By TIOL News Service

BANGALORE, SEPT 23, 2014: THE Revenue has preferred this appeal challenging the order passed by the Tribunal, South Zonal Bench, Bangalore, wherein the Tribunal has confirmed the order passed by the Commissioner of Central Excise (Appeals) who allowed proportionate CENVAT Credit availed in respect of furnace oil used in production of steam/power supplied to EOU belonging to the same company.

The grievance of the Revenue is that the proportionate CENVAT Credit on furnace oil utilized in the generation of Steam/Electricity cleared to their EOU was not reversed as required in terms of Rule 57 AD (2) of Central Excise Rules 1944 read with Rules 6(2) & (3) of CENVAT Credit Rules 2001/2002/2004. Therefore an appeal was filed before the High Court with the following question of law:

When the assessee who manufacture the steam, use the same in the factory of manufacturing and also utilized the steam in its another unit which is situated in the same compound, is he entitled to CENVAT Credit proportionately to the extent which was used in the other unit?

After hearing both sides, the High Court held:

In view of clear language in the statutory provisions coupled with the fact that the factory includes more than one premises, to be eligible for CENVAT Credit, an assessee has to use the input in the manufacture of dutiable goods in his factory. If the factory includes more than one unit and if the assessee uses this input in the manufacturing of excisable goods in both the units, he would be entitled to CENVAT Credit.

The term "within the factory of production" (used in Rule 2(k)) cannot be confined to a single unit. In view of the definition of factory in the act which means more than one premises, it has to be construed as the factory owned by the assessee. If the assessee owns more than one unit, all the units if they are situated at a place would constitute "a factory". The electricity or steam generated within the factory of production means within the factory premises which may include more than one unit. If such electricity or steam generated within the factory of production is utilized by the assessee in more than one unit and if those units are manufacturing excisable goods, then, the assessee would be entitled to the benefit of CENVAT credit to the entire extent of utilization of such electricity or steam in all the units of its factory premises. Therefore, whatever goes into generation of electricity or steam which is placed within the factory which may consists of more than one unit would be an input for the purposes of obtaining credit on the duty payable thereon.

(See 2014-TIOL-1646-HC-KAR-CX)