporter Can’t Be Denied Advance Authorization Benefit Due To ICEGATE Technical Glitch: Delhi High Court *  No GST Demand For Mere Wrong Set-Off Of IGST Credit Under CGST And SGST Heads: Kerala HC. *  Cenvat Credit Can’t Be Denied on Input Services Having Nexus With Manufacturing Activities: CESTAT *  Pending Proceedings Can’t Survive Without Saving Clause: Calcutta High Court Quashes GST Demand of Rs. 6.28 Crore After Omission of Rule 96(10) *  Madras HC Quashes GST Demands on TASMAC (Tamil Nadu State Marketing Corporation) Bar Licence Fee *  GST Proceedings Cannot Survive Omitted Rule Without Saving Clause: Calcutta HC *  Provisional Release Can’t Be Denied Solely On Dept. Suspicion Of Misclassification And Undervaluation Of Imported Goods: CESTAT *  Businesses Should Not Be Kept Outside GST Regime Without Due Process: Gauhati High Court *  Punjab & Haryana HC Directs Reconsideration of Contractors’ Claim for Additional GST Payment After Tax Rate Hike From 12% to 18% *  S. 108 Statements Can’t Be Sole Basis Without Following Section 138B Procedure: CESTAT *  Bombay High Court Frames Key Questions on Mandatory Distribution of ITC U/s 20 CGST Act *  Filing of Annexure-B for Refund Applications involving Accumulated ITC using the offline utility in GST portal: GSTN *  No Service Tax on Parent Company’s Un-Invoiced Cost Allocations Without Actual Service or Consideration: CESTAT  *  Calcutta High Court Upholds GST Classification of Polypropylene Leno Bags as Plastic Products *  DRC-01 Summary Can’t Replace Mandatory SCN: Gauhati High Court *  GSTAT Issues Major Bench Allocation Framework; All Appeals to First Go Before Division Bench *  ITC Blocking Without Reasoned Order Violates Rule 86A; Punjab & Haryana HC Directs Release of Credit *  Allahabad HC Refuses Bail to CGST Superintendent In Rs. 70 Lakh Bribery Case *  S.130 Can’t Be Invoked Without Prior Tax Determination U/s 73/74: Allahabad High Court Quashes GST Confiscation Proceedings *  SC grants Bail to Rs 54cr GST case  *  Karnataka HC Sets Aside Duplicate GST Orders, Orders Fresh Hearing on GSTIN Cancellation *  DRC-01 Summary Can’t Replace Mandatory SCN: Gauhati High Court *  Transfer Of Unutilized ITC After Amalgamation - Supreme Court Issues Notice *  PUNJAB & HARYANA HC QUASHES GST CANCELLATION NOTICE FOR FAILURE TO PROVIDE CBIC ENQUIRY REPORT *  LICENSE FEE, TECHNICAL ASSISTANCE CHARGES NOT INCLUDIBLE IN CUSTOMS VALUE UNLESS THEY ARE A CONDITION OF SALE: CESTAT *  DELHI HC ORDERS REMOVAL OF GST ATTACHMENT AFTER STATUTORY 1 YEAR PERIOD EXPIRED *  CUSTOMS BROKER CAN’T BE FAULTED JUST BECAUSE EXPORTER’S GST REGISTRATION WAS PREVIOUSLY CANCELLED: CESTAT   *  Supreme Court Dismisses Review Plea Against Delhi HC Ruling Holding Real Operator Behind Fake GST Firms Liable As ‘Taxable Person  *  GST Appeal Can’t Be Rejected Merely Because DRC-07 Was Not Uploaded On Portal: Bombay High Court  

Comments

Print   |    |  Comment

PJ/Case Laws/2010-11/1053

Cenvat Credit on spares/parts of Captive Thermal Power Plant used for producing electricity

Case: Commissioner of Cus, & C. Ex., Chattisgarh vs H.E.G. Ltd.

