Custom, Excise & Service Tax Tribunal
M/S Jindal Stainless Ltd vs Rohtak on 22 May, 2015
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, WEST BLOCK NO.II, R.K. PURAM, NEW DELHI-110066 CIRCUIT BENCH AT CHANDIGARH Appeal No.E/2669/2006-EX(DB) [Arising out of OIO No.17/Commr/RP/06, dt.15.05.2006, passed by Commissioner, Central Excise & Service Tax, Rohtak] M/s Jindal Stainless Ltd. Appellant Vs Commissioner, Central Excise & Service Tax, Rohtak Respondent
Represented by:
For Appellant : Shri B.L. Narsimhan, Ms.Swati Gupta - Advocates For Respondent: Shri Devender Singh, Commissioner (A.R.) For approval and signature:
Mr. P.K. Das, Honble Member (Judicial) Mr. P.S. Pruthi, Honble Member (Technical)
1. Whether Press Reporters may be allowed to see the No Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the No CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether their Lordships wish to see the fair copy of Seen the order?
4. Whether order is to be circulated to the Departmental Yes authorities?
CORAM:
MR. P.K. DAS, HONBLE MEMBER (JUDICIAL) MR. P.S. PRUTHI, HONBLE MEMBER (TECHNICAL) Date of Hearing:23.01.2015 Date of Decision:22.05.2015 Final Order No.51696/2015 Per: P.K. Das
1. The relevant facts of the case, in brief, are that the Appellant is engaged in the manufacture of Steel Slabs, Ingots, Blooms etc, falling under Chapter 72 of the Schedule to Central Excise Tariff Act, 1985. They set up a captive power plant in their factory. The electricity generated in the captive power plant was used in their own factory and a portion of the electricity was sent to power grid, Haryana State Electricity Board (HSEB), presently known as Dakshin Haryana Bijli Vitran Nigam Ltd, Hisar (DHBVNL). The Appellant was availing benefit of CENVAT Credit of inputs, input service and capital goods under CENVAT Credit Rules. A show cause notice dt.10.11.2005 was issued, proposing demand of CENVAT Credit amounting to Rs.54,38,492.00 alongwith interest taken wrongly on the fuel used in the generation of electricity cleared to DHBVNL during the period 01.01.2005 to 30.06.2005. It has also proposed to impose penalty of equal amount of duty. By the impugned order, the Commissioner disallowed the CENVAT Credit of Rs.54,38,492.00 alongwith interest and imposed a penalty of equal amount of CENVAT Credit under Rule 15 of CENVAT Credit Rules, 2004 read with Section 11AC of Central Excise Act, 1944 for contravention of Rule 2(k) and 3 of the CENVAT Credit Rules, 2004.
2. The learned Advocate for the Appellant submits that the Electricity Board permitted them to use the electricity for captive consumption. They are not allowed to supply the electricity so generated from their captive plant. He further submits that a portion of the electricity generated was sent to power grid for synchronization and it was received back by the Appellant in their unit after synchronization. The Power Grid charged 10% of the value of the electricity from the Appellant for providing facility of synchronization. He submits that there is no dispute that the electricity sent to power grid was returned back to their factory and utilized in the manufacture of finished product and therefore, reversal of credit on input furnace oil does not arise. The learned Advocate drew the attention of the Bench to the agreement between the Appellant and State Electricity Board. He submitted that on the same issue for the earlier period, this Tribunal in their own case by Final Order No.840-841/2008-CX, dt.21.08.2008, set aside the Adjudication order and allowed the appeal. He submits that the decision of the Honble Supreme Court in the case of M/s Maruti Suzuki Ltd Vs Commissioner, Central Excise & Service Tax, Delhi III 2009 (240) ELT 641 (SC) would not be applicable in their case for the reason, in the present case, the electricity wheeled out to the power grid was not sold and it was returned back to them. He also referred the decision of the Honble Supreme Court in the case of Commissioner, Central Excise, Bhavnagar Vs M/s Ultratech Cement Ltd 2009-TIOL-95-SC-CX. He further submits that the Rule 4(5)(a) of CENVAT Credit Rules 2004 allowed the assessee to remove the inputs or capital goods as such or after being partially processed outside of the factory premises to a job worker for further processing. In the present case, the Appellant sent the electricity to the power grid, which was received back in their factory and used in the manufacture of final product, would come within the purview of Rule 4(5)(a) of the Rules, 2004. He submitted Written Submissions with case laws.
