CX - No part of electricity has been used for manufacture of excisable goods since such plant was never set up – CENVAT credit on capital goods used to set up captive power plant is inadmissible: CESTAT
By TIOL News Service
NEW DELHI, OCT 11, 2017: THE appellant obtained Central Excise registration for manufacture of pig iron, sponge iron and ferro alloy. Before setting up the factory for manufacture, the appellant obtained permission to set up a captive power plant.
The power plant got installed and the power generated was wheeled out to the grid since the manufacturing plant for the ferro alloys was not yet set up. Capital goods were brought into the factory and on such capital goods cenvat credit was availed by the appellant. The appellant's plant to commence production of ferro alloys got delayed and never got installed until the time of issue of show cause notice. The power plant of the appellant also subsequently became non-operational due to unviability of the project.
The departmental authorities took the view that the cenvat credit availed by the appellant was irregular inasmuch as no factory had been set up for manufacture of excisable goods, but the capital goods on which cenvat credit has been availed i.e. the captive power plant, has been used only for the purpose of generation of electricity which stands wheeled out to the grid.
Hence, Revenue alleged that the cenvat credit will have to be reversed in terms of Rule 6(4) of the CCR, 2004 which provides that no cenvat credit shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods.
Accordingly, SCN was issued and vide the impugned order, cenvat credit amounting to Rs. 5,13,70,707/- was ordered for recovery alongwith interest and penalty of amount equal to the cenvat credit disallowed.
The appellant is before the CESTAT.
It is submitted that because of financial stress,only the captive power plant could be set up;that part of the stake of the appellant's company has been sold to M/s Godawari Power & Ispat Limited who had agreed to bring additional cash and operationlise the plant; that cenvat credit cannot be ordered for recovery since the factory for manufacture of excisable goods is likely to be started shortly. Reliance is placed on the decisions in 2010-TIOL-197-CESTAT-BANG , 2011-TIOL-974-HC-KAR-CX and 2002-TIOL-262-SC-CT .
The AR while reiterating the findings of the original authority also added that there was no likelihood of the same being put up in the foreseeable future;that Electricity satisfies the statutory definition of 'exempted goods' as defined under Rule 2(d) of CCR, 2004 and accordingly cenvat credit is recoverable.
The Bench observed -
"8. …, it happened that only the captive power plant got set up but the factory for manufacture of excisable goods never got set up in any case until the commencement of proceedings in this case. Cenvat credit was availed by the appellant on the capital goods installed in the factory for captive power generation. It is further seen from the record that during the period under consideration, the captive power plant was used to generate electricity which was wheeled out to the grid. No part of the power was utilised in the manufacture of excisable goods in the factory. Rule 6(1) and 6(4) of the Cenvat Credit Rules, 2004 lay down that no cenvat credit shall be allowed on inputs/ input services as well as capital goods which are used only in the manufacture of exempted goods or for provision of exempted services. In the present case, the capital goods on which cenvat credit has been availed, have been used only for the purpose of generation of electricity which stands wheeled out to the grid. It is on record that no part of the electricity has been used for manufacture of excisable goods since such plant was never set up. Electricity is not chargeable to any excise duty and falls within the definition of exempted goods in terms of Rule 2(d) of the Cenvat Credit Rules, 2004. Consequently, in terms of Rule 6(4), the cenvat credit availed is to be considered irregular and will be liable for recovery under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11A of the Central Excise Act, 1944."
Noting that the case laws cited by the appellant are not applicable to the case on hand, the CESTAT concluded that there was no infirmity in the impugned order.
The appeal was rejected.
(See 2017-TIOL-3657-CESTAT-DEL)