Citation: 2010 (260) E.L.T. 386 (Chattisgarh)
 
Issue:- Admissibility of Cenvat credit on spares/parts of Captive Thermal Power Plant used for generating non-excisable electricity. 

Brief Facts:- The respondent had two factories, one at Drug and another at Raisen, the former manufacturing sponge iron and the latter manufacturing graphite electrode. They had a Captive Thermal Power Plant of 12.8 MW capacity having three boilers, one steam turbine and a generator. The steam generated in these boilers was used to generate electricity which was used captively for manufacture of sponge iron. The substantial part of the surplus electricity generated from CPP was transmitted to Raisen factory through the Grid of M.P. Electricity Board (MPEB). The respondent availed credit of the duty paid on various components, spares and accessories of CPP between October, 1995 and September, 2000 under Rule 57Q upto 31st March, 2000 and under Rule 57AB from 1st April, 2000 of the Central Excise Rules, 1944 and utilized the credit for payment of duty on their final product (Sponge Iron).
 
The Commissioner of Central Excise, issued show cause notices from time to time and sought to recover the entire duty under Rule 57-U/Rule 57-AH read with Section 11-A of the Central Excise Act on the ground that the credit was not admissible for non-fulfillment of condition set out in the proviso to sub-rule (2) of Rule 57-R because the electricity generated from CPP had not been fully utilized within the factory for manufacture of sponge iron as substantial part of the electricity had been wheeled out ot the factory for use elsewhere, and also on the ground that in terms of proviso to sub-rule (1) of Rule 57-R the credit was not available to the parts, components and accessories of CPP, which was used for generating electricity, which was not an excisable product. Another ground raised for denying the credit was that CPP was not eligible for capital goods under Rule 57-Q as it was not concerned with the manufacture of sponge iron and, therefore, its parts, components and accessories would not all within the purview of capital goods. Accordingly, the learned Commissioner held that the party was entitled to avail Modvat credit, and the appeal preferred by the revenue has been further rejected by the Tribunal and the order of the Commissioner has been upheld this appeal.
 
The Tribunal framed the following questions:

  1. Whether parts, accessories/ spares of CPP quality the test of “capital goods” under the erstwhile Rule 57-Q/57-AB of the Central Excise Rules, 1944 for availment of capital goods duty Credit?
  2. Whether the proviso to Rule 57-R of the Central Excise Rules/57-AD(3) of the said Rules, disentitle the availment of capital goods duty credit on parts/spares/accessories of CPP/Boiler as no excise duty is payable on the steam/electricity generated in CPP or Boiler as also since surplus electricity so generated is supplied to their sister concern through MPEB Grid and is not used exclusively in their factory in the manufacture of sponge iron and as the electricity so generated/ steam produced are also used for various other purposes other than that for the manufacture of sponge iron for which no separate recording and accounting is being done.
  3. Whether the said CPP has any concern in any way in the manufacture of their final product ‘sponge iron’, as the same is exclusively used for the generation of electricity”.

The Tribunal dealing with issue No. 1 – has referred to the arguments advanced by the assessee at length on this issue, wherein it was argued that boilers, turbine and generator and all components/parts thereof were integral parts of CPP, which generated electricity, which was an indispensable requirement for the manufacture of the specified final product – sponge iron. Such component, parts and accessories were covered by the definition of capital goods under Rule 57-Q as amended from time to time by Notification and so on during the relevant period. Under the new Rules, which came into force w.e.f. 1-4-2000, all goods falling under Chapters 82, 84, 85 and 90 and components, spares and accessories thereof were still within the ambit of the definition of capital goods and therefore, boilers, turbine, generator and all components, spares and accessories were eligible capital goods for Modvat credit. Finally, it was observed that the revenue has virtually conceded that credit of duty could be taken in respect of capital goods used in the manufacture of other capital goods for use in the manufacture of final product.
 
