The New Delhi Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that where a manufacturer (appellant/ taxpayer) reverses, even subsequently, the proportionate CENVAT credit attributable to inputs and input services used in generation of electricity that is sold/wheeled out, such reversal is to be treated in law as equivalent to not having availed the credit at all. Consequently, a demand under Rule 6 for payment of 5%/6% of the value of such electricity is unsustainable. The Tribunal therefore set aside the impugned order
The Division Bench comprising Justice Dilip Gupta (President) and P. Anjani Kumar (Technical Member) recorded that the settled position is that reversal of proportionate CENVAT credit attributable to electricity sold to the State Electricity Board or third parties amounts to non-availment of credit itself.
The Tribunal thus rejected the revenue’s attempt to distinguish the earlier cases on the ground that Rule 14 had been invoked in the present case through Explanation III to Rule 6, holding that the earlier decisions rested on the evolved jurisprudence on reversal of credit and not merely on the absence of an express recovery provision. On that basis, the Tribunal concluded that the demand in the impugned order could not be sustained.
Briefly, the appellant, a manufacturer of zinc ingots and lead and a Central Excise registrant, availed CENVAT credit on inputs, capital goods and input services. During audit, the department formed a view that the appellant had availed credit on inputs such as furnace oil and on inputs used in its captive power plant for generation of electricity, part of which was consumed captively and part of which was wheeled out/transferred to sister concerns/AVVNL, without maintaining separate records for inputs, capital goods and input services used for dutiable and exempted goods.
On that basis, three show cause notices were issued for the period 2011-12 to 2017-18 (up to June 2017), demanding 5%/6% of the value of electricity wheeled out/sold, aggregating to the amounts set out in the notices, together with interest and equal penalty under section 11AC of the Central Excise Act, 1944 / Rule 25 of the Central Excise Rules, 2002. The appellant’s case was that it had already reversed proportionate CENVAT credit attributable to the electricity sold/transferred, amounting in total to Rs. 2.06 crores during the relevant period, and had informed the department of such reversals from time to time, including in its defence reply.
