Whether cenvat credit availed on capital goods used for generation of electricity deniable on the ground that excess electricity generated was sold to outsiders?

PJ/CASE LAW/2014-15/2553

Case:- COMMISSIONER OF CENTRAL EXCISE VERSUS UNITED PHOSPHORUS LTD.

Citation:- 2015 (315) E.L.T. 360 (Guj.)

Brief facts:- The assessee purchased a capital goods for generation of electricity for the captive use. He sold some of its excess electricity outside its factory. Hence department raised para against him for reversal of CENVAT Credit availed on the capital goods. The adjudicating authority ordered against the assessee. Being aggrieved by the said order, the assessee filed appeal in the Tribunal. The Tribunal, however, relied on the decision of Chennai Bench in case of Kothari Sugars & Chemicals Ltd. v. Commissioner of Central Excise, Trichy reported in 2006 (196)E.L.T. 35, held in favour of the assessee. Being aggrieved by the said order the Revenue come to this Court.

Appellant’s contention:- The Revenue raised a question of law in the amended form as under:

“2(a) Whether in the facts and circumstances of the case, the Tribunal has committed substantial error of law in holding that Modvat Credit is available to the respondent on capital goods viz. Pipes, cables, valve, cooling tower, etc. used in the erection of power plant for generation of electricity by relying upon decision rendered by Chennai Bench of Tribunal in the case of Kothari Sugar & Chemicals Ltd. reported in 2006 (196) E.L.T. 35 (T) which has not attained finality and CMA No. 2671/2007 filed against the said decision is admitted and pending for final decision before the Hon’ble High Court of Madras at Chennai?”

Reasoning of judgment:- Having heard the learned counsel for the Revenue and having perused the impugned decision of the Customs, Excise & Service Tax Appellate Tribunal, the Hon’ble High Court has told that it emerged that the sole issue involved in this Tax Appeal related to the assessee’s claim for Modvat Credit on the capital goods used in generation of electricity, which had been captively consumed. According to the Revenue, the assessee would not qualify for such credit in view of Rule 57Q of the Central Excise Rules, 1944. The Tribunal, however, relied on the decision of Chennai Bench in case of Kothari Sugars & Chemicals Ltd. v. Commissioner of Central Excise, Trichy reported in 2006 (196)E.L.T. 35, held in favour of the assessee. In such decision, the Tribunal had come to the following conclusion :

“2. Yet another decision of the Tribunal (Division Bench) which is in favour of the assessee on similar set of facts is in the case of Commissioner of Central Excise, Raipur v. Jindal Steel and Power Ltd. [2003 (158)E.L.T. 178 (Tri.-Del.)], wherein capital goods credit was allowed in respect of capital goods used in power plant for manufacture of steel, to generate electricity, which was mainly used captively and partly sold out to MPEB. The submission of the assessee in that case that Rule 57R did not stand in the way of availment of such credit was not rejected by the Tribunal. Ld. Counsel has also cited two final orders of this Bench, one of which was passed in their own case. I am, however, unable to find support to the assessee’s argument on the aforesaid issue from any of these orders which did not consider Rule 57R at all. Nevertheless, the Division Bench decision cited by ld. Counsel are squarely in their favour and consequently the impugned order gets set aside and this appeal is allowed.”
The Tribunal in case of Kothari Sugars & Chemicals Ltd.(supra), had proceeded on the basis that the capital goods were used for generation of electricity which was mainly used captively. In the present case also the Tribunal has recorded that,

“It is undisputed in the case in hand that appellants have been consuming the electricity mostly in their factory premises and little surplus electricity was sold and put into electricity board.”

They have proceeded on the basis of such admitted facts. Quite apart from the decision of the Chennai Bench in case of Kothari Sugars & Chemicals Ltd.(supra), they were informed, was carried in appeal before the Madras High Court and was pending, they noticed that the Supreme Court in case of Collector of Central Excise v. Solaris Chemtech Limited reported in 2007 (214)E.L.T. 481 (S.C.) has occasion to deal with a substantially similar issue. It was held that when inputs are used to generate electricity which are captively consumed for manufacture of final product, the assessee would be entitled to Modvat Credit in view of the expression “used in relation to the manufacture” used in the statute.

The situation might have been different had the Revenue succeeded in establishing that the electricity generated by the assessee was not used captively but sold outside.

In the result, tax appeal is dismissed.

Decision:- Appeal dismissed.

Comment:- The crux of the case is that Cenvat Credit of Capital Goods used for generation of the electricity for captive consumption within factory would be admissible even if excess electricity generated is sold to third parties in view of the decision given in the case of Kothari Sugars & Chemicals Ltd., Commissioner of Central Excise,Raipur v. Jindal Steel and Power Ltd. and Collector of Central Excise v. Solaris Chemtech Limited.

Prepared by: Kushal Shah

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PJ/CASE LAW/2014-15/2553

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