Dealing with other ground, it has been observed that there was no such requirement in Rule 57-Q that for credit to be taken on any part of any capital goods, the capital goods itself must be dutiable. The electricity generated by CPP was, by no stretch of imagination, a final product of the respondent as held by the Commissioner and therefore, reliance placed by the appellant/revenue on sub-rule (1) of Rule 57-R is also misconceived.
 
Rejecting the argument of the appellant/revenue that sub-rule (2) of Rule 57-R as amended w.e.f. 16-3-95, which allowed credit in respect of capital goods used for generation of electricity for manufacture of excisable goods or for any other purpose, was in force only upto 22-7-95 and therefore, no credit would have been allowed for the subsequent period, it has been held that sub-rule (with the relevant proviso) was in force beyond the said date also. After examining the legislative history of the capital goods credit scheme, it has been observed that the Commissioner has rightly found that under the provisions of Rule 57-Q and the new Rule, the respondent was entitled to avail Modvat credit on such capital goods, not affected by the provisions of Rule 57-R (2).
 
The Tribunal thus held that boilers, turbine and generator and all components/parts thereof were integral part of CPP, which generated electricity, which was an indispensable requirement for the manufacture of specified goods under Rule 57Q. Even under the new Rules, which came into force w.e.f. 01.04.2000, the goods falling under Chapters 82, 84, 85 & 90 and components, spares and accessories thereof fall within the ambit of definition of capital goods, and thus, they were eligible capital goods for modvat credit. 
 
Appellant’s Contentions:- Appellant challenged the order of the Tribunal on the ground that the substantial electricity generated by CPP installed in the premises at Durg has been wheeled outside to its sister concern at Raisen, which is engaged in the manufacture of graphite electrode and the same is not used in their factory in the manufacture of final product – sponge iron.
 
They made reliance on the decision of the Hon’ble Supreme Court in the matter of Maruti Suzuki Ltd. V. Commissioner of Central Excise, Delhi-III, 2009 (240) E.L.T. 641 (S.C.), it was argued that the assessee was not entitled for Modvat credit on capital goods used in its CPP as substantial part of the generated electricity has been transmitted outside the factory to its sister concern through MPEB Grid.
 
Respondent’s Contentions:- Respondent argue that from perusal of the impugned order, it would be evident that the Tribunal, after formulating common issues arising from the show cause notices issued by the Commission, has held that the components, spares and accessories used in CPP installed in the factory premises of the assessee were covered by the definition of capital goods under Rule 57-Q as amended from time to time. And relied upon the decision of the Hon’ble Supreme Court in the matter of Commissioner of Central Excise, Coimbatore v. Jawahar Mills Ltd. -2001 (132) E.L.T. 3 (S.C) with regard to the arguments advanced by the revenue for denying Modvat credit to the assessee on the ground that various parts, components, etc. used for fabrication of CPP and the electricity generated from there are not excisable, it has been held that there was no such requirement under Rule 57-Q that for credit to be taken on the parts of capital goods, the capital goods itself must be dutiable. Confirming the decision of the Commissioner, it has been observed that the above argument is not well founded on the provisions of Rule 57-Q in as much as electricity generated by CPP was not the final product of the respondent and therefore, reliance of the revenue on sub-rule (1) of Rule 57-R is misconceived. It has been further held that the Commissioner has rightly found that under the provisions of Rule 57-Q, the respondent was entitled to avail Modvat credit on such capital goods and its right is not affected by the provisions of Rule 57-R(2).
 
It was further argued that in the case of Maruti Suzuki Ltd has no application in the facts of the present case as the same is in relation to denial of Cenvat Credit on inputs to the extent of excess electricity cleared at the contractual rates in favour of the joint ventures, vendors etc., which was sold at price. However, in the instant case, the issue is with regard to entitlement of Modvat credit on capital goods used in CPP for production of electricity for manufacture of final product sponge iron. There is nothing on record to show that the assessee wheeled out its surplus electricity to its sister concern on payment of price.
 