3. On the other hand, the learned Authorised Representative for the Revenue reiterates the findings of the Adjudicating authority. He submits that the decision of the Honble Supreme Court in the case of M/s Maruti Suzuki Ltd (supra) would be squarely applicable in the present case. It is submitted that the Honble Supreme Court categorically observed that CENVAT Credit is not admissible on the inputs utilized in generation of excess electricity cleared to the grid. In the present case, the Appellants cleared the excess electricity to the grid and therefore, they are liable to reverse the credit on the inputs furnace oil. He submits that Rule 2(k) of Rules, 2004 provides that the input credit would be eligible for generation of electricity used in or in relation to manufacture of the final product or for any other purpose within the factory of production. So, the Appellant ought to have reversed the credit to the portion of electricity wheeled out to the grid as per CENVAT Credit Rules. The learned Authorised Representative also filed Written Submissions.
4. After hearing both the sides and on perusal of the records, we find that the Appellant set up a power plant in their factory for captive consumption. HSEB by letter dt.30.11.1098, permitted the Appellant for parallel operation of captive power plant installed at their factory subject to condition that the Appellant will not be allowed to supply/sell the energy so generated from their captive plant, without specific approval from the Board. Wheeling charges in the form of energy will be done at 10% of the power injected from their captive power plant into the synchronisation system. The General Manager of DHBVNL (Dakshin Haryana Bijli Vitran Nigam Ltd) by letter dt.17.02.2006 clarified that the excess energy generated cannot be treated as a sale of energy to the grid. The relevant portion of the said letter dt.17.02.2006 is reproduced below:-
Please refer to your reference No.JSL/Electrical/2006/3314, dt.17.02.2008 regarding the subject cited issue. As per the terms and conditions mentioned in the various memos issued by Erstwhile HSEB while according the approval for running your captive power plant in parallel with the grid, the pumped (injected) energy to your CPP in the grid cannot be treated as a sale of energy to the DHBVNL. Due to the parallel operation of the CPP with Grid some amount of energy is likely to flow in either direction please. Moreover, as per Indian Electricity Act, 1948, no captive power plant owner can sell his surplus energy either to any consumer or to the Nigam.
5. It is seen from the agreement that the power grid charged 10% of the value of electricity for providing of synchronisation. The learned Advocate contended that the Appellant was importing higher quantum of electricity other than the unit, that were being exported to the grid. So, it is not a case of sale of excess electricity generated in the captive power plant to the energy grid. The fact of the case is more clearly transpired from the order of the Tribunal in the Appellants own case vide Final Order dt.21.08.2008 as under:-
5.?We find that the appellants availed credit in respect of inputs used in generation of electricity. The appellants entered into agreement with the State Electricity Board termed as Wheeling Agreement by which the appellants were permitted to clear electricity generated in the captive power plant and simultaneously to receive equal quantity of electricity from the Electricity Board. The fact that the appellants received same quantity of electricity which were cleared to the Electricity Board is not in dispute. This arrangement was made as the electricity generated in the captive power plant is fluctuating type and as such power cannot be used in the Arch Furnace, Strip mill and Grooming mill. The agreement with the Electricity Board was to maintain uniform frequency of electricity. In these situation as the inputs used in generation of electricity which was cleared to the State Electricity Board and the same quantity was received back from the Electricity Board and used in the manufacture of excisable goods cleared on payment of duty we find that the demand on the ground that the inputs were used in generation of electricity which was cleared outside the factory of production is not sustainable. Therefore, appeals are allowed.
