CENVAT Credit Available On Input Services Used For Production Of Electricity Transferred To Its Sister Unit Free Of Cost: CESTAT

The Mumbai Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the assessee is entitled to cenvat credit on inputs and input services used for the production of electricity, which are transferred to its sister unit at Urse free of charge.

The bench of Ajay Sharma (Judicial Member) has observed that there is no allegation about the sale of electricity in the show cause notices, but the authorities below have proceeded on the premise that during this period the appellant had sold the electricity.

The issue raised was whether Cenvat Credit on inputs and input services used for the generation of electricity is admissible to the appellant, which has been transferred (not sold) to its sister unit at Urse for the manufacture of dutiable goods by them.

The appellants and assessees are engaged in the manufacture of PVC pipes, compounds, resins, and fittings that are chargeable to excise duty. They used various duty-paid inputs such as steam coal, turmoil, lubricant oil, caustic soda, boiler chemicals, etc. and availed themselves of Cenvat credit for the duty paid by them on the said inputs. They have also installed an integrated captive power plant in 2010 at the manufacturing division, Ratnagiri, where the appellant first produces steam, a part of which is used captively to manufacture the dutiable goods and the rest is used to generate electricity. The excess electricity, if any, is either sold out to MSEDCL or transferred to its sister unit at Urse. The sister unit of the appellant is also engaged in the manufacture of dutiable final products.

Since the appellant was not maintaining separate accounts of the dutiable inputs and input services used in the manufacturing of dutiable goods and for generating electricity wheeled outside the factory, Therefore, they opted for the proportionate reversal as provided under Rule 6(3)(ii) and kept reversing the cent credit taken on inputs and input services used for generating the electricity sold to MSEDL or transferred to its sister unit at Urse.

Not satisfied with the manner of calculation of the cenvat credit by the appellant, the department issued four show cause notices to the appellant for the period from April 2015 to June 2017 and denied them on the ground that they were not in accordance with Rule 6(3)(ii). Out of the 4 show cause notices, only 2 are in issue, which are for the periods April, 2016 to September, 2016 and October, 2016 to June, 2017, respectively. The common order-in-original dated 9.7.2020 adjudicated all four show cause notices, and the other two show cause notices for the periods April, 2015 to December, 2015 and January, 2016 to March, 2016 were dropped by the adjudicating authority on the ground that the appellant had given the required intimation to the department as per Rule 6(3A) in the month of March, 2015.

But for two show cause notices, the adjudicating authority confirmed the demand on the ground that no such information was furnished to the department for the period April 2016 to June 2017, which is mandatory as per Rule 6.

On the appeal filed by the appellant, the Commissioner (Appeals) observed that, so far as the failure on the part of the appellant to furnish the required information under § 6(3) or (3A) is concerned, the adjudicating authority could have allowed the appellant to exercise the option during the adjudication proceedings. The adjudicating authority held that the appellant is allowed to opt for one of the options under the provisions of Rule 6(3). But the authority rejected the appeal of the appellant on the ground that they are not entitled to use Cenvat credit on inputs and input services in the generation of electricity that is further supplied to MSEDCL or to their other unit situated at Urse and are required to pay or reverse the Cenvat credit involved in the said supply in terms of the provision of Rule 6(3A) along with interest and penalty.

The appellant contended that the show cause notice specifically recorded that during the period in dispute, the appellants had not sold electricity to MSEDCL.

The tribunal held that the cenvat credit of inputs and input services used in the power generated in the captive power plant and transferred to the sister concern is admissible to the assessee since the inputs and input services were ultimately used in the manufacture of dutiable final products either by the assessee or by their sister concern.

Counsel For Appellant: Rajesh Ostwal

Counsel For Respondent: Sunil Kumar Katiyar

Case Title: Finolex Industries Ltd. Versus Commissioner of Central Tax, Pune I

Case No.: Excise Appeal No. 85925 of 2021

Click Here To Read The Order