Whether capital goods cenvat credit admissible for power generating plant if part of the generated electricity was sold out?

PJ/Case Law/2013-14/1936

Case:- COMMISSIONER OF C. EX., RAIPUR Vs JINDAL STEEL & POWER LTD.

Citation:- 2013 (295) E.L.T. 321 (Tri. – Del.)

Brief facts:- The respondents were 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, 1999 to August, 2000, they had 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 had been used for generation of electricity which was 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 dated 29-8-2001 by which the proceedings against the respondent were dropped. However, this order of the Commissioner was reviewed by the Board under Section 35E(l) of the Central Excise Act, 1944 and the Board by Review Order dated 27-8-2002 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 35E (4) of the Central Excise Act, 1944. This appeal was decided by the Tribunal vide Final Order No. A/452/2003, dated 5-9-2002 [2003 (158)E.L.T.178 (T)] by which Revenue’s appeal was dismissed. The Tribunal while dismissing the appeal observed that modvat credit cannot be denied to the respondent as the power plant installed is part of their expansion plan to enhance the production capacity of sponge iron as steel and ferro alloys for which more power would be required by them. Against this order of the Tribunal, the department filed appeal under Section 35G before the Chhattisgarh High Court. In the appeal filed by the Revenue, the following questions of law were raised for decision of Hon’ble High Court :-
(a)    Whether the respondent can avail Modvat Credit facility with respect to the electricity produced in their captive power plant, when the electricity produced was at relevant time being sold to the MPEB as a final product itself and when the same is not excisable under the Act.
(b)    Whether Modvat credit facility can be extended to the respondent, with respect to the electricity produced in their captive power plant, when the same was not being used for manufacturing/production of their excisable final product in the fact and circumstances of the case.
(c)    Whether Modvat credit facility could have been claimed by the respondent contingently on the electricity being produced by them on the ground that it will be used for the manufacturing/production at some future date after the expansion of their sponge iron unit.

The Hon’ble Chhattisgarh High Court decided the Department’s appeal vide order dated 4-9-2012 setting aside the Tribunal’s order and remanding the matter afresh in the light of the Apex Court’s decision in the cases of -
(a)   Commissioner of Central Excise, Chennai-Iv. Chennai Petroleum Corporation Ltd. reported in 2007 (211)E.L.T.193 (S.C.)
(b) Maruti Suzuki Ltd. v. Commissioner of Central Excise, Delhi-Ill reported in 2009 (240)                    E.L.T.641 (S.C.).

Appellant’s contentions:- 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 than 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 was 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 relied upon the Apex Court’s judgment in the case of Maruti Suzuki Ltd. v. Commissioner of Central Excise, Delhi-Ill reported in 2009 (240)E.L.T.641 (S.C.). She, therefore, pleaded that the impugned order permitting the Cenvat credit in respect of the power plant machinery was not correct.

Respondent’s contentions:- Shri L.P. Asthana, ld. Counsel for the respondent, pleaded that during the period of dispute the respondents 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 of which could not be denied. In this regard, he relied upon the judgment of Hon’ble Chhattisgarh High Court in the case of CCE, Raipurv. 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 judgment in the case of Maruti Suzuki Ltd.reported in 2009 (240)E.L.T.641 (S.C.)would not be applicable, that the facts of the present case were identical to the facts of the case of HEG Ltd.(supra) decided by the Hon’ble Chhattisgarh High Court, that the judgment of the Apex Court in the case of CCEv. Chennai Petroleum Corpn. Ltd.(supra), mentioned in the remand order dated 4-9-2012 of Chhattisgarh High Court had absolutely no relevance to the issue involved in this case and that it was the judgment of the same High Court in the case of HEG Ltd.(supra) which was applicable to the facts of this case. He, therefore, pleaded that there was no merit in the Revenue’s appeal.

Reasons of judgment:- The dispute in this case was about the machinery installed for augmenting the power generation in the captive power plant. There was no dispute that the machinery required for captive power plant was eligible for capital goods Cenvat credit. However, the department’s objection was that bulk electricity was being sold to the State Electricity Board and hence the Cenvat credit would not be admissible as the machinery had been used for generation of electricity, and that electricity had not been used in the factory. The Bench did not agree with this objection of the department, as it was 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 could not be denied. The Bench found that identical point of dispute was involved in the case of HEG Ltd. wherein Hon’ble Chhattisgarh High Court vide judgment dated 30-9-2010 observing that the Apex Court’s judgment in the case of Maruti Suzuki Ltd. was not applicable, had held that Cenvat credit in respect of themachinery for captive power plant would be admissible even if the bulk of theelectricity generated was being wheeled out to the sister concern. They hadalso found that the issue involved in the Apex Court’s judgment in the case ofChennai Petroleum Corpn. Ltd. (supra) was totally different - whetherResidual Fuel Oil (RFO) obtained as residue after distillation of crude oil formanufacture of petroleum products would be liable to excise duty, if such RFOwas 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 thiscase stood totally different whether the power generation machinery could be said to have been exclusively used for manufacture of exempted excisablegoods when a part of electricity was being sold out. Therefore, the Apex Court’s judgment in case of Chennai Petroleum Corporation Ltd.(supra)was not applicable to the facts of this case. In view of the above discussion, they held that there was no merit in the Revenue’s appeal and the same was dismissed.

Decision:- Appeal was dismissed.

Comment:- The analogy drawn from the case is that capital goods cenvat credit with respect to power generating plant is admissible even if a part of the electricity generated is being sold to outsiders. In the present case, the appellant was in the process of enhancing their capacity for production of its goods for which it required more electricity and for this purpose only, their power generation electricity had been enhanced. Just because during the intervening period between installation of power generation machinery for generating additional power and installation of machinery for manufacture of goods, the excess power being generated was being sold outside, the capital goods Cenvat credit in respect of power generation machinery cannot be held to be inadmissible on the contention that the same is being used with respect to sale of non-excisable goods.

Comments

PJ/Case Law/2013-14/1936

Post a Comment

Query