Custom, Excise & Service Tax Tribunal
Bhagwati Power &Amp Steels Ltd vs Commissioner, Central Excise &Amp ... on 4 January, 2022
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH COURT NO.IV
Excise Appeal No. 51203 / 2020
[Arising out of Order-In-Appeal No. RPR-EXCUS-000-APP-005-20-21 dated
30.04.2020 passed by the Commissioner of Central Excise, Customs & Service
Tax (Appeals) Raipur]
BHAGWATI POWER AND STEELS LTD.
APPELLANT
Phase II, Siltara Industrial
Raipur (CG)
Vs.
COMMISSIONER, CENTRAL EXCISE & RESPONDENT
CUSTOMS, RAIPUR (CG) APPEARANCE:
Shri Ankur Upadhyay, Advocate for the Appellant Shri Ravi Kapoor, Authorised Representative for the Department CORAM:
HON'BLE MRS RACHNA GUPTA, MEMBER (JUDICIAL) DATE OF HEARING: November 29, 2021 DATE OF DECISION: 04-01-2022 FINAL ORDER No. 50004 /2021 PER RACHNA GUPTA The Order-in-Appeal No. 005-20-21 dated 30.04.2020 has been assailed vide the impugned appeal. The facts for the said adjudication are as follows:
That the appellants are engaged in the manufacture of sponge iron and are also generating power against which no rate of duty is indicated in Central Excise Tariff Act, 1985. The appellants are also availing the CENVAT credit on Central Excise duty paid on input service, imports and capital goods in terms of CENVAT Credit Rules, 2004. During scrutiny of records for the E/51203/2020 period from April, 2012 to March 2013 the appellants were observed to have availed the CENVAT Credit of duty paid on inputs, input service i.e. with respect to service tax paid on GTA Coal Cargo handling service on coal, security service, repairing and maintenance service, manpower recruitment service etc. and had also availed the CENVAT Credit on import such as coal used for generation of electricity which is not leviable to duty of excise (exempted). Electricity so generated was being sold outside the factory gate also to the customers for the monetary consideration beside being used captively in the manufacture of excisable goods.
Observing that the appellant has availed CENVAT Credit on inputs/ input service duty and on exempted excisable goods that an explanation was sought from the appellant who submitted a letter of auction dated 12.10.2012 and also submitted their ER I return for the month of May, 2013 vide their letter dated 18.5.2013 stating about the reversal of inputs service credit of Rs.8,07,734/- for power units sold outside the factory for the period 2012-2013. They also stated to have reversed proportionate credit on imports used in the power plant amounting at Rs.21,30,058/- for the said period (totalling of Rs.29,37,832/-). However, the department observed that the total reversal of credit of inputs service should have been for Rs.14,82,408/- instead of Rs. 8,07,734/- and the reversal of inputs should have been for Rs.24,99,420/- instead of Rs.21,30,098/- (Totalling of Rs. 39,81,828/-). Accordingly, vide Show cause notice No. 8406 dated 29.5.2014 the difference of the amount reversed / short reversed amount of Rs.10,43,996/- was proposed to be recovered from the appellants along with the interest and penalty. The said proposal was initially confirmed vide the Order-in-Original No. 179/2015 dated 29.12.2015. The 2 E/51203/2020 appeal thereof was rejected vide Order in Appeal No. 002-APP-
472-16-17 dated 15.3.2017.
The appeal was preferred before this Tribunal against the said Order-in-Appeal which was allowed by way of remand vide the Final order No. A-51845/2018 dated 14.5.2018 directing the adjudicating authority for denovo re-computation of the amount as formula in computation was disputed by the appellant. Pursuant to the said directions that the demand in question was still confirmed by the Original Adjudicating Authority vide Order No. 080/19 dated 30.5.2019. The appeal thereof has been rejected vide the order under challenged still being aggrieved, appellant is before this Tribunal.
2. I have heard Shri Ankur Upadhyay, learned Counsel for the Appellant and Shri Ravi Kapoor, learned Authorised Representative for the Department.
