APPELLANT: HSGH COURT OF CHHATnSGARH AT_B!LASPUR TaxCaseNo.50of2008 Union of India -u Versus RESPQNDENT: M/s HEG Ltd (Sponge Iron Divislon) JUDGMENTFOR CONSIDERATiQN HON'BI-E MR. JUSTICE R.N. CHANDRAKAR -3> a-< Sd/- 4-11-2009 Sd/- R.N. Chandrakar Judge .^ POST FOR JUDGMENTON ? NOVEMBER. 2009 Sd/- Dhirendra Mishra Jadge HIGH COURT OF CHHATTISGARH AT BILASPUR Tax Case >,50 of 2008 RESPONDENT: Union of India, Commissioner, Central Excise and Customs, Centra! Excise Bhawan, Dhamtari Road, Tlkarapara, Raipur (CG) 492 O Versus Ws HEG Ltd (Sponge Iron Divlsion) Borai Industrial Growth Centre, Post Rasmada, District Durg (CG) Shri Bhishma Kinger, counsel for the appellant. Virendra Sharma and Shri S.K. Sharma, counse! for respondent. Division Bench: Hon'ble Shri Dhirendra Mishra & Hon'ble Shri R.N. Chandrakar. JJ. JUDGMENT (Deiivered on p7-11 -2009) The foilowing judgment of the Court was delivered by 1 The appellant has preferred this appeal under Section 35-G of the Centrat Excise Act, 1944 (for brevity 'the Act') against the impugned order passed by the Customs, Excise & Service Tax Appellate Tribunai, Principal Bench, New Delhi (for short 'the Tribunal') on Tollowing substantial questions of law:- • Whether it will be violation of Ru!e 2(h), 2(g), and 6 (4) of the Cenvat Credit Rules, 2002 if Cenvat Credit is aliowed to the Respondent on the electricity generated captively but Instead of utillzing it through distributlon lines ofthe M.P.E.B. (new CSEB) ? ^: ~: ^te,... %3si°fi •3k:^s • Whether the iearned Appellate Tribunai has erred in ailowing the credit on the impugned goods in toto instead ofal'owing proportionate credlt on the electricity consumed within the factory out of the total electricity generated capitvely. 2. Briefly stated facts of the case, as Commissioner (Appeals), are that the respondent has thermal plant of 12.8 MW capacity Installed in their factory premises. has 3 boiiers which run on steam turbine and the generator. 2 boilers are "Waste Heat Recovery" type in which waste hot gases coming from sponge iron kfln are used for production of steam. The 3 boiier is "Fiuidised Bed Combustion" type, in which coal, fire, char, dolochar are used as soiid fuels. The steam generated in these boilers is used for running fhe stsam generator to generate eiectricity. The electricity so generated is partly used by respondent in their factory for manufacture of sponge sron and a major part of it is supplied outside through the distribution lines of MPEB. '. During July to August, 2004, the respondent had avalled Cenvat Credit amounting to Rs.1,17,852/- on various parts used in the boilers and turbine of the aforesaid power plant. The lower authority disallowed above Cenvat Credlt of Rs.1,17.852/- and imposed a penaity of Rs.1,17,852/- under Sectbn 11 AC ofthe Act and Rs.10,000/- under ile 13 of the Cenvat Credit Rutes, 2002 read with Rule 25 of the Central Excise Rules, 2002 for contravention of Rule 3 of the Cenvat Credit Rules, 2002 on the ground that the respondent had supplied a part of electricity to their sister concern located outside their factory premises through MPEB grid. They were only entitled to claim the •I ^'SBIfc. 1 :t C1J ..^' •^-•^^'' ^oy '••{.;--,. ;? _^eS^' ~"~VSSS^^^'' credit on the inputs utiiized in generatlon of the electricity used within their factory. Since the details of electricity wheeled out to their sister concern were not available, the whole of the Cenvat Credit availed by the respondent was disallowed. 4. On appeal by the respondent, the Commissioner appeai and held that the respondent is eiigible to extent of electricity used within the factory. The an appeal against the order of the Commissioner aliowed the credit to fhe preferred Customs & Central Excise before the Tribunal. The Tribuna! relying upon its decision in the case of Kothari Sugars & Chemicals Ltd. Vs. CCE Trichy {2006 (196) ELT 35} allowed the appeai and held that there is RO reason to deny modvat credit to the respondent. The efectricity generated in the power plant used by the appeliant was not used exclusively for manufacture of the exempted goods. i. Shrl Bhishma Kinger, learned counsel for the appellant argued that the Tribunal even after observing that in the cited judgment Ru'e 57-R of the erstwhile Central Excise Rules, 1944 has not been considered, allowed the appea! on the ground that the Division Bench decision cited by learned counsel are squarely in favour of the appellant. He further argued that from perusal of Rule 6(4) of the Cenvat Credit Rules, 2002 (for short 'the Rules'), it is apparent that Cenvat Credit cannot be allowed on capital goods which are used exciusively in manufacture of exempted goods. In the instant case, major portlon of the electricity generated in the power plant of the respondent is wheeled out to its sister concern tocated outside the factory premises through the grid of MPEB. Thus, capital goods against which Cenvat ^ Credit is claimed is exclusively used for manufacture of exempted goods, as electricity is exempted from excise duty. tn these Gircumstances, the respondent was not entltled for Cenvat Credit in proportion to the electricity generated from the captive power plant and exciusively used for sister concern through the grid of MPEB, as held by the Commissioner. Referring to Rute 2(b), 2(g) and 6(4) of the Ruies, it was argued that the capital goods and inputs used exclusiveiy in manufacture of exempted goods are not entstled for Cenvat Credit. 