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2015 (6) TMI 404 - CESTAT NEW DELHI

2015 (6) TMI 404 - CESTAT NEW DELHI - 2015 (329) E.L.T. 302 (Tri. - Del.) - Demand of CENVAT Credit - fuel used in the generation of electricity cleared to DHBVNL - sending electricity on job work and receiving back - Rule 4(5)(a) - Penalty u/s 11A - Contravention of Rule 2(k) and 3 of the CENVAT Credit Rules, 2004 - Held that:- there is no sale of electricity to the power grid. It is also noted that the electricity sent to power grid was returned back to the Appellant, which was further used in .....

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ellant argued that the power plant can be a job worker o the Appellant and that the inputs sent by Appellant to the job worker plant, for generation of electricity brought back to the Appellant for manufacture of final product. The Tribunal held that proportional credit of inputs sent by clinker unit to the power plant under Rule 4(5)(a), corresponding to generation of electricity used in the DMW plant and administrative block will be eligible as CENVAT Credit.

Electricity sent for s .....

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(Technical),JJ. For the Appellant : Shri B.L. Narsimhan, Ms.Swati Gupta - Advocates For the Respondent: Shri Devender Singh, Commissioner (A.R.) ORDER Per: P.K. Das 1. The relevant facts of the case, in brief, are that the Appellant is engaged in the manufacture of Steel Slabs, Ingots, Blooms etc, falling under Chapter 72 of the Schedule to Central Excise Tariff Act, 1985. They set up a captive power plant in their factory. The electricity generated in the captive power plant was used in their o .....

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y cleared to DHBVNL during the period 01.01.2005 to 30.06.2005. It has also proposed to impose penalty of equal amount of duty. By the impugned order, the Commissioner disallowed the CENVAT Credit of ₹ 54,38,492.00 alongwith interest and imposed a penalty of equal amount of CENVAT Credit under Rule 15 of CENVAT Credit Rules, 2004 read with Section 11AC of Central Excise Act, 1944 for contravention of Rule 2(k) and 3 of the CENVAT Credit Rules, 2004. 2. The learned Advocate for the Appellan .....

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ts that there is no dispute that the electricity sent to power grid was returned back to their factory and utilized in the manufacture of finished product and therefore, reversal of credit on input furnace oil does not arise. The learned Advocate drew the attention of the Bench to the agreement between the Appellant and State Electricity Board. He submitted that on the same issue for the earlier period, this Tribunal in their own case by Final Order No.840-841/2008-CX, dt.21.08.2008, set aside t .....

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avnagar Vs M/s Ultratech Cement Ltd 2009-TIOL-95-SC-CX. He further submits that the Rule 4(5)(a) of CENVAT Credit Rules 2004 allowed the assessee to remove the inputs or capital goods as such or after being partially processed outside of the factory premises to a job worker for further processing. In the present case, the Appellant sent the electricity to the power grid, which was received back in their factory and used in the manufacture of final product, would come within the purview of Rule 4 .....

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ion of excess electricity cleared to the grid. In the present case, the Appellants cleared the excess electricity to the grid and therefore, they are liable to reverse the credit on the inputs furnace oil. He submits that Rule 2(k) of Rules, 2004 provides that the input credit would be eligible for generation of electricity used in or in relation to manufacture of the final product or for any other purpose within the factory of production. So, the Appellant ought to have reversed the credit to t .....

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ll the energy so generated from their captive plant, without specific approval from the Board. Wheeling charges in the form of energy will be done at 10% of the power injected from their captive power plant into the synchronisation system. The General Manager of DHBVNL (Dakshin Haryana Bijli Vitran Nigam Ltd) by letter dt.17.02.2006 clarified that the excess energy generated cannot be treated as a sale of energy to the grid. The relevant portion of the said letter dt.17.02.2006 is reproduced bel .....

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r direction please. Moreover, as per Indian Electricity Act, 1948, no captive power plant owner can sell his surplus energy either to any consumer or to the Nigam. 5. It is seen from the agreement that the power grid charged 10% of the value of electricity for providing of synchronisation. The learned Advocate contended that the Appellant was importing higher quantum of electricity other than the unit, that were being exported to the grid. So, it is not a case of sale of excess electricity gener .....