3. It is submitted on behalf of the appellant that the impugned show cause notice has been issued based upon the wrong understanding of the provisions contained in CENVAT Credit Rules, 2004 and the demand is based on wrong calculation and wrong application of the formula given in Rule 6(3A) of CENVAT Credit Rules, 2004. It is submitted that the value of total imports have been used while calculating the CENVAT Credit availed in terms of said formula. Learned Counsel submitted that there is no reason to apply the said Rule in respect of all inputs, inputs service to the extent as were entirely used in the manufacture of dutiable goods. Order is prayed to be set aside on this sole score itself.
4. Learned Counsel clarified that their Final product is actually a sponge iron which requires lot of electricity. Hence, the appellant had installed power plant for generation of said electricity which is captively being used in the factory for production of said sponge 3 E/51203/2020 iron itself. However non utilised part of electricity is sold outside the power plant which not merely uses coal as the inputs but also uses the waste heat generated out of few gases which get released in the process of manufacture of the sponge iron. The reliance was placed on the decision of Commissioner of CCE, Ludhiana vs. Sangrur Agro Ltd. [2006-TIOL-202-CESTAT- Delhi]. The order under challenge is accordingly prayed to be set aside and appeal is prayed to be allowed.
5. To rebut the submissions, learned Departmental Representative has mentioned that the Commissioner (Appeals) has rightly interpreted Rule 6(3A) of CENVAT Credit Rules, 2004 and it has rightly been held that the provisions of Rule 6(2) of Rule 6(3) (i) have not properly been followed. The amount demanded has duly been calculated as per appellants own option to calculate the same under Rule 6(3A) OF CENVAT Credit Rules, 2004. Hence, there is no infirmity. Order under challenge is impressed upon as reasonable and correct. Appeal is accordingly, prayed to be dismissed.
6. After hearing both the parties and perusing the entire records, I observe and hold as follows:
Following are the admitted facts in the present case
(i) The appellant is manufacturing sponge iron as its final product. The power generation plant is installed by the appellant for captive consumption of the power generated. The raw material of this plant is one out of several i.e,. coal along with some waste generated during the process of manufacture of final product.
(ii) Some part of the power generated is sold outside.
(iii) The appellant has reversed proportionate credit of Rs.8,07,734/- with respect to input services and of Rs.21,30,058/- with respect to the inputs.4
E/51203/2020
(iv) The appellant has availed CENVAT Credit proportionately on such inputs as were commonly used for manufacture of sponge iron as well as for electricity sold outside. No separate account was maintained.
7. The department has formed an opinion that the appellant is manufacturing and selling such excisable goods which are dutiable as well as exempted and thus the appellants had to follow Rule 6 of CENVAT Credit Rules, 2004 while availing /reversing the CENVAT Credit on inputs/capital goods and input services.
8. Thus the moot controversy that appears to be adjudicated is as follows:
(i) Whether common inputs/ common input services as has been used by the appellant in production of sponge iron and in production /generation of electricity as has been sold by them, have rightly been calculated or not?
The sponge iron manufactured as well as electricity produced by the appellant both are excisable goods. However, in terms of Rule 2(d) of CENVAT Credit Rules, 2004, electricity produced by the appellant is an exempted good being chargeable but to Nil rate of duty. As already observed that admittedly the electricity so generated by the appellant has being used captively as well as sold to other buyers and on such sales no duty was paid by the noticee because of the aforeobserved exemption for generation of electricity. The availment of CENVAT Credit on the inputs / input services used by the appellant definitely shall be governed by Rule 6 of CENVAT Credit Rules, 2004.
5E/51203/2020
9. Since the separate account was not maintained by the appellant under Rule 6(3) of CENVAT Credit Rules, 2004 will be applicable in terms whereof either 5% of the value of exempted goods and exempted service was to be paid or such an amount as is calculated in terms of Rule 6(3A)( c) (i) with respect to calculating amount of CENVAT Credit on imports used in or in relation to manufacture of exempted goods and Rule 6(3)(A)(C)(iii) for an amount attributable to input service used in or in relation to manufacture of exempted goods. Accordingly, CENVAT Credit attributable was to be calculated based on the following formula Cenvat credit availed x input used in Power Plant x Generation of power plant to sale ratio input received.
= Amount finally payable.
