M/S. Maruti Suzuki India Ltd. Manesar ... vs C.C.E & S.T. Delhi-Iii

[Arising out of Order-in-Original No. 46-47/SA/CCE/2012 dated 07.08.2012 by the Commissioner of Customs, Central Excise & Service Tax, Gurgaon].

For approval and signature:

Honble Shri Ashok Jindal, Member (Judicial)

Hon'ble Shri B. Ravichandran, Member (Technical)

1 Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2 Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3 Whether Their Lordships wish to see the fair copy of the Order?

4 Whether Order is to be circulated to the Departmental authorities?

M/s. Maruti Suzuki India Ltd.

M/s. Maruti Suzuki India Ltd. Manesar Plant .Appellants

Vs.

C.C.E & S.T. Delhi-III .Respondent

Appearance:

Shri B.L. Narsimhan, Advocate for the Appellant

Shri Govind Dixit, DR for the Respondent

CORAM:

Hon'ble Shri Ashok Jindal, Member (Judicial)

Hon'ble Shri B. Ravichandran, Member (Technical)

Date of Hearing: 30.09.2015

FINAL ORDER NO. 53153-53154/2015-EX(DB)

Per B. Ravichandran:

There are two appeals filed by the appellants and are taken up together for decision as the issue involved is same. The appellants are engaged in the manufacture of motor vehicle and parts thereof liable to Central Excise duty. They are availing Cenvat Credit on duty paid on inputs and input services used in the manufacture of their final product. The appellants also have captive power plants inside their factories. Some portion of the power generated are sold to other units on consideration. Proceedings were initiated against the appellants to reverse Cenvat Credit amount proportionate to quantum of power sold by them. The Cenvat Credit was availed on input services of transport of gas to their power plant. The proceedings concluded by issue of order dated 07.08.2012 by the Commissioner. He confirmed demands attributable to proportionate Cenvat Credit availed on input services relatable to electricity sold outside. Aggrieved by the order the appellants are before us.

2. In the course of appeal the appellant contended that the judgment of the Honble Supreme Court in their own case reported in 2009 (240) ELT 641 SC is not applicable to the facts of the present case. The Honble Supreme Court was dealing with inputs and reversal of proportionate credit availed on inputs in connection with electricity sold outside. The eligibility of service tax credit itself is not in dispute. It is only question of reversal of proportionate credit of service tax attributable to electricity sold outside. The appellants contended that principle for treatment of credit availed on inputs cannot be applied to the credit availed on input services. Input and input services stand in different footing. The service tax paid on the input services is rightly eligible in credit. The services of transportation of gas has been fully utilized as soon as gas reaches their plant. As such there should be no question of apportioning such service tax based on ultimate clearance of electricity on sale. The appellants also strongly contended the demand for extended period sating that there is no question of suppression on their part and whole proceedings were initiated only consequent to the Honble Supreme Courts decision in their case relating to input. As such they pleaded that the demand for the extended period will not stand and no penalty can also be imposed.

3. The Ld. AR reiterated the findings of the original authority and stated that the credit of service tax paid on input services is subject to condition that the final product should be liable to duty. In the case of electricity produced and consumed by the appellant in their plant, the eligibility of input service credit is not in dispute. When the electricity produced using the various duty paid inputs / input services are not used in or relation to the manufacture of dutiable final product, the eligibility of credit is barred. He reiterated that decision of the Honble Supreme Court in the appellants own case (supra) is squarely applicable for input services also. The distinctions sought to be made by the appellant is artificial and untenable.

4. We have heard both the sides and perused the appeal records.

5. The point for decision is whether or not the appellant are liable to reverse proportionate credit on service tax attributable to generation of electricity which is sold outside by the appellant. Maintainability of demand for longer period and penalty also is to be decided. The appellants are procuring LNG and the supplier is paying service tax on the services of transport of gas through pipeline to the appellants. Such service tax is being availed as credit by the appellant. The LNG procured is used for generation of electricity by the appellants. Some portion of said power is sold outside for consideration. The Revenues view is that the service tax credit on transportation of gas attributable to the generation of electricity sold outside is not legally available to the appellants and is required to be reversed. Reliance is placed on Honble Supreme Courts decision in appellants own case (Supra). We find the Honble Supreme Court in the said case was dealing with reversal of credit of duty paid on inputs used in generation of electricity sold to outside units. The Honble Supreme Court findings in para 19 & 20 are as below:

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) E.L.T. 444 (S.C.) 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 Limited - 2007 (214) E.L.T. 481 (S.C.). 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) E.L.T. 3 (S.C.) 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.

