COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, JAIPUR-II Vs. J.K. CEMENT WORKS
LAWS(CE)-2015-4-39
CUSTOMS EXCISE AND GOLD(CONTROL) APPELLATE TRIBUNAL
Decided on April 06,2015

Commissioner Of Central Excise And Service Tax, Jaipur -Ii Appellant
VERSUS
J.K. CEMENT WORKS Respondents




JUDGEMENT

ASHOK JINDAL,MEMBER (J) - (1.)THE Revenue is in appeal against the impugned order seeking denial of Cenvat credit on pet coke which was used for generation of electricity by the sister unit of the respondent which in turn sent the electricity to the respondent which was ultimately used in the manufacture of final product. The brief facts of the case are that the respondent is manufacturer of cement. To manufacture cement, electricity is being used. For generation of electricity, the respondent procured pet coke which was sent to their sister unit for generation of electricity. Electricity so generated was received by the respondent which in turn is used in manufacture of final product i.e. cement. Revenue is of the view that pet coke which has been used in the generation of electricity outside the factory premises, the respondent is not entitled to take Cenvat credit on pet coke. Therefore the case was booked against the respondent and Cenvat credit was denied along with interest. Consequently, duty was demanded along with interest and penalty equivalent to the duty was imposed. On appeal before Commissioner (Appeals), relying on the decision of Tribunal in the case of Haldia Petrochemicals Ltd. v. CCE : 2006 (197) ELT 97 (Tri. -Delhi) Commissioner (Appeals) allowed the Cenvat credit. Against that order, Revenue is before me.
Learned AR relied on the description of inputs as defined in Rule 2(k) of the CCR, 2004 to say that pet coke is not input for manufacturing of their final product i.e. cement and this pet coke has been used in generation of electricity outside the factory, therefore, as this pet coke is not used within the factory for manufacture of final product, the respondent is not entitled to take Cenvat credit. To support his contention, he relied upon the decision of Apex Court in the case of Maruti Suzuki Ltd. v. CCE : [2009] 22 STT 54. He further submits that as per Rule 2(k) of the Cenvat Credit Rules, 2004, job work has been defined and the activity of generation of electricity does not qualify as job work. He also relied on the notification No. 214/86 -CE, dated 25.3.1986 to say that as this notification does not cover the electricity, therefore electricity cannot be manufactured by job worker. He also submits that decision in the case of Haldia Petrochemicals Ltd. (supra) has been appealed against before Calcutta High Court, therefore the said decision cannot be relied upon. He further submits that process of generation of electricity is not integrally connected and there is no one to one correlation of the inputs used.

(2.)ON the other hand, learned Counsel appearing on behalf of the respondent submits that in the case of Maruti Suzuki Ltd. (supra), the Hon'ble Apex Court has relied on the decision of Vikram Cement v. CCE : [2006] 3 STT 230 (SC) and held that electricity can be generated outside the factory and same should be used in manufacturing of the final product and same view was taken by this Tribunal in the case of Haldia Petrochemicals Ltd. (supra) and which has been followed in the case of Sanghi Industries Ltd. v. CCE : 2006 (206) ELT 575 (Tri. -Delhi).
(3.)HEARD the parties. Considered the submissions.
The short issue before me is that whether the respondent is entitled to take Cenvat credit on pet coke which has been used in generation of electricity outside the factory and said electricity has been used by the respondent in manufacturing of their final product or not. I have gone through the case law relied upon by the learned AR in the case of Maruti Suzuki Ltd. (supra). In the said case, the issue before the Hon'ble Apex Court was that the electricity generated which has been sold outside the factory, whether the assessee is entitled to take Cenvat credit thereon or not. Said issue is not before me, as in the said case, admittedly electricity so generated has not been used in the manufacture of final product. Further in the said case the Hon'ble Apex Court analyzed how the Cenvat credit can be availed on inputs which have been sent to the job worker and ultimately used in the manufacture of final product. In para 19 of said decision the Hon'ble Apex Court has observed as under: - -

'19. The question which still remains to be answered is: whether an assessee would be entitled to claim CENVAT credit in cases where it sells electricity outside the factory to the joint ventures, vendors or gives it to the grid for distribution? In the case of Collector of Central Excise v. Rajasthan State Chemical Works reported in : 1991 (55) ELT 444 (SC) the test laid down by this Court is whether the process and the use are integrally connected. As stated above, electricity generation is more of a process having its own economics. Applying the said test, we hold that when the electricity generation is a captive arrangement and the requirement is for carrying out the manufacturing activity, the electricity generation also forms part of the manufacturing activity and the 'input' used in that electricity generation is an 'input used in the manufacture' of final product. However, to the extent the excess electricity is cleared to the grid for distribution or to the joint ventures, vendors, and that too for a price (sale) the 'process and the use test' fails. In such a case, the nexus between the process and the use gets disconnected. In such a case, it cannot be said that electricity generated is 'used in or in relation to the manufacture of final product, within the factory'. Therefore, to the extent of the clearance of excess electricity outside the factory to the joint ventures, vendors, grid etc. would not be admissible for CENVAT credit as such wheeled out electricity, cleared for a price, would not fall within the definition of 'input' in Rule 2(g) of the CENVAT Credit Rules, 2002. This view is also expressed in para 9 of the judgment of this Court in the case of Collector of Central Excise v. Solaris Chemtech Ltd. : 2007 (214) ELT 481 (SC). Further, our view is supported by the observations of this Court in the case of Vikram Cement v. Commnr. of Central Excise, Indore : 2006 (194) ELT 3 (SC) which is quoted below: - -

"It appears to us on a plain reading of the clause that the phrase 'within the factory of production' means only such generation of electricity or steam which is used within the factory would qualify as an immediate product. The utilization of inputs in the generation of steam or electricity not being qualified by the phrase 'within the factory of production' could be outside the factory. Therefore, whatever goes into generation of electricity or steam which is used within the factory would be an input for the purposes of obtaining credit on the duty payable thereon."'

Further, I find that in the case of Haldia Petrochemicals Ltd. (supra), the identical issue was before this Tribunal wherein this Tribunal has held that naphtha, as such or after being partially processed, sent to power plant and raw material used by the power plant for generation of electricity; said electricity is sent to the principal manufacturer. On such inputs sent to the job worker, the assessee is entitled to take Cenvat credit. Similarly, in the case of pet coke which has been sent by the respondent to their sister unit for manufacturing of electricity which ultimately has been used by the respondent for manufacturing of their final product, i.e. cement. Therefore, the respondent has qualified for entitlement of Cenvat credit as per Rule 2(k) of the CCR, 2004. Consequently, I do not find any infirmity in the impugned order, the same is upheld. Appeal filed by the Revenue is dismissed.

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