10. Apparently and admittedly, the input in the instant case for the purpose of Rule 6 is only coal and the input service is only coal handling service. Rule 6 makes it apparently clear that the value of input / input services was as to only for such imports which have been used commonly for generation of such amount of electricity which was sold outside. However, it is observed that the adjudicating authority below has taken into consideration value of all inputs (imports)/ input service used for manufacture of entire sponge iron and entire electricity generated. The calculation of reversal made by Revenue under the impugned order therefore, does not appears to be correct.
11. It is observed that under Rule 6(3) of CENVAT Credit Rules, 2004, it is proportionate reversal of the credit wherein the value of exempted goods (electricity herein) meant for consumptive use of the appellant was also to be excluded in computing CENVAT Credit attributable to the exempted goods and the services under 6 E/51203/2020 Rule 6(3)(A)(c). Pursuant whereof the amount attributable in the given circumstances has to be calculated by the formula M/NxP where M is the value of the goods manufactured and removed during the financial year, and N denotes the given total and exempted goods manufactured and removed during the financial year. And P denotes the total CENVAT Credit taken on the input service during the financial year.
12. From the above observations, I am of the opinion that the value should be excluded both from the numerator i.e. ' M' and and denominator i.e. 'N'. The Commissioner (Appeals) while not excluding the same, was of the view that the words used in Rule 6(3A) are "Total CENVAT Credit taken" and used the entire CENVAT Credit including those CENVAT Credit on inputs and input services used exclusively in dutiable goods were also included. However, I am of the opinion that this finding is absolutely incorrect as assessee reversed such credit attributable to common service/ inputs which were used in the manufacture and clearance of dutiable as well as exempted goods. Hence, only such common inputs were used, the value of such common inputs was to be used in said computation as were used for generation of such amount of electricity which was sold outside. Board Circular No. 754/70/2003 CX dated 9.10.2003 also clarifies that CENVAT Credit Rules, 2004 is only for common inputs and input services and the 8% reversal is also for common input and input services alone. Accordingly the question of including the input and input service exclusively used for manufacturing sponge iron and for manufacturing electricity for own consumption dutiable at all does not arise. Further a clarification in Chapter 5 of CBEC says that CENVAT Credit is also admissible in respect of amount of inputs contained in waste/ refuse of by product. Similarly, the CENVAT Credit is not to be denied if the inputs are used in intermediate of the final product even if such intermediate is 7 E/51203/2020 exempted from payment of duty. The basic idea is that CENVAT Credit is admissible so long as the input are used in or in relation to manufacture of final product whether directly or indirectly and such final products have been cleared.
13. In the light of the above discussion, when the calculation arrived at by the Department and confirmed vide the order under challenge is perused (in para 18.3 of show cause notice), I observe that the value of coal (inputs ) used in power plant and value of Coal handling service (input service) in terms of Rule 6(3A)(c ) (i) and 6 (3A(iii) has to be the value as shown in Column 4 of such table in para 18.3 of the show cause notice. However, the value of total inputs / input service as mentioned in para 1 of the said table has been taken by the Investigating Authority and has been confirmed by the Commissioner (Appeals).
14. In view of the above discussion, the calculation based upon total value of input / input service is held to be wrong. The above framed question remains answered accordingly. Commissioner (Appeals) had to take the value of coal and coal handling service only to such an extent as was used for generation of such an amount of electricity which was sold outside. The amount of Rs. 10,43,996/- as has been allowed to be short reversed is therefore, held to be a wrong calculation. I draw my support from the decision of this Tribunal in the case of M/s. Sify Technologies Ltd. vs. CCE & ST (LTU) Chennai [2014 - TIOL 60 CESTAT Chennai].
15. I also while relying upon the decision in the case of M/s. Eastern Medikit Ltd. vs. CCE, Gurgaon [2009 TIOL 1022 CESTAT Del ], I hold that no penalty can be imposed under Section 11AC of Central Excise Act, 1944 in respect of alleged non payment of the amount due 6(3) CENVAT Credit Rules, 2004. In the present case it has already been held that reversal of CENVAT 8 E/51203/2020 Credit has already been made by the appellant. The findings which respect to alleged short payment are not tenable. Question of imposition of penalty therefore, does not at all arise.
16. In view of the entire above discussion, the order under challenge is held to be wrong hence is hereby set aside. Consequent thereto the appeal stands allowed.
(Pronounced in the open Court on 04-01-2022 ) ( RACHNA GUPTA ) MEMBER (JUDICIAL) ss 9