CENVAT Credit cannot be Disallowed merely on non-submission of User Test Certificate: Madras HC [Read Order]
The court observed that the show cause notices which were under challenge before the writ court cannot be adjudicated merely on the ground that the User Test Certificate has not been produced by the assessee
![CENVAT Credit cannot be Disallowed merely on non-submission of User Test Certificate: Madras HC [Read Order]](https://www.taxscan.in/wp-content/uploads/2025/04/CENVAT-Credit-Madras-High-Court-CENVAT-taxscan.jpg "CENVAT Credit cannot be Disallowed merely on non-submission of User Test Certificate: Madras HC [Read Order]")
The Madurai Bench of Madras High Court has held that merely because in respect of a User Test Certificate was sought for or produced voluntarily or the User Test Theory has been adopted by the Adjudicating Authority, in each and every case, such an User Test Theory need not be adopted. The respondent Kothari Sugars and Chemicals Ltd., is a manufacturer of sugar and molasses...
The Madurai Bench of Madras High Court has held that merely because in respect of a User Test Certificate was sought for or produced voluntarily or the User Test Theory has been adopted by the Adjudicating Authority, in each and every case, such an User Test Theory need not be adopted.
The respondent Kothari Sugars and Chemicals Ltd., is a manufacturer of sugar and molasses falling under Chapter sub-heading 1701-1190, 1703-1000 of the Central Excise Tariff Act 1985. The respondent has availed CENVAT Credit for the capital goods used in establishing a captive power plant of the respondent and the said availing of Cenvat Credit, according to the Revenue was wrongly availed by the respondent / assessee, thereby show cause notices were issued covering from the period 2008 to 2015 on various dates.
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It was submitted on behalf of the assessee / writ petitioner that the show cause notices have been issued asking the petitioner to show cause why CENVAT Credit availed on capital goods used in co-generation plant should not be demanded under the relevant provisions together with interest and penalty and the said issue since has already formed the subject matter of the order passed by the office of the Commissioner of CGST and the Central Excise in order-in-original dated 31.03.2023 relates to yet another similarly placed sugar factory with co-generation plant called M/s. EID Parry India Ltd., Pugalur and the said order has become final, on the same line, the issue raised in the batch of writ petitions could be decided.
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Recording these submissions , the writ court disposed the said batch of writ petitions by order, dated 28.06.2023 giving a direction that on behalf of the petitioner, they shall appear before the Commissioner of CGST and Central Excise,and therein shall follow the order, dated 31.03.2023, passed order-in-original in respect of M/s.EID Parry (India) Ltd., allowing the CENVAT Credit in respect of the machineries that the writ petitioner used in their co-generation captive power plant and such an order shall be passed within a period of two weeks from the date of appearance.
Aggrieved over this demand made on behalf of the Revenue seeking the production of the User Test Certificate by the assessee / writ petitioner, the assessee had filed a batch of Review Applications in Rev.Appln.(MD).Nos.139 to 150 of 2023 seeking to review the order passed by the writ court dated 28.06.2023.
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The writ court having entertained the Review Applications in fact had allowed the same by allowing the writ petitions also not only on the point of User Test Certificate but also on merits including the delay. Hence such an order passed by the writ court through the order impugned in a batch of Review Applications dated 10.10.2023 is erroneous.
On the other hand, Mr.Joseph Kodianthara, Senior counsel assisted by Mr.B.Vikram Veerasamy, counsel appearing for the respondent / assessee would contend that, both in the Jawahar Mills case as well as in the Rajasthan Spinning and Weaving Mills case it has not been decided by the Supreme Court that, the User Test Certificate is a mandatory one or as a pre-requisite one before starting with the adjudication process or completing the same.
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It was argued that, insofar as the reason assigned by the Revenue for issuing the show cause notices is that, the assessee has availed the CENVAT Credit wrongly for the capital goods used in the co-gen plant from where the end project would be the electricity which is exempted from excise duty. When that being so, as per the provisions of the CENVAT Rules, CENVAT Credit cannot be availed by the assessee.
The court found that Nowhere it is stated or asserted by the Revenue in the show cause notices that, the assessee has claimed to have used machineries, capital goods in the co-generation plant or captive unit in the factory premises but no certification to that effect has been filed by the assessee and therefore in order to ascertain or assess such usage of capital goods in the cogent plant of the assessee, either inspection has to be undertaken or a User Test
Certificate issued by the Chartered Engineer to be produced.
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Unless these Certification are produced to the satisfaction of the Revenue, the CENVAT Credit availed by the assessee cannot be accepted and therefore such availment of CENVAT Credit wrongly could be recovered from the assessee, to that extent a show cause notice is issued, could have been the show cause notice issued by the Revenue, had there been the definite stand of the Revenue that, the claim made by the assessee to have used or utilised the capital goods is not supported by any evidences.
The only reason for issuing these show cause notices by the Revenue is that, in the co-generation plant capital goods were used, for which CENVAT Credit was availed, however the co-generation plant generates electricity, which is an exempted product.
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A division bench of Justice R.Suresh Kumar and Justice G.Arul Murugan found that merely because in respect of some other assessees, such a User Test Certificate was sought for or produced voluntarily or the User Test Theory has been adopted by the Adjudicating Authority, in each and every case, such an User Test Theory need not be adopted.
The court observed that the show cause notices which were under challenge before the writ court cannot be adjudicated merely on the ground that the User Test Certificate has not been produced by the assessee and dismissed the petitions filed by the revenue.
To Read the full text of the Order CLICK HERE
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