6. The learned Authorised Representative for the Revenue strongly relied upon the decision of the Honble Supreme Court in the case of M/s Maruti Suzuki Ltd (supra). It is submitted that in view of the decision of the M/s Maruti Suzuki Ltd (supra), the order dt.21.08.2008 of the Tribunal in the Appellants own case would not be applicable. The relevant portion of the decision in the case of M/s Maruti Suzuki Ltd (supra) is reproduced below:-
20.?To sum up, we hold that the definition of input brings within its fold, inputs used for generation of electricity or steam, provided such electricity or steam is used within the factory of production for manufacture of final products or for any other purpose. The important point to be noted is that, in the present case, excess electricity has been cleared by the assessee at the agreed rate from time to time in favour of its joint ventures, vendors etc. for a price and has also cleared such electricity in favour of the grid for distribution. To that extent, in our view, assessee was not entitled to CENVAT credit. In short, assessee is entitled to credit on the eligible inputs utilized in the generation of electricity to the extent to which they are using the produced electricity within their factory (for captive consumption). They are not entitled to CENVAT credit to the extent of the excess electricity cleared at the contractual rates in favour of joint ventures, vendors etc., which is sold at a price.
7. The Honble Supreme Court in the case of M/s Ultratech Cement Ltd (supra) following the earlier decision of M/s Maruti Suzuki Ltd (supra), remanded the matter to the Adjudicating authority to calculate the reversal of credit any excess electricity was wheeled out/cleared at a price in favour of joint ventures, vendors etc. The relevant portion of the said decision is reproduced below:
2. For the reasons given in our judgment delivered today in the case of M/s Maruti Suzuki Ltd Vs Commissioner, Central Excise, Delhi-III Civil Appeal No.of 2009 (arising out of S.L.P. (C) No.3826 of 2009) = 2009-TIOL-94-SC-CX, the civil appeals herein filed by the Department are allowed and the matters stand remitted to the Adjudicating authority who will in each case ascertain whether any excess electricity was wheeled out/cleared at a price in favour of joint ventures, vendors, sister companies etc and, if so, the Adjudicating authority will calculate and charge duty or reverse credit to that extent alone. However, as stated above, the Department will not impose penalty in that regard for the disputed period(s).
8. In the present case, there is no sale of electricity to the power grid. It is also noted that the electricity sent to power grid was returned back to the Appellant, which was further used in the manufacture of final product. The Honble Supreme Court categorically observed that the reversal of credit would be required on the wheeled out of electricity at a price to the joint venture/vendor etc, for manufacture. In the present case, there is no sale of electricity, and the same was returned back to their factory for consumption in their final product. So, we do not find any substance in the submissions of the learned Authorised Representative.
9. The learned Authorised Representative further contended that once electricity is wheeled out of the premises of the factory of the manufacturer, it is cleared from the factory. Its linkage with the manufacture breaks at that point. The electricity wheeled out of the factory, the chain of electricity to the manufacture breaks and what was generated as electricity within the factory is not integrally connected to what was used in the manufacture of the final product and its nexus with the ultimate production of final product is missing and it is hit by Rule 2(k) of Rules, 2004.
10. We are not impressed with the submission of the learned Authorised Representative for the Revenue for the reason that it is settled law now that there is no requirement of one to one co-relation between input and final product under the MODVAT/CENVAT scheme. As per Rule 2(k) of Rules, 2004 input means all goods used in the factory by the manufacturer of the final product. It is seen that Rule 4(5)(a) of Rules, 2004 provides that the CENVAT Credit shall be allowed even if any input or capital as such or after being partially processed are sent to a job worker for further processing, testing etc or any other purpose, and it is established from the records produced by the manufacturer that the goods are received back in the factory. The expression any other purpose in Rule 4(5)(a) have wide amplitude. Thus, on reading of Rule 2(k) and Rule 4(5)(a) of the Rules, 2004, it is clear that the input as such or after partial process cleared from factory for job work and returned back, it would remain input. In the present case, the input namely fuel used in the electricity sent to power grid for synchronization who may be treated as job worker and received back in the facto ry and used in the manufacture of the final product, and it is within the purview of Rule 4(5)(a) of the Rules, 2004.
