Credit on capital goods used for generation of electricity cannot be denied merely due to the fact that excess power was being sold outside.

PJ/Case Law/2013-14/1662

Case:-COMMISSIONER OF CENTRAL EXCISE, RAIPUR (CG) Vs M/s JINDAL STEEL & POWER LTD.

Citation:-2013-TIOL-1100-CESTAT-DEL

Issue:-Credit on capital goods used for generation of electricity cannot be denied merely due to the fact that excess power was being sold outside.

Brief facts:-The respondents are manufacturers of Sponge Iron and other Iron and Steel products chargeable to central excise duty. They had captive power plant. During the period of dispute i.e. during November 99 to August, 2000, they installed additional machinery for enhancing the power generation capacity and availed capital goods cenvat credit amounting to Rs.1,50,84,086/- in respect of the same. The department being of the view that since these capital goods have been used for generation of electricity which is non-excisable and since bulk of the electricity generated was being sold to the State Electricity Board as during the period of dispute, the power generated by the captive power plant was in excess of the respondent's actual requirement issued a show cause notice for denying cenvat credit in respect of power generating machinery, its recovery along with interest and imposition of penalty. The show cause notice was adjudicated by the Commissioner vide order-in-original date 29.8.2001 by which the proceedings against the respondent were dropped. However, this order of theCommissioner was reviewed by the Board under Section 35 E(1) of the Central Excise Act, 1944 and the Board by Review Order dated 27.08.2002 directed the Commissioner to file a review appeal for determination of the points as mentioned in the review order. Accordingly, the Commissioner filed a review appeal in terms of the provisions of Section 35 E (4) of the Central Excise Act, 1944.

Appellant’s Contention:-Ms. Ranjana Jha, ld. Joint CDR, assailing the impugned order of the Commissioner and reiterating the points raised in the Revenue's appeal against the Commissioner's order, pleaded that during the period of dispute, the power generation by captive power plant already installed in the respondent's factory was more that the actual power consumption and, therefore, the new power generation machinery was used for generation of power which was sold outside, that the respondent for this purpose had entered into an agreement with the State Electricity Board for the sale of power, that since the electricity is not excisable product, the capital goods installed in the factory for generation of additional electricity, which was being sold outside the factory, would not be eligible for cenvat credit and that in this regard, she relies upon the Apex Court's judgement in the case of Maruti Suzuki Ltd. Vs. Commissioner of Central Excise, Delhi-III reported in 2009 (240) ELT 641 (S.C.) = (2009-TIOL-94-SC-CX). She, therefore, pleaded that the impugned order permitting the cenvat credit in respect of the power plant machinery is not correct.

Respondent’s Contention:-Shri L.P. Asthana, ld. Counsel for the respondent, pleaded that during the period of dispute the respondent were in the process of expanding their capacity for manufacture of sponge iron and other steel products, that for this purpose only, they had augmented their power generation capacity as more power was going to be required for increasing their steel production, that just because during certain period, the power being generated by them was in excess of actual power requirement and excess power was sold to the State Electricity Board, the modvat credit cannot be denied, that in this regard, he relies upon the judgement of Hon'ble Chhattisgarh High Court in the case of CCE, Raipur Vs. HEG Ltd., wherein it was held that cenvat credit would be admissible on the capital goods installed in the factory for captive power generation, even if, substantial portion of the electricity generated was being wheeled out to sister concern and was not being used in the factory and in this regard, the Apex Court's judgement in the case of Maruti Suzuki Ltd. reported in 2009 (240) ELT 641 (SC) = (2009-TIOL-94-SC-CX) would not be applicable, that the facts of the present case are identical to the facts of the case of HEG Ltd. (supra) decided by the Hon'ble Chhattisgarh High Court, that the judgement of the Apex Court in the case of CCE Vs. Chennai Petroleum Corpn. Ltd. (supra), mentioned in the remand order dated 4.9.2012 of Chhattisgarh High Court has absolutely no relevance to the issue involved in this case and that it is the judgement of the same High Court in the case of HEG Ltd. (supra) which is applicable to the facts of this case. He, therefore, pleaded that there is no merit in the Revenue's appeal.

Reasoning of Judgment:-The dispute in this case is about the machinery installed for augmenting the power generation in the captive power plant. There is no dispute that the machinery required for captive power plant is eligible for capital goods cenvat credit. However, the department's objection is that bulk electricity was being sold to the State Electricity Board and hence the cenvat credit would not be admissible as the machinery has been used for generation of electricity, and that electricity had not been used in the factory. We do not agree with this objection of the department, as it is not disputed that the respondent was in the process of enhancing their capacity for production of sponge iron and other iron and steel products for which they required more electricity and for this purpose only, their power generation electricity had been enhanced. Therefore, just because during the intervening period between installation of power generation machinery for generating additional power and installation of machinery for manufacture of sponge iron and other iron and steel products, the excess power being generated was being sold outside, the capital goods cenvat credit in respect of power generation machinery cannot be denied. We find that identical point of dispute was involved in the case of HEG Ltd. wherein Hon'ble Chhattisgarh High Court vide judgement dated 30.09.2010 observing that the Apex Court's judgement in the case of Maruti Suzuki Ltd. is not applicable, has held that cenvat credit in respect of the machinery for captive power plant would be admissible even if the bulk of the electricity generated was being wheeled out to the sister concern. We have also find that the issue involved in the Apex Court's judgement in the case of Chennai Petroleum Corpn. Ltd. (supra) is totally different-whether Residual Fuel Oil (RFO) obtained as residue after distillation of crude oil for manufacture of petroleum products would be liable to excise duty, if such RFO was used as fuel for generating electricity and the electricity, instead of being used in the refinery, was sold to Tamil Nadu Electricity Board. The Apex Court held that to the extent electricity was sold out, RFO used in generation of such electricity would be liable to duty. The issue involved in this case is totally different-whether the power generation machinery can be said to have been exclusively used for manufacture of exempted excisable goods when a part of electricity was being sold out. Therefore, the Apex Court's judgement in case of Chennai Petroleum Corporation Ltd. (supra) is not applicable to the facts of this case.

In view of the above discussion, we hold that there is no merit in the Revenue's appeal. The same is dismissed.

Decision:- Appeal dismissed.

Comment:- The analogy that is drawn from this case is that mere fact that electricity generated vide captive power plant was being sold outside cannot be the grounds to deny cenvat credit on the same in view of the decision given in HEG Ltd.

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