The Chandigarh bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) remanded the matter to the Commissioner (Appeal) to consider the claim of Reversal Only on Proportionate Cenvat Credit.
M/s Indian Acrylics Ltd, the appellant is engaged in the manufacture of Acrylic Fibre, Tow & Tops falling under Chapter 55 of the First Schedule to this Central Excise Tariff Act, 1985.
The appellant also has a captive power plant for the generation of electricity within their factory which runs on Biomass/Agricultural waste. The electricity generated by the appellant is mainly consumed by them captively for the manufacture of their final products. The surplus electricity is sold to Punjab State Electricity Board (PSEB ) and is supplied to residential colonies for the workers within the factory.
A show cause notice was issued to the appellant which sought to recover an amount equal to 10% of the electricity sold to PSEB and consumed by the appellant in their residential colony as per Rule 6 of the Cenvat Credit Rules, on the ground that electricity is an excisable good and is chargeable to nil rate of duty and that the appellant has availed credit on the input services such as the supply of Man Power Service and Insurance Service which have been commonly used for the generation of electricity which has been captively used for the manufacture of dutiable goods and part of the electricity which has been sold to the PSEB and has been used in the residential colony.
The appellant initially reversed credit amounting to Rs.92,357/- on a proportional basis but the show cause notice sought to recover an amount of Rs.36,09,315/- which was an amount equal to 10% of the value of electricity sold to PSEB and used in the residential colony for the violation of Rule 6 and Rule 14 of the Cenvat Credit Rules. Show cause notice also demanded interest and proposed the penalty.
The appellant had reversed the entire amount of Cenvat credit availed on all the Input Services (Manpower supply and Insurance Service) which has been used for the generation of electricity amounting to Rs. 14,20,586/- and thereafter, the appellant took a plea before the Adjudicating Authority that as the entire amount of Cenvat credit availed to the generation of electricity has been reversed, no amount over and above this amount merits to be recovered.
The appellant also took a plea that the electricity is not an excisable item therefore, Rule 6 is not applicable as this Rule is applicable only in a case where common Inputs/Input Services have been used for the manufacturing of exempted as well as dutiable products. Since electricity is not an excisable item, the question of it being exempt or chargeable to nil rate of duty does not arise.
The appellant also pleaded that only proportionate credit was required to be reversed as shown in the calculation chart filed along with the reply to the Show Cause Notice and also raised the issue of the time bar. After following due process, the original authority dropped the demand of Rs. 36,09,315/- on the ground that the total cenvat credit availed amounting to Rs. 14,20,586/- has been reversed but demanded interest on the said amount. The Commissioner (Appeals) rejected their appeal.
It was submitted that in the case of electricity although it has been mentioned against Tariff Entry No.27160000 in the First Schedule of the CETA, 1985 no rate of duty has been specified against the entry. Hence, electricity is not an excisable good and as it is not excisable, it cannot be considered as exempted goods.
Further argued that Rule 6 was applicable only where common inputs/input services were used for the manufacture of dutiable as well as exempted final products. As the electricity was not excisable, Rule 6 did not apply to electricity and therefore the appellant was not required to reverse/deposit an amount equal to 10% of the value of electricity sold outside or supplied to the residential colony.
The only relief the appellant sought for the excess amount reversed by them needs to be refunded back to them and they are also not liable to pay interest on the cenvat credit availed by them as the appellant had always more balance in their cenvat account than the amount involved in their present case.
A two-member bench comprising of Mr S S Garg, Member (Judicial) and Mr P Anjani Kumar, Member (Technical) observed that the main ground raised by the appellant before both the authorities regarding the non-applicability of Rule 6 of CCR, 2004 has not been considered and not given any findings in the impugned order. There is no finding in the impugned order regarding the stand of the appellant to reverse only proportionate cenvat credit and not the whole cenvat credit on input services.
The Tribunal remanded the matter back to the Commissioner (Appeals) to decide afresh after considering all the pleas/grounds raised by the appellant. The CESTAT allowed the appeal of the appellant by way of remand.
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