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Appearance: Ms. Ranjana Jha, Joint CDR for the appellant.

Shri L.P. Asthana, Advocate for the respondent.

Coram : Honble Smt. Archana Wadhwa, Member (Judicial) Honble Shri Rakesh Kumar, Member (Technical) Final Order No.A/56512/2013 /Dated:17.04.2013 Per Rakesh Kumar:

The respondents are manufacturers of Sponge Iron and other Iron and Steel products chargeable to central excise duty. They had captive power plant. During the period of dispute i.e. during November 99 to August, 2000, they installed additional machinery for enhancing the power generation capacity and availed capital goods cenvat credit amounting to Rs.1,50,84,086/- in respect of the same. The department being of the view that since these capital goods have been used for generation of electricity which is non-excisable and since bulk of the electricity generated was being sold to the State Electricity Board as during the period of dispute, the power generated by the captive power plant was in excess of the respondents actual requirement issued a show cause notice for denying cenvat credit in respect of power generating machinery, its recovery along with interest and imposition of penalty. The show cause notice was adjudicated by the Commissioner vide order-in-original dated 29.8.2001 by which the proceedings against the respondent were dropped. However, this order of the Commissioner was reviewed by the Board under Section 35 E(1) of the Central Excise Act, 1944 and the Board by Review Order dated 27.08.2002 directed the Commissioner to file a review appeal for determination of the points as mentioned in the review order. Accordingly, the Commissioner filed a review appeal in terms of the provisions of Section 35 E (4) of the Central Excise Act, 1944.

(a) Whether the respondent can avail Modvat Credit facility with respect to the electricity produced in their captive power plant, when the electricity produced was at relevant time being sold to the MPEB as a final product itself and when the same is not excisable under the Act.

(b) Whether Modvat credit facility can be extended to the respondent, with respect to the electricity produced in their captive power plant, when the same was not being used for manufacturing/production of their excisable final product in the fact and circumstances of the case.

(b) Maruti Suzuki Ltd. Vs. Commissioner of Central Excise, Delhi-III reported in 2009 (240) ELT 641 (SC).

2. Heard both the sides.

3. Ms. Ranjana Jha, ld. Joint CDR, assailing the impugned order of the Commissioner and reiterating the points raised in the Revenues appeal against the Commissioners order, pleaded that during the period of dispute, the power generation by captive power plant already installed in the respondents factory was more than the actual power consumption and, therefore, the new power generation machinery was used for generation of power which was sold outside, that the respondent for this purpose had entered into an agreement with the State Electricity Board for the sale of power, that since the electricity is not excisable product, the capital goods installed in the factory for generation of additional electricity, which was being sold outside the factory, would not be eligible for cenvat credit and that in this regard, she relies upon the Apex Courts judgement in the case of Maruti Suzuki Ltd. Vs. Commissioner of Central Excise, Delhi-III reported in 2009 (240) ELT 641 (S.C.). She, therefore, pleaded that the impugned order permitting the cenvat credit in respect of the power plant machinery is not correct.

7. The dispute in this case is about the machinery installed for augmenting the power generation in the captive power plant. There is no dispute that the machinery required for captive power plant is eligible for capital goods cenvat credit. However, the departments objection is that bulk electricity was being sold to the State Electricity Board and hence the cenvat credit would not be admissible as the machinery has been used for generation of electricity, and that electricity had not been used in the factory. We do not agree with this objection of the department, as it is not disputed that the respondent was in the process of enhancing their capacity for production of sponge iron and other iron and steel products for which they required more electricity and for this purpose only, their power generation electricity had been enhanced. Therefore, just because during the intervening period between installation of power generation machinery for generating additional power and installation of machinery for manufacture of sponge iron and other iron and steel products, the excess power being generated was being sold outside, the capital goods cenvat credit in respect of power generation machinery cannot be denied. We find that identical point of dispute was involved in the case of HEG Ltd. wherein Honble Chattishgarh High Court vide judgement dated 30.09.2010 observing that the Apex Courts judgement in the case of Maruti Suzuki Ltd. is not applicable, has held that cenvat credit in respect of the machinery for captive power plant would be admissible even if the bulk of the electricity generated was being wheeled out to the sister concern. We have also find that the issue involved in the Apex Courts judgement in the case of Chennai Petroleum Corpn. Ltd. (supra) is totally different whether Residual Fuel Oil (RFO) obtained as residue after distillation of crude oil for manufacture of petroleum products would be liable to excise duty, if such RFO was used as fuel for generating electricity and the electricity instead of being used in the refinery was sold to Tamil Nadu Electricity Board. The Apex Court held that to the extent electricity was sold out, RFO used in generation of such electricity would be liable to duty. The issue involved in this case is totally different whether the power generation machinery can be said to have been exclusively used for manufacture of exempted excisable goods when a part of electricity was being sold out. Therefore, the Apex Courts judgement in case of Chennai Petroleum Corporation Ltd. (supra) is not applicable to the facts of this case.