By TIOL News Service

NEW DELHI, JULY 14, 2015: THE appellant manufactures sugar and molasses chargeable to Central Excise duty. Opposite the sugar mill plant, on the other side of the road, there is co-generation power plant that generates electricity by burning bagasse generated by sugar mill in the course of crushing of sugar cane.

The co-generation power plant is connected through overhead conveyor by which bagasse is transferred to co-generation power plant which is used for generation of electricity. The electricity generated is used in the sugar mill for its entire operation and surplus electricity is being sold to the state electricity board.

The dispute is about eligibility of CENVAT credit of various items of capital goods received by the appellant for setting up co-generation power plant and also various input services utilized in this regard. The period of dispute is from January 2004 to October 2006, July 2010 to March 2011 and April 2012 to March 2013.

Another issue is whether a common central excise registration could be granted under Rule 9 of CER, 2002 to the sugar mill as well as co-generation power plant. The Assistant Commissioner rejected the request of the appellant and this order was upheld by the Commissioner (Appeals) observing that the electricity is used only to run the machines to produce sugar and molasses and the electricity is not semi finished goods used in the manufacture of final product of the sugar mill and, therefore, there is no interlinked process involved and accordingly co-generation plant cannot be considered as an extended premises of sugar mill. It was also observed that the raw materials are not common for the two units because in case of sugar unit the main raw material is sugarcane and has nothing to do with generation of electricity in power plant.

An appeal against this order has been filed.

Inasmuch as since the appellants request for common central excise registration for sugar mill and co-generation power plant was rejected, the department was of the view that the capital goods meant for co-generation power plant have not been used within the factory of manufacturer, and therefore the same would not be eligible for credit and similarly input service credit on the services of installation, erection and commissioning of plant and machinery of co-generation plant, and repair and maintenance of co-generation plant would also not be eligible for CENVAT credit.

Appeals have been filed against the orders denying the credit.

The appellant placed reliance upon Boards supplementary instructions issued under Rule 31 of CER, 2002 in the matter of common registration and the decisions in Konark Met Ltd. vs. CCE, Bhuvaneswar-I - 2006-TIOL-1765-CESTAT-KOL, Union of India vs. HEG Ltd. - 2009-TIOL-785-HC-CHHATTISGARH-CX, Nizam Deccan Sugars Ltd., Hyderabad vs. CCE, Hyderabad - 2008-TIOL-764-CESTAT-BANG to justify their claim.

The AR supported the orders passed by the lower authorities.

The Bench after considering the submissions observed -

++ In our view, when sugar mill and co-generation power plant are connected through overhead conveyor by which bagasse generated in the sugar mill is transferred to co-generation power plant where it is used in the boiler for generation of electricity and the electricity generated in the co-generation power plant is used in the sugar mill for its operation and only surplus electricity is sold to the state electricity board and when it is not disputed that administrations/work management of the sugar mill and co-generation power plant is common, the functioning of the sugar mill and its co-generation plant located across the public road has to be treated as interlinked and the two have to be treated as one factory.

++ In our view, the reasons have been given by the Commissioner (Appeals) for upholding denial of common registration for sugar mill and co-generation power plants are absurd.

++ Since in our view, the sugar mills and co-generation power plant even though separated by a public road have to be treated as one factory as their operations are interlinked and common registration has been wrongly denied to them, the appellant would be eligible to credit on capital goods used in the co-generation power plant. Similarly, they are also eligible for credit of service tax paid on installation, erection and commissioning of machine, plant, repair and maintenance of plant, etc. which have been used in the co-generation power plant.

++ One of the reasons given by the department for denying inputs service credit that the services are by covered by rule 6 (5) of CCR, 2004 is that during off season the electricity generated in the co-generation power plant is not used for manufacture of excisable goods but it is sold outside. In this case, no evidence has been produced to show that co-generation power plant was functioning during off season when there is no supply of baggase generated in the course of crushing of sugar cane and other fuel like diesel, furnace oil.

++ The Tribunal in the case of Nizam Deccan Sugars Ltd. (supra) has held that even if power generated in the co-generation power plant is partly used in sugar mill and partly is sold during the off season to the Andhra Pradesh Electricity Power Grid in terms of the agreement entered into between the sugar mills and the Electricity Board, the credit on the capital goods used in their co-generation plant of sugar mill is admissible. The ratio of this judgment of the Tribunal is squarely applicable to the facts of the present case.

Holding that the orders are not sustainable the same were set aside and the appeals were allowed.

In passing: This is how a Rs.2.07 crores demand goes phut…

(See 2015-TIOL-1411-CESTAT-DEL)