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and simultaneously to receive equal quantity of electricity from the Electricity Board. The fact that the appellants received same quantity of electricity which were cleared to the Electricity Board is not in dispute. This arrangement was made as the electricity generated in the captive power plant is fluctuating type and as such power cannot be used in the Arch Furnace, Strip mill and Grooming mill. The agreement with the Electricity Board was to maintain uniform frequency of electricity. In th .....

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venue strongly relied upon the decision of the Hon ble Supreme Court in the case of M/s Maruti Suzuki Ltd (supra). It is submitted that in view of the decision of the M/s Maruti Suzuki Ltd (supra), the order dt.21.08.2008 of the Tribunal in the Appellant s own case would not be applicable. The relevant portion of the decision in the case of M/s Maruti Suzuki Ltd (supra) is reproduced below:- 20. To sum up, we hold that the definition of input brings within its fold, inputs used for generation of .....

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to CENVAT credit. In short, assessee is entitled to credit on the eligible inputs utilized in the generation of electricity to the extent to which they are using the produced electricity within their factory (for captive consumption). They are not entitled to CENVAT credit to the extent of the excess electricity cleared at the contractual rates in favour of joint ventures, vendors etc., which is sold at a price. 7. The Hon ble Supreme Court in the case of M/s Ultratech Cement Ltd (supra) follow .....

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826 of 2009) = 2009-TIOL-94-SC-CX, the civil appeals herein filed by the Department are allowed and the matters stand remitted to the Adjudicating authority who will in each case ascertain whether any excess electricity was wheeled out/cleared at a price in favour of joint ventures, vendors, sister companies etc and, if so, the Adjudicating authority will calculate and charge duty or reverse credit to that extent alone. However, as stated above, the Department will not impose penalty in that reg .....

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ty, and the same was returned back to their factory for consumption in their final product. So, we do not find any substance in the submissions of the learned Authorised Representative. 9. The learned Authorised Representative further contended that once electricity is wheeled out of the premises of the factory of the manufacturer, it is cleared from the factory. Its linkage with the manufacture breaks at that point. The electricity wheeled out of the factory, the chain of electricity to the man .....

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ct under the MODVAT/CENVAT scheme. As per Rule 2(k) of Rules, 2004 input means all goods used in the factory by the manufacturer of the final product. It is seen that Rule 4(5)(a) of Rules, 2004 provides that the CENVAT Credit shall be allowed even if any input or capital as such or after being partially processed are sent to a job worker for further processing, testing etc or any other purpose, and it is established from the records produced by the manufacturer that the goods are received back .....

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al product, and it is within the purview of Rule 4(5)(a) of the Rules, 2004. 11. We find that in the case of Sanghi Industries Ltd Vs Commissioner of Central Excise, Rajkot 2004 (302) ELT 564 (Tri-Ahmd), the Tribunal allowed the appeal of the Appellant by applying Rule 4(5)(a) of the Rules, 2004 on the identical situation. In that case, the Appellant was engaged in the manufacture of Clinker and Cement. The Adjudicating authority denied the CENVAT Credit on inputs used for generation of electric .....

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Credit. The Revenue strongly relied upon the decision of the Hon ble Supreme Court in the case of M/s Maruti Suzuki Ltd (supra). 12. The relevant portion of the decision of the Hon ble Supreme Court in the case of M/s Sanghi Industries Ltd (supra) is reproduced below:- 13. From the above provisions of Cenvat Credit Rules, 2004 it is evident that Cenvat credit of inputs will be admissible to an assessee when the inputs are sent to a job worker and after undertaking the required manufacturing proc .....

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cating authority to be a job worker of the clinker unit. On the same analogy grinding unit could also act as a job worker of clinker unit for manufacturing cement. In such situations both the clinker and the electricity supplied to the grinding unit by the power plant can be treated as inputs supplied to job worker (grinding unit) for which credit has been taken by the clinker unit. As all the registered units belong to the same group of companies, therefore, what has not been done by the appell .....

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y the appellant, it is inferred that procedures existed at the relevant time to avail Cenvat credit on inputs sent to the power plant as job worker. The only irregularity committed by the appellant was that they did not follow the prescribed procedures. It has been a settled position of law now that a substantial benefit of Cenvat credit cannot be denied for not following the prescribed procedures when it is not disputed that inputs on which credit is taken have been utilized for manufacture of .....

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