In a recent decision, the Madras High Court observed that electricity qualifies as input for grant of cenvat credit.
The appellants have challenged the final order passed by the Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ), Chennai dated 28.02.2018. The Appellant is a manufacturer of cement under the provisions of the Central Excise Act 1985. It had set up a Captive Power Plant ( CPP ) within its factory premises at Sankar Nagar, Tirunelveli District.
The appellant had imported coal for the generation of electricity in the CPP availing cenvat credit of Countervailing Duty ( CVD ) on such imports. The imports span the period September 2012 to May 2013. The present litigation commenced with the show cause notice issued on 30.09.2013. The department alleges that no statement of accounts has been maintained for the receipt and consumption of coal for production of electricity.
The submissions of the appellant revolve around the fact that electricity qualifies as an input for the grant of cenvat credit under the CCR 2004. The excess electricity generated has not been sold as a commodity to outsiders but merely transferred to its own duty paying concerns.
Without prejudice, they also argued that the impugned demand at 6% on the notional value of the electricity wheeled out is arbitrary and has no basis. That apart, electricity constitutes neither excisable nor exempt goods under the Act, as no rate of duty has been prescribed under the tariff. If at all it had been an excisable commodity, duty would have been remitted that would have rendered the entire exercise revenue neutral.
In the present appeals, the period in question is September 2012 to May 2013 to which the substituted definition of ‘input’ would apply. There is a substantial cost in the setting up of a CPP. Perhaps the object of the substitution is itself that such expenditure must go to benefit the company as a whole, including the sister concerns to which supply is made.
A Division Bench comprising Justice Dr Anita Sumanth and Justice R Vijayakumar observed that “Clauses (ii) and (iv) are not relevant for the purposes of this order. Importantly, a distinction has been envisaged between the goods used ‘in the factory’ by the ‘manufacturer of the final product’ and the goods used for ‘generation of power’. While the former insists that the goods must be used ‘in the factory’, there is no stipulation of place as regards the goods in clause (iii). Therefore, we find merit in the position that electricity captively generated is an input, wherever used by the assessee concerned. The use of the term ‘captive’ is, in our view a qualification of the location where it is generated and not of the location where it is used.”
“The electricity generated has been wheeled through the grid and thus the process of supply to each of the sister units is transparent and in accordance with the terms of, and procedure under the Wheeling agreement entered into with TANGEDCO. (v) being related parties and units of one company, it is possible for there to be a check on the methodology adopted by the parties for the transfer of the input, the utilization of the ‘input’ itself and all other relevant determinants by the department” the Court concluded.
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