Jayaswal Neco Industries Limited Vs Principal Commissioner (CESTAT Delhi)
The appeals before the Tribunal were filed by both the assessee and the Revenue against the same adjudication order. The assessee is engaged in the manufacture of sponge iron, pig iron, and billets, using iron ore and coal/coke as inputs. It availed Cenvat credit on inputs and input services such as goods transport agency services, cargo handling services, security services, repair and maintenance services, and manpower recruitment services used in manufacturing. The assessee also operated five captive power plants within its factory premises for generating electricity used in the manufacture of dutiable finished goods. A portion of duty-paid coal, along with coal fines and coal rejects, was used in certain power plants for electricity generation. Since electricity could not be stored, surplus electricity was sold to the Chhattisgarh State Electricity Board.
During an audit covering the period January 2009 to March 2015, it was observed that the assessee was not maintaining separate accounts of inputs and input services used for manufacturing dutiable goods and exempted goods, namely electricity sold outside the factory. The Department took the view that, under Rule 6(3)(i) of the Cenvat Credit Rules, 2004, the assessee was required to pay an amount equivalent to a specified percentage of the value of electricity sold outside the factory. Accordingly, four show cause notices were issued.
The assessee contended that although separate accounts were not maintained, it had already reversed proportionate Cenvat credit attributable to the inputs and input services used in generating the electricity sold outside the factory. Therefore, it argued that no further liability arose under Rule 6(3)(i). The adjudicating authority accepted that proportionate credit reversal relating to inputs and input services used for generating the exempted electricity had been carried out and, on that basis, dropped a substantial demand of ₹11.52 crore. However, it held that proportionate reversal had not been made in respect of coal fines and coal rejects used for electricity generation and consequently confirmed a demand of ₹2.65 crore along with an equivalent penalty.
Before the Tribunal, the assessee argued that no Cenvat credit had ever been availed on coal fines and coal rejects because these were not procured on payment of duty. According to the assessee, coal fines and coal rejects emerged during the manufacturing process and therefore no question of availing or reversing Cenvat credit on them arose. It further relied on judicial precedents holding that proportionate reversal of Cenvat credit on inputs and input services is sufficient compliance with Rule 6(3)(i) of the Cenvat Credit Rules.
The Revenue argued that proportionate reversal had not been properly carried out because no reversal was made with respect to coal fines and coal rejects used in generating electricity. It relied on judicial precedent in support of its position.
The Tribunal identified two issues for determination. The first was whether proportionate reversal of Cenvat credit attributable to inputs and input services used in generating exempted goods satisfies the requirements of Rule 6(3)(i). The Tribunal relied on the decision in Rukmani Power & Steel Ltd., which had been affirmed by the Chhattisgarh High Court, and held that proportionate reversal of Cenvat credit on inputs and input services used in generating electricity is sufficient compliance with Rule 6(3)(i). Consequently, no further demand could be sustained on that basis.
The second issue was whether the assessee had failed to reverse Cenvat credit attributable to coal fines and coal rejects. The Tribunal noted that the assessee had consistently maintained that no Cenvat credit had been availed on coal fines and coal rejects because no duty had been paid on them. It further observed that these materials emerged during the manufacture of dutiable sponge iron and were not independently procured inputs. Therefore, the question of availing or reversing Cenvat credit on such coal fines and coal rejects did not arise.
The Tribunal concluded that the demand of ₹2.65 crore confirmed by the adjudicating authority was unsustainable. It held that the assessee had already reversed proportionate Cenvat credit on inputs and input services used for generating electricity and that this satisfied the requirements of Rule 6(3)(i). Since no demand survived, the penalty also could not be sustained. Accordingly, the assessee’s appeal was allowed and the Revenue’s appeal was dismissed.
FULL TEXT OF THE CESTAT DELHI ORDER
Both sides are in appeal against the impugned order.
