The New Delhi bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) allowed CENVAT Credit on the inputs used in production of electricity supplied free of cost.
Shri Sanjay Kumar Singh appeared for the Department and Shri Krishnamohan K. Menon & Ms Parul Sachdeva, Advocates appeared for the Respondent.
The respondent, M/s Hira Ferro Alloys Limitedengaged in the manufacture of Ferro Alloys falling under Chapter 72 of the Central Excise Tariff. It also has another unit in the same area and both units have separate central excise registrations and both are maintaining separate statutory records.
The issue was about the Cenvat credit on the inputs /input services used by it for providing electricity part of which it supplied its sister unit. The Revenue contended that the respondent is entitled to Cenvat credit on the inputs and input services used in the manufacture of its final product but not the inputs and input services which go into the production of electricity that it supplied to its sister unit.
A show cause notice dated 29.11.2016 was issued to the appellant seeking to recover several Rs. 1,66,45,239/- under Rule 14 of the Cenvat Credit Rules, 2004 read with Section 11A of Central Excise Act along with interest under Section 11AA. It was further proposed to impose a penalty upon it under Rule 15 of CCR read with Section 11AC (1)(c).
On appeal, the Commissioner (Appeals) has passed the impugned order holding that the appellant was not required to reverse proportionate Cenvat credit in respect of power which it supplied to its sister unit during the period and to that extent, the demand had to be reduced.
The Tribunal observed that the inputs or input services qualify for Cenvat when they are being used for the manufacture of the final product.Since part of the electricity is transferred to the sister unit, the inputs used in generating it to that extent are an input for the sister unit and not for the respondent.
In light of the case of Shree Cements Ltd, Mr Justice Dilip Gupta, president and Mr P V Subba Rao, member (technical) upheld the impugned order which allowed the CENVAT credit on the inputs used in production of electricity which is supplied free of cost to the assessee’s sister unit and appeal filed by revenue was rejected.
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