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Principal Commissioner, Central Goods & Service Tax & Central Excise Vs Hira Ferro Alloys Limited - (Customs, Excise and Service Tax Appellate Tribunal) (06 Sep 2022)

CENVAT credit is allowable on the inputs used in production of electricity which is supplied free of cost to the assessee's sister unit



In present case, the Respondent is engaged in 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 Appellant's records were audited by the Department for the period December 2011 to March 2016 and several points were raised by the audit. The only one which remains to be decided is regarding the Cenvat credit on the inputs /input services used by it for providing of electricity part of which it supplied its sister unit. According to the Revenue, the Respondent is entitled to Cenvat credit on the inputs and input services used in manufacture of its final product but not the inputs and input services which go into production of electricity which it supplied to its sister unit. The Appellant had sold part of the electricity to the Chhattisgarh State Power Distribution Company Limited and had to that extent reversed the Cenvat credit on the inputs and input services. However, the appellant had not reversed Cenvat credit to the extent it had supplied the power to its own sister unit which has a separate central excise registration.

Accordingly, a show cause notice was issued to the Appellant seeking to recover an amount of 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 of Act. It was further proposed to impose penalty upon it under Rule 15 of CCR read with Section 11AC (1)(c) of Act.

The Additional Commissioner has passed an order confirming the demand along with interest and imposing penalties. 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. Accordingly, he modified the order of the lower authority.

The case of the Appellant Revenue is that since part of the electricity is transferred to sister unit, the inputs used in generating it to that extent is an input for the sister unit as it is relatable to the goods manufactured by it and they are not inputs relatable to the final products of this Respondent. Each unit is separately registered and is a separate assessee as far as central excise is concerned. To the extent the electricity is sold to outsiders, the Respondent has reversed the CENVAT credit.

On identical issue, High Court of Rajasthan had, in Commissioner of Central Goods & Service Tax, Jaipur Vs. Shree Cement Ltd., allowed CENVAT credit on the inputs used in production of electricity which is supplied free of cost to the assessee's sister unit. A bench of this Tribunal has also taken similar view in Sanghi Industries Ltd. Vs. Commissioner of Central Excise, Bilag Industries P. Ltd. Vs. Commissioner of Central Excise and Hindustan Zinc Ltd. Vs. Commissioner of Central Excise & Service Tax. There is no reason to take a different view in present case. Accordingly, the Respondent is entitled to CENVAT credit to the extent the inputs are used for production of electricity which is transferred free of cost to its sister unit. Accordingly, the appeal filed by the Revenue is rejected and the impugned order is upheld.


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