11. We find that in the case of Sanghi Industries Ltd Vs Commissioner of Central Excise, Rajkot 2004 (302) ELT 564 (Tri-Ahmd), the Tribunal allowed the appeal of the Appellant by applying Rule 4(5)(a) of the Rules, 2004 on the identical situation. In that case, the Appellant was engaged in the manufacture of Clinker and Cement. The Adjudicating authority denied the CENVAT Credit on inputs used for generation of electricity supplied to the grinding unit. The Appellant argued that the power plant can be a job worker o the Appellant and that the inputs sent by Appellant to the job worker plant, for generation of electricity brought back to the Appellant for manufacture of final product. The Tribunal held that proportional credit of inputs sent by clinker unit to the power plant under Rule 4(5)(a), corresponding to generation of electricity used in the DMW plant and administrative block will be eligible as CENVAT Credit. The Revenue strongly relied upon the decision of the Honble Supreme Court in the case of M/s Maruti Suzuki Ltd (supra).
12. The relevant portion of the decision of the Honble Supreme Court in the case of M/s Sanghi Industries Ltd (supra) is reproduced below:-
13.?From the above provisions of Cenvat Credit Rules, 2004 it is evident that Cenvat credit of inputs will be admissible to an assessee when the inputs are sent to a job worker and after undertaking the required manufacturing processes the final products can also be cleared on payment of duty from the premises of the job worker subject to imposition of certain conditions. In the procedures prescribed under the Cenvat Credit Rules, 2004, therefore, provisions exist to allow the credit of inputs sent to a job worker when such inputs are used outside the factory premises of the manufacturer taking Cenvat credit, however subject to some conditions. In the case of appellant power plant has been held and accepted by the adjudicating authority to be a job worker of the clinker unit. On the same analogy grinding unit could also act as a job worker of clinker unit for manufacturing cement. In such situations both the clinker and the electricity supplied to the grinding unit by the power plant can be treated as inputs supplied to job worker (grinding unit) for which credit has been taken by the clinker unit. As all the registered units belong to the same group of companies, therefore, what has not been done by the appellant is not following properly the prescribed procedures. Alternately, appellant could have sold proportionate electricity generating fuel to its grinding unit by reversing proportionate Cenvat credit which could have been availed as cenvat credit by the grinding unit as per the law laid down by CESTAT, Mumbai in the case of M/s. Indorama Textiles Ltd. v. CCE, Nagpur [2007 (220) E.L.T. 471 (Tri.-Mumbai)] relied upon by the appellant.
14.?From the above observations and the case laws relied upon by the appellant, it is inferred that procedures existed at the relevant time to avail Cenvat credit on inputs sent to the power plant as job worker. The only irregularity committed by the appellant was that they did not follow the prescribed procedures. It has been a settled position of law now that a substantial benefit of Cenvat credit cannot be denied for not following the prescribed procedures when it is not disputed that inputs on which credit is taken have been utilized for manufacture of final product on which Central Excise Duty has been paid/payable. In the case of sister concerns such captive consumption of materials become a case of revenue neutral exercise. It is not the case of the Revenue that electricity supplied to the grinding unit and its jetty has been diverted elsewhere. Further, it is economical in the modern competitive working to have a larger power plant catering to power requirements of various units of the same group of companies rather than having small power plants for each unit. Accordingly, Cenvat credit with respect to inputs, sent to the power plant by the clinker unit for generation of electricity sent to grinding unit, cannot be denied to the appellant for not following the prescribed procedures of Rule 4(5)(a) and Rule 4(6) of the Cenvat Credit Rules, 2004 which allowed the appellant to send the clinker to grinding unit under job work and then clear the finished goods from the job workers factory premises when diversion of inputs/electricity is not alleged by the Revenue.
13. In the present case, we have already observed that the electricity sent for synchronization to power grid, would be treated as job worker. There is no dispute that the electricity was returned back to the Appellants factory, and there is a substantial compliance with the provisions of Rule 4(5)(a) of the Rules. So, the submission of learned Authorised Representative for the Revenue cannot be accepted on this issue also.
14. In view of the above discussion, we find that the impugned order cannot be sustained and accordingly, it is set aside. The appeal filed by the Appellant is allowed with consequential relief.
(Pronounced in Court on 22.05.2015) (P.S. Pruthi) (P.K. Das) Member (Technical) Member (Judicial) cbb 8