Thursday, January 23, 2014

Cenvat credit available for fuel used by one unit to generate power for consumption by two manufacturing units

Fuel used for generation of electricity, a part of which is also supplied to another unit of same  manufacturer, is eligible for credit as input; assessee is not required to have two separate power facilities for two different units.
a)  The Assessee was availing of Cenvat credit of duty paid on Furnace Oil used as fuel in DG sets for generation of electricity. A part of electricity so generated was supplied to another unit engaged in manufacture of Polymer Chips, which was main input of the assessee;
b)  The Department denied proportionate credit on Furnace Oil used in generation of electricity consumed by the other unit.
The High Court held in favour of assessee as under:
1)  Tax law should be interpreted in conformity with normal commercial practice. Therefore, the manner of 'use' , should be accepted as to economical, efficient and convenient manner of 'use' because a contrary interpretation would lead to frustