CESTAT Delhi Sets Aside ₹1 Crore Interest, Penalty On Hindustan Zinc For Reversed CENVAT Credit
The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside disallowance of CENVAT credit as well as interest and penalty worth about Rs. 1 crore for electricity wheeled out to sister concerns as well as to State Electricity Board. In an order dated November 24, 2025, the Bench comprising Justice Dilip Gupta (Principal Bench) and Smt. Hemambika R....
The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside disallowance of CENVAT credit as well as interest and penalty worth about Rs. 1 crore for electricity wheeled out to sister concerns as well as to State Electricity Board.
In an order dated November 24, 2025, the Bench comprising Justice Dilip Gupta (Principal Bench) and Smt. Hemambika R. Priya (Technical Member) set aside six orders, notices creating excise duty demand on input and input services used in Captive Power Plant for generation of electricity. As for electricity sold to the State Electricity Board, the CESTAT from order passed by the Commissioner inferred that CENVAT credit had been reversed on monthly basis prior to the issuance of the show cause notice.
Hindustan Zinc was engaged in the manufacture of Zinc Ingots and Leads falling under Chapters 78 and 79, respectively, of the First Schedule to Central Excise Tariff Act, 1985.Pursuant to an audit, seven show cause notices were issued recovery of total CENVAT credit amounting to Rs. 19,23,60,424 availed
on inputs and input services attributable to that portion of the electricity sold to sister concerns and State Electricity Boards.
Hindustan Zinc stated it reversed CENVAT credit for electricity sold to the State Board but not for power wheeled to sister concerns, as no reversal was required.
On duty demand, the CESTAT clarified that reversal of credit amounts to not taking credit at all, concluded that 'no duty was payable' in terms of Section 11A of the Central Excise Act. To corroborate this finding, the CESTAT relied on precedents which have dealt with how reversal of CENVAT credit tantamount to non-availment of credit in cases like Chandrapur Magnet Wires, Precot Meridian Limited, Star Agriwarehousing & Collateral Management.
On interest component, the CESTAT noted absence of 'specific allegation' as to why interest was recoverable under section 11AA of the Central Excise Act read with CENVAT Credit Rules, 2004.
“It is, therefore, clear that the show cause notice does not even give the date on which the amount of duty was due and the date on which it was reversed. It appears that merely because credit had been wrongly availed, the show cause notice mentions that interest is also payable under section 11AA of the Central Excise Act.”
On penalty for the portion of electricity sold by Hindustan Zinc to the State Electricity Board, CESTAT clarified that for invoking the same Rule 15(1) of the CENVAT Credit Rules, 2004 has been applied, despite non-availment of CENVAT Credit. The CESTAT held that present case pertained to 'not taking of credit' since CENVAT credit in respect of inputs and input services attributable to the power sold to the State Electricity Board was reversed monthly and therefore, penalty could not be imposed.
The CESTAT also referred to corresponding paragraphs in the order passed by Commissioner imposing penalty on Hindustan Zinc to state that Rule 15(1) could not have been invoked for imposing penalty.
Accordingly, six appeals were allowed while quashing six show cause notices and orders.
Case Detail: Hindustan Zinc Limited vs. The Commissioner
Case No.: W.P.(C) 17723/2025
For Appellant: Advocates Sukriti Das, Ashutosh Chaudhary
For Respondent: Mr. Rakesh Agarwal