Chattisgarh High Court
Union Of India vs M/S Heg Ltd (Sponge Iron Division) Borai ... on 7 November, 2009
Author: Dhirendra Mishra
Bench: Dhirendra Mishra
HIGH COURT OF CHATTISGARH AT BILASPUR
Tax Case No.50 of 2008
Union of India
...Petitioners
Versus
M/s HEG Ltd (Sponge Iron Division) Borai Industrial
...Respondents
! Shri Bhishma Kinger, counsel for the appellant
^ Shri Virendra Sharma and Shri S.K. Sharma, counsel for respondent
Hon ble Shri Dhirendra Mishra & Hon ble Shri R N Chandrakar, JJ.
Dated:7/11/2009
: Judgement
J U D G M E N T
(Delivered on 7-11-2009) The following judgment of the Court was delivered by Dhirendra Mishra, J.
1. The appellant has preferred this appeal under Section 35- G of the Central Excise Act, 1944 (for brevity `the Act') against the impugned order passed by the Customs, Excise & Service Tax Appellate Tribunal, Principal Bench, New Delhi (for short `the Tribunal') on following substantial questions of law:-
z Whether it will be violation of Rule 2(h), 2(g), and 6 (4) of the Cenvat Credit Rules, 2002 if Cenvat Credit is allowed to the Respondent on the electricity generated captively but instead of utilizing it through distribution lines of the M.P.E.B. (new CSEB) ?
z Whether the learned Appellate Tribunal has erred in allowing the credit on the impugned goods in toto instead of allowing proportionate credit on the electricity consumed within the factory out of the total electricity generated capitvely.
2. Briefly stated facts of the case, as detailed in the order of Commissioner (Appeals), are that the respondent has thermal power plant of 12.8 MW capacity installed in their factory premises. The power plant has 3 boilers which run on steam turbine and the generator. 2 boilers are "Waste Heat Recovery" type in which waste hot gases coming from sponge iron kiln are used for production of steam. The 3rd boiler is "Fluidised Bed Combustion" type, in which coal, fire, char, dolochar are used as solid fuels. The steam generated in these boilers is used for running the steam generator to generate electricity. The electricity so generated is partly used by the respondent in their factory for manufacture of sponge iron and a major part of it is supplied outside through the distribution lines of MPEB.
3. During July to August, 2004, the respondent had availed Cenvat Credit amounting to Rs.1,17,852/- on various parts used in the boilers and turbine of the aforesaid power plant. The lower authority disallowed the above Cenvat Credit of Rs.1,17,852/- and imposed a penalty of Rs.1,17,852/- under Section 11 AC of the Act and Rs.10,000/- under Rule 13 of the Cenvat Credit Rules, 2002 read with Rule 25 of the Central Excise Rules, 2002 for contravention of Rule 3 of the Cenvat Credit Rules, 2002 on the ground that the respondent had supplied a part of electricity to their sister concern located outside their factory premises through MPEB grid. They were only entitled to claim the credit on the inputs utilized in generation of the electricity used within their factory. Since the details of electricity wheeled out to their sister concern were not available, the whole of the Cenvat Credit availed by the respondent was disallowed.
4. On appeal by the respondent, the Commissioner partly allowed the appeal and held that the respondent is eligible to the credit to the extent of electricity used within the factory. The respondent preferred an appeal against the order of the Commissioner (Appeals) Customs & Central Excise before the Tribunal. The Tribunal relying upon its decision in the case of Kothari Sugars & Chemicals Ltd. Vs. CCE Trichy {2006 (196) ELT 35} allowed the appeal and held that there is no reason to deny modvat credit to the respondent. The electricity generated in the power plant used by the appellant was not used exclusively for manufacture of the exempted goods.