2. The facts, in brief are that the assessee is engaged in the manufacture of sponge iron, pig iron and billets and the raw material used for manufacturing of the said items are iron ore and coal/coke. The assessee is availing Cenvat credit on inputs such as iron ore and coal/coke and input services such as goods transport agency for coal, cargo handling service for coal, security services, repair and maintenance service and manpower recruitment services used in manufacture of their final product. The assessee is also having five captive power plants in their factory premises which were utilized for the generation of electricity, for use of manufacturing of dutiable finished goods. Some portion of the above duty paid coal, along with coal fines and coal rejects were used in Plant 1 and 2 for generation of electricity. Since the electricity (an exempted goods) generated could not be stored and surplus power was sold to Chhattisgarh State Electricity Board for monetary consideration and the assessee was not maintaining separate accounts of input and input services used in manufacture of dutiable as well as exempted goods. An audit was conducted at the premises of the appellant and it was found that during the period January 2009 to March 2015, the assessee was not maintaining separate account for input and input services which has been used in manufacture of dutiable as well as final exempted goods (electricity). Therefore, in terms of Rule 6(3)(i) of Cenvat Credit Rules, 2004, the assessee is required to pay an amount equal to 10%/5%/6% of the value of electricity sold outside the factory premises by the assessee. In view of this, four periodical show cause notices were issued to the assessee and the assessee contested the issue before the learned adjudicating authority on the premise that although the assessee is not maintaining separate account of input and input services used in manufacture of dutiable as well as exempted final product. But, they have reversed proportionate Cenvat credit pertaining to the manufacturing of final exempted goods. Therefore, there is no demand against the assessee in terms of Rule 6(3)(i) of Cenvat Credit Rules, 2004 is sustainable. The adjudicating authority adjudicated the matter and recorded the finding that the assessee has reversed the Cenvat credit to the extent of quantum of electricity sold outside the factory, which suffice the obligation of manufacturer in the instant matter. But, the adjudicating authority held that the coal rejects and coal fines which has been used by the assessee for manufacture for generation electricity, the assessee is not reversed proportionate Cenvat credit. In that circumstance, a demand of Rs.2,65,35,674/- was confirmed and equivalent amount of penalty was also imposed. The adjudicating authority also dropped the demand of Rs.11,52,15,799/- on the ground that as the assessee has reversed proportionate Cenvat credit of input and input services used in manufacture of their final exempted final products. Against the said order, both sides are in appeal.
3. The learned counsel for the appellant submits that as it is recorded by the adjudicating authority in the impugned order that the assessee has proportionate reversed the Cenvat credit of input and input services used in the manufacture of exempted final product. In that circumstances, no demand is sustainable against the assessee but the adjudicating authority has travelled beyond the scope of the show cause notice. Therefore, the same is required to be set aside. It is the submission of the learned counsel for the assessee that the assessee has not availed any Cenvat credit on coal fine or coal rejects which were used for generation of electricity. Therefore, question of reversal of Cenvat credit does not arise. It is further submitted that these coal fines and coal rejects are not procured by the appellant on payment of duty therefore, question of availment of Cenvat credit does not arise. In support contention that proportionate reversal of Cenvat credit will suffice the provisions of Rule 6(3)(i) of Cenvat Credit Rules, 2004. She relied on the decision of this Tribunal in the case of Rukmani Power & Steel Ltd. Vs. Commissioner of Central Excise & Service Tax, Raipur – 2017 (354) ELT 144 which has been affirmed by the Hon’ble Chhattisgarh High Court reported in 2017 (354) ELT A24 and Eureka Stock and Share Broking Services Ltd. Vs. Commissioner of Service Tax, Kolkata vide final Order No. 76060/2024 dated 11.06.2024.
4. On the other hand, learned Authorized Representatives appearing on behalf of the Revenue submitted that as coal rejects and coal fines which has been used for generation of electricity and drew our attention to the show cause notice. Paragraph 3.2 thereof to say that the proportionate reversal was not done by the assessee in terms of Rule 6(3)(i) of Cenvat Credit Rules, 2004 as they have not reversed the Cenvat credit on coal rejects and coal fines. He also relied on the decision of Hon’ble High Court of Bombay in the case of Commissioner of Central Excise Vs. Nicholas Piramal (India) Ltd. – 2009 (244) ELT 321 (Bom.).
5. Heard the parties. Considered the submissions.
6. We find that in this case primary issue is that:
ISSUE NO. A
Whether the proportionate reversal of Cenvat credit of input and input services used in generation of exempted goods shall suffice to meet the provision of Rule 6(3)(i) of Cenvat Credit Rules, 2004 or not?
7. We find that the learned Authorized Representatively heavily relied on the decision of Nicholas Piramal (India) Ltd. (supra) the said decision is not applicable to the facts of the case of as the Cenvat Credit Rules, 2004 has been amended by the Finance Act, 2010 and the said decision pertains to the earlier provision of rule Cenvat Credit Rules, 2004. Therefore, the said decision have no bearing on the facts of this case.
8. We further take note of the fact that this Tribunal in the case of Rukmani Power & Steel Ltd. (supra) has observed as under:
“2. The facts of the case are that appellant used certain inputs/input services for generation of electricity which is partly used by the appellant in their induction furnace and part of electricity was sold in market. The Revenue is of the view that as electricity sold outside is an exempted item from payment of duty. Therefore, the appellant is required to pay an amount 8/10% of the value of electricity as per Rule 6(3) of the Central Excise Rules, 2004. As the issue has already been resolved in the case of Sharad SSK v. CCE, Kolhapur [2014 (9) TMI 768-CESTAT Mumbai = 2014 (304) E.L.T. 595 (Tri. – Mum.), wherein this Tribunal held that the amount of inputs/input services used in generation of electricity sold outside is reversed, the same is sufficient and in that case the assessee is not required to pay an amount equal to 8/10% of the value of electricity. In this case, admittedly, the appellant has already reversed the entire amount of input/input services used in generation of electricity, therefore, same is sufficient. Therefore, appellant is not required to pay any amount of the value of 8/10% of electricity.”
The said order has been affirmed by the Hon’ble Chhattisgarh High Court reported (supra). In that circumstances, we hold that the proportionate reversal of Cenvat credit availed on input and input services which has been used for generation of electricity is sufficient to meet out the provision of Rule 6(3)(i) of Cenvat Credit Rules. Therefore, on that count no demand is sustainable against the assessee.
ISSUE NO. B
And
Whether the assessee has reversed the Cenvat credit in terms of Rule 6(3)(i) of Cenvat Credit Rules, 2004 or not?
9. We find that in the show cause notice paragraph 3.2, it is recorded as:
“3.2 It has been mentioned in the Annexure to Noticees letter dated 23.06.2014 that they have reversed an amount of Rs. 54,35,712/- on various occasions in lieu of proportionate reversal of Cenvat credit involved in the sale of electricity sold outside.”
And the assessee has replied the same vide letter dated 14.12.2015, the appellant replied as under:
“Since coal fines and Rejected Coal are waste which gets generated inevitably during the manufacture of sponge iron, no reversal is required on such quantity of coal fines and Rejected Coal used in the generation of power. This is for the reason that the coal fines and Rejected Coal are not dutiable inputs and no credit is attributable to aforesaid waste of inputs. Similarly, certain value of inward freight is attributable to such quantity of coal fines and Rejected Coal. Therefore, no reversal of Cenvat credit is required on such value of input services.”
As no Cenvat credit has been availed by the aseessee on coal fine and coal reject as no duty has been paid thereof. Further, we find that these coal fines and coal rejects are generated being the manufacturing the dutiable product namely, sponge iron, therefore, the question of availing the Cenvat credit on coal fines and coal rejects does not arise. In that circumstances, the demand raised by the learned adjudicating authority in the impugned order to the tune of Rs.2,65,35,674/- is not sustainable.
10. In view of this we pass the following order:
“As the assessee has reversed the proportionate Cenvat credit of input and input services used for generation of electricity the same is sufficient in compliance to Rule 6(3)(i) of Cenvat Credit Rules, 2004. Therefore no demand is sustainable against the assessee, consequently, no penalty can be imposed on the assessee.”
11. In view of this, the appeal filed by the assessee is allowed and the appeal filed by the Revenue is dismissed.
(Pronounced in open Court)
