Surplus Electricity Supplied Free of Cost Entitled to Cenvat Credit: Orissa HC [Read Order]

In a recent case before Orissa High Court it was ruled that surplus electricity supplied free of cost is entitled to Cenvat Credit allowing businesses to benefit from tax relief.

The Appellant, Principal Commissioner, CGST and Central Excise, Bhubaneswar filed an appeal under section 35G of the Central Excise Act, represented by Advocate Satapathy against the impugned final order dated 4th August 2023 passed by Customs, Excise and Service Tax Appellate Tribunal, Eastern Zonal Bench, Kolkata.

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The revenue’s contention was that the surplus electricity supplied free of cost by respondent Indian Metal and Ferro Alloys Limited, Odisha, to its another unit does not entitle it to cenvat credit on input and input services.

Periodical show cause notices were issued to the respondent, to deny credit of input and input service. Revenue succeeded before appellate authority but the tribunal erred on facts and law, to set aside the appellate order.

The learned counsel Advocate Sahoo on behalf of the respondent opposed the submission of appellant’s counsel , stating that the appeal is on threshold of admission, only after which the respondent is entitled to notice.

The Respondent has 2 units engaged in the manufacture of high carbon ferro chrome and chrome ore briquette in the State separated by around 500 kms. One unit manufactures electricity for captive use.

Substantial questions of law arise regarding impugned final order, with the definition of ‘factory’ in section 2 (e) of the Act read with rules 2(k)(iii) and rule 3 in Cenvat Credit Rules, 2004.

A part of surplus parts was admittedly sold to Gridco and Cenvat credit obtained, reversed. Respondent also used part of the surplus electricity by transmitting it to its other unit, engaged in the line of manufacture to produce the final products, which are dutiable goods.

Both the units of respondent come within the meaning of ‘factory’ given in the Act. Input includes all goods used for generation of, inter alia, electricity for captive use. Apart from surplus electricity sold to Gridco, electricity that was surplus in the generating unit was transmitted to the other unit for use in manufacture of the dutiable goods, therefore it cannot be said that transmitted electricity was not captively used.

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The High Court Bench of Justice Arindam Sinha and Justice M.S. Sahoo that there was no substantial question of law regarding the use of manufactured electricity in one unit of respondent but transmitted for use by another for use in manufacture of dutiable goods, to obtain cenvat credit.

Hence Appeal was dismissed.

To Read the full text of the Order CLICK HERE

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