5. Shri Bhishma Kinger, learned counsel for the appellant argued that the Tribunal even after observing that in the cited judgment Rule 57-R of the erstwhile Central Excise Rules, 1944 has not been considered, allowed the appeal on the ground that the Division Bench decision cited by learned counsel are squarely in favour of the appellant. He further argued that from perusal of Rule 6(4) of the Cenvat Credit Rules, 2002 (for short `the Rules'), it is apparent that Cenvat Credit cannot be allowed on capital goods which are used exclusively in manufacture of exempted goods. In the instant case, major portion of the electricity generated in the power plant of the respondent is wheeled out to its sister concern located outside the factory premises through the grid of MPEB. Thus, capital goods against which Cenvat Credit is claimed is exclusively used for manufacture of exempted goods, as electricity is exempted from excise duty. In these circumstances, the respondent was not entitled for Cenvat Credit in proportion to the electricity generated from the captive power plant and exclusively used for sister concern through the grid of MPEB, as held by the Commissioner. Referring to Rule 2(b), 2(g) and 6(4) of the Rules, it was argued that the capital goods and inputs used exclusively in manufacture of exempted goods are not entitled for Cenvat Credit.
6. On the other hand, Shri Virendra Sharma, learned counsel appearing for the respondent submitted that from bare reading of Rule 6 (4) of the Rules, it is evident that Cenvat Credit may be denied on such capital goods which are exclusively used in manufacture of exempted goods. In the instant case, electricity generated in the captive power plant of the respondent is utilized for production of final product sponge iron and only surplus electricity is sold to M.P. Electricity Board through their grid and, therefore, it cannot be said that the capital goods used in the power plant are exclusively used for exempted goods.
7. We have heard learned counsel for the parties.
8. Indisputably, the respondent is engaged in a production of sponge iron and the final product is leviable to excise duty. It has a captive thermal power plant of 12.8 MW capacity in its premises which has 3 boilers. In 2 boilers are `Waste Heat Recovery' type in which waste hot gases coming from sponge iron kiln are used for production of steam. The steam generated in these boilers are used for running the steam generator to generate electricity. The electricity so generated is partly used by the respondent in their factory for manufacture of sponge iron and a major part of it is supplied outside through the distribution lines of MPEB.
9. Rule 2(b), 2(g) and 6 (4) of the Rules read thus:-
"2(b). - "capital goods" means,-
(i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading No.68.02 and sub-heading No.6801.10 of the First Schedule to the Tariff Act;
(ii) pollution control equipment
(iii) components, spares and accessories of the goods specified at (i) and (ii) above;
(iv) moulds and dies;
(v) refractories and refractory materials;
(vi) tubes and pipes and fittings thereof; and
(vii) storage tank used in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office;
2(g):- "input" means all goods, except [light diesel oil] high speed diesel oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not, and includes lubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of electricity or steam used for manufacture of final products or for any other purpose, within the factory of production.
6(4):- No CENVAT credit shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods, other than the final products which are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year."
10. The Tribunal referring to its decision in the case of Kothari Sugars (Supra) wherein it has been held that steam generating boiler parts used in captive power plant and partly sold out to Tamil Nadu Electricity Board are eligible to Cenvat Credit under Rule 57-R of the erstwhile Central Excise Rules, 1944, allowed the appeal of the respondent and held that there was no reason to deny modvat credit to the respondents. Rule 2 (b) defines capital goods used in the factory of the manufacturer of the final products, but does not include any equipment or appliances used in an office whereas, Rule 2 (g) defines input as all goods used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not. In the present case, it is not in dispute that Cenvat Credit has been claimed against the spare parts used in boilers of the power plant which generate electricity.
11. The only question to be decided in this appeal is whether the Tribunal was justified in allowing Cenvat Credit to the respondent for capital goods used in the power plant when major portion of the electricity generated was sold to the MPEB?
12. Plain reading of Rule 6 (4) of the Rules makes it abundantly clear that Cenvat Credit in respect of capital goods shall not be allowed on capital goods which are used "exclusively" in manufacture of exempted goods. In the instant case, though major portion of the generated electricity from the power plant was sold to MPEB through its grid, however, it cannot be said that capital goods were exclusively used in manufacture of exempted goods (electricity) sold to MPEB as a portion of electricity generated in the power plant is also utilized in manufacture of final products "sponge iron" of the respondent factory, which is leviable to the excise duty and is not exempted good.
13. On the basis of aforesaid analysis, we are of the opinion that the Tribunal was justified to hold that respondent was entitled for modvat credit against the capital goods used in the captive power plant of the respondent and Rule 6 (4) of the Rules was no bar for denying Cenvat Credit.
14. In the result, no substantial question of law as proposed by the appellant arises for adjudication of this appeal. The appeal is without any substance, the same deserves to be and is accordingly dismissed.
J U D G E J U D G E