20.?To sum up, we hold that the definition of input brings within its fold, inputs used for generation of electricity or steam, provided such electricity or steam is used within the factory of production for manufacture of final products or for any other purpose. The important point to be noted is that, in the present case, excess electricity has been cleared by the assessee at the agreed rate from time to time in favour of its joint ventures, vendors etc. for a price and has also cleared such electricity in favour of the grid for distribution. To that extent, in our view, assessee was not entitled to CENVAT credit. In short, assessee is entitled to credit on the eligible inputs utilized in the generation of electricity to the extent to which they are using the produced electricity within their factory (for captive consumption). They are not entitled to CENVAT credit to the extent of the excess electricity cleared at the contractual rates in favour of joint ventures, vendors etc., which is sold at a price.

6. We find that the appellants are striving hard to make a distinction to the effect that the above decision of the Honble Supreme Court will not apply to input services. We fail to appreciate such distinction. The service tax paid on transportation of gas to the power plant is allowed as credit subject to fulfillment of certain conditions. Rule 2(l) of the Cenvat Credit Rules 2004 states that input services should be used by a manufacturer directly or indirectly, in or relation to the manufacturer of final products. The appellants emphasis that as long as the input service is used by the manufacturer no portion of such credit can be denied. The Ld. Counsel for the appellant contended that while inputs are to be received in the factory of manufacture, in respect of input services it is with relation to receipt by the manufacturer of final products. In other words, the nexus test as applicable to inputs cannot be applied in full force in the case of input services. We find that we are unable to agree with such proposition. For an input service to be eligible for credit the condition that it should be used by the manufacturer whether directly or indirectly in relation to the manufacturer of final product is stipulated. Nexus test is not applicable to input services is not acceptable.

The tax paid on input services on transportation of gas is rightly eligible to the appellants as long as it is shown that the said gas transportation of which was subjected to service tax, was used in the production of electricity, in turn is used in or in relation to manufacture of dutiable final products. In the present case, the admitted fact is that electricity which is sold outside is not used in or relation to the manufacture of final product by the appellants. Consequently, the inputs and input services which are used in the production of such electricity sold outside will not be eligible for credit as they fall outside the ambit of input and input services as defined by Cenvat Credit Rules 2004. Here the service tax is paid on the inward transportation of gas used for power generation and there is no physical separation of supply lines or accounts to show which quantum of service tax is attributable to that gas used for electricity sold outside. Hence, it follows that proportionate to service tax attributable to the transportation of gas used for production of electricity sold outside has to be reversed.

This is clearly in terms of provisions of Cenvat Credit Rules 2004 interpreted and decided by the Honble Supreme Court in the appellants own case (Supra). We find that the appellants took a plea to the effect that the electricity is neither the excisable goods nor exempted goods, as such the bar of availing credit will not apply to input services used in relation to such electricity. This argument is untenable in view of the clear findings of the Honble Supreme Court on the question of electricity sold outside by the appellants. As such we find no merit in appellants contention against the reversal of proportionate credit of service tax attributable to the electricity sold outside.

7. The appellants also strongly contested the demand for extended period. We find substantial force in their plea. As noted in the show cause notice as well as in the impugned order the whole proceedings were initiated after an audit, and relying on the Honble Supreme Courts decision (Supra).

8. The Honble Supreme Court observed in the appellants own case that in view of repeated amendments in Cenvat Credit Rules resulting in huge amount of litigation, no penalty can be imposed on the appellant. We find in the present case the proceedings have been initiated only after the decision by the Honble Supreme Court in appellants case. This much has been stated in the notice as well as the impugned order. Hence, we find invoking extended period of demand alleging fraud and suppression etc on the part of the appellant is not sustainable. Accordingly we hold that while the demand of reversal of proportionate credit is sustainable for the normal period the demand for extended period along with penalty is to be set aside. We order accordingly.

9. The appeals are disposed of in the above terms.

(Operative part of the order pronounced in the open court)

(B. Ravichandran) (Ashok Jindal) Member (Technical) Member (Judicial)

Bhanu

8

E/3530-3531/2012/2012-EX(DB)