6. On the other hand, Shri Virendra Sharma, learned counsel appearing for the respondentsubmifted that from bare reading of Rute 6 (4) of the Rules: it is evident that Cenvat Credit may be denied on such capital goods which are exciusiveiy used in manufacture of exempted goods. !n the instant case, eiectricity generated in the captive pcwer plant of the respondent is utilized for production of final product sponge iron and oniy surplus electricity is sold to M.P. Electricity Board through their grid and, therefore, it cannot be said that the capital goods used in the power plant are exclusively used for exempted goods. 7. We have heard learned counsel for the parties. 8 Indisputably, the respondent is engaged in a productlon of sponge iron and the finst product is leviable to excise duty. It has a captive thermal power plant of 12.8 MW capacity in its premises which has 3 boilers. In 2 boilers are Waste Heat Recovery' type in which waste hot gases coming from sponge Iron kiln are used for production of steam. The steam generated in these boiiers are used for running the steam generator to generate electricity. The electricity so generated is partiy used by the respondent in their factory for manufacture of sponge iron and a major part of it is supplied outside through the distribution iines ofMPEB. 9. Rule 2(b), 2(g) and 6 (4) of the Rules read thus:- "2(b). - "capital goods" means,- (i) all goods falling under Chapter 82, Chapter 84, Chapter 85, Chapter 90, heading No.68.02 and sub-heading No.6801.10 ofthe First Schedute to theTariffAct; (ii) pollution control equipment (iii) components, spares and accessories of the ^oods specified at (i) and (ii) above; (iv) moulds and dies; (v) refractories and refractory materials; (vi) tubes and pipes and fittings thereof; and (vii) storagetank used in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; 2(g):- "input" means all goods, except [light diesel oil high speed diese! oil and motor spirit, commonly known as petrol, used in or in relation to the manufacture of flnal products whether directly or indirectly and whether contained in the flnal product or not, and includes iubricating oils, greases, cutting oils, coolants, accessories of the final products cleared along with the final product, goods used as paint, or as packing material, or as fuel, or for generation of eiecti'icity or steam used for manufacture of final products or for any other purpose, within the factory of production. 6 6(4):- No CENVAT credit shalt be altowed on capital goods which are used exclusively in the manufacture of exempted goods, other than the final products which are exempt from the whole of the duty of excise leviabfe thereon under any notification where exemption is granted based upon the vaiue or quantity ofciearances made in a financial year." lo.The Tribunal referring to its decision in the case of Kothari Sugars (Supra) wherein it has been held that steam generating boiier parts used in captive power ptant and partly sold out to Tamil Nadu Electricity Board are eligible to Cenvat Credit under Rule 57-R of the erstwhile Central Excise Ruies, 1944, aliowed the appeal of the respondent and held that there was no reason to deny modvat credit to the respondents. Ruie 2 (b) defines capital goods used in the factory of the manufacturer of the final products, but does not inctude any equipment or appliances used in an offlce whereas, Rule 2 (g) defines input as ail goods used in or in relation to the manufacture of final products whether dlrectly or indirectly and whether contained in the fsnal product or not. In the present case, it is not in dispute that Cenvat Credit has been claimed agalnst the spare parts used in boiiers of the power piant which generate electricity. 11. The only question to be decided in this appeal is whether the Tribunal was justified in allowing Cenvat Credit to the respondent for capitai goods used in the power plant when major portion of the electricity generated was soid to the MPEB? 12. Plain reading of Rule 6 (4) of the Rules makes it abundantly clear that Cenvat Credit in respect of capital goods shall not be allowed on f^^ I '3»®-a.1 WJi ^/ "'-^i'^SS capital goods which are used "exciusively" in manufacture of exempted goods. In the instant case, though major portion of the generated electricity from the power plant was sold to MPEB through its grid, however, it cannot be said that capital goods were exclusively used in manufacture of exempted goods (electricity) sold to MPEB as a portion of eiectricity generated in the power plant is also utilized in manufacture of final products "sponge iron" of the respondent factory, which is leviable to the excise duty and is not exempted good. 13. On the basis of aforesaid analysis, we are of the opinion that the Tribuna! was justified to hold that respondent was entitled for modvat credit against the capital goods used in the captive power plant of the respondent and Ruie 6 (4) of the Rules was no bar for denying Cenvat i4.In the result, no substantial question of law as proposed by the appeliant arises for adjudication of this appeat. The appeal is wlthout any substance, the same deserves to be and is accordingly dismissed. Sd/- Dhirendra Mishra Jadge Sd/- R.N. Chandrakar Judge Ban/e