Reasoning of Judgment:- The High Court has relied upon the following cases: -

  1. Ballarpur industries Ltd. Vs. Collector of Central Excise, Belgaum, [2000 (116) E.L.T. 312 (Tribunal-LB)]
  2. Collector of Central Excise v. Solaris Chemtech Limited, [2007 (214) E.L.T. 481 (S.C)]
  3. Jawahar Mills Ltd., [2001 (132) E.L.T. 3 (S.C)]
  4. Commissioner of Central Excise, Jaipur v. Rajasthan Spinning & Weaving Mills Ltd., [2010 (255) E.L.T. 481 (S.C)]
  5. Vikram Cement v. Commissioner of Central Excise, Indore [2006 (197) E.L.T. 145 (S.C)]
  6. Maruti Suzuki Ltd [2009 (240) E.L.T. 641 (S.C)]
  7. Commissioner of Central Excise v. Gujarat Ambuja Cement Ltd., [2010 (256) E.L.T. 356 (H.P)]

The High Court noted that the words “in relation to the manufacture” have been used to widen and expand the scope, meaning and content of the expression “inputs” so as to attract goods which do not enter into finished goods.
 
It was held that definition of capital goods under Rule 57Q was very wide. It would cover machines, machinery, plant, equipment, apparatus, tools or appliances. Any of the goods if used for producing or processing of any goods or for bringing about any substance for the manufacture of final product would be capital goods and therefore, quality for availing Modvat credit and the component, spare parts and accessories for the above purposes would also be capital goods and qualify for modvat credit entitlement. The above proposition would be applicable if the “user test” is satisfied and the question whether an item falls within the purview of capital goods would depend upon the user it is put it is put to. The definition of inputs brings within its fold, inputs used for generation of electricity or steam, provided such electricity or steam is used within the factory of production for manufacture of final products or for any other purpose. However, where excess electricity has been cleared and wheeled out by the assessee at an agreed rate of a price, the assessee is not entitled to cenvat credit to that extent.
 
Applying the above user test on the facts of the present case, the High Court have no hesitation in holding that parts, accessories/ spares of CPP installed in the factory premises would fall within the ambit of “capital goods” as contemplated under Rule 57-Q as user of electricity in the production of sponge iron is an integral part of manufacturing process. Therefore, Cenvat credit on parts, accessories/ spares cannot be denied to the assessee on the ground that the substantial portion of the electricity generated from CPP has been wheeled out to its sister concern at Raisen through MPEB Grid, and principles of law laid down in the judgment of the Supreme court in Maruti Suzuki Ltd are not applicable in the facts of the present case as assessee is not claiming any Cenvat credit on inputs for generation of electricity in CPP.
 
Decision:- Appeal dismissed accordingly.
 
Comment:- This verdict has very well ruled that the credit on capital goods used for generation of electricity is allowed even if the part of electricity is given to other factory. The ratio decidendia of Apex Court decision in Maruti Sauzuki Limited is not applicable as the same deals with inputs whereas it is relating to capital goods. It is worthwhile to mention here that even the decision of Apex Court cited supra is not final decision now as the same has been referred to larger bench. Moreover, we have also brought certain case laws in our previous newsletter wherein it is held that analogy of this decision is not applicable on input services. Now, this decision has held that it is not applicable on capital goods also. Further, for inputs also, it has been referred to larger bench.
 

************
 

Department News


Query

 
PRADEEP JAIN, F.C.A.

Head Office : -

Address :
"SUGYAN", H - 29, SHASTRI NAGAR, JODHPUR (RAJ.) - 342003

Phone No. :
0291 - 2439496, 0291 - 3258496

Mobile No. :
09314722236

Fax No. :0291 - 2439496


Branch Office : -

Address:
1008, 10th FLOOR, SUKH SAGAR COMPLEX,
NEAR FORTUNE LANDMARK HOTEL, USMANPURA,
ASHRAM ROAD, AHMEDABAD-380013

Phone No. :
079-32999496, 27560043

Mobile No. :
093777659496, 09377649496

E-mail :pradeep@capradeepjain.com