Electricity Wheeled to State Electricity Board Grid Amounts to Sale: CESTAT Denies CENVAT Credit on Fuel Used in Captive Power Plant [Read Order]

The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that CENVAT credit is not admissible on inputs used for electricity generation, where the entire electricity generated was wheeled out to the Haryana State Electricity Board grid and not used within the factory. The Tribunal held that such transfer of electricity to the grid constitutes a sale under the Central Excise Act, 1944.

A captive power plant was set up by appellant Jindal Stainless Ltd., manufacturers of slabs, blooms, ingots etc. DG sets were used to overcome shortages and outages of electricity. As the electricity generated was unstable and unsuitable for direct use in furnaces and mills, the assessee entered into agreements with the Haryana State Electricity Board for synchronisation of power with the grid, and receiving back electricity after payment of wheeling charges.

The Department initiated investigation and issued multiple show cause notices seeking denial of CENVAT credit availed on furnace oil and other inputs used for generation of electricity. This was on the ground that the electricity generated was not used in or in relation to the manufacture of excisable goods within the factory. At last, the Commissioner confirmed demand of CENVAT credit amounting to ₹6.58 crore along with interest and imposed penalties.

Though the Tribunal had earlier decided the issue in favour of the assessee, the Punjab and Haryana High Court remanded the matter for fresh consideration.

The matter was heard by S.S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member).

Upon reconsideration, the Tribunal noted that as per the feasibility report relied upon by the assessee, the electricity generated was fluctuating in nature and could not be used in the arc furnace, strip mill and blooming mill. It was observed that the entire electricity generated by the assessee was transferred to the grid and stable electricity was received back from the grid.

The Tribunal held that for the purposes of the Central Excise Act, “sale” includes transfer of goods for valuable consideration. It was observed that the assessee had transferred electricity to the grid and received electricity in return, which amounted to barter involving consideration.SHO

In light of the definition of “input” under the relevant CENVAT Credit Rules, the Tribunal held that since the entire electricity generated by the assessee was wheeled out to the grid and not used within the factory, the inputs used for generation of such electricity were held to be ineligible for CENVAT credit.

The Tribunal relied upon the Supreme Court decisions in Maruti Suzuki Ltd. v. Commissioner of Central Excise and Gujarat Narmada Valley Fertilizers Co. Ltd. to reiterate that CENVAT credit on fuel used for electricity generation is allowable only to the extent the electricity is captively used, and not where it is sold or transferred outside the factory.

On the issue of limitation, the Tribunal held that the extended period could not be invoked as there was no evidence of suppression or wilful misstatement. Accordingly, the demand raised under the extended period and all penalties were set aside.

The appeal was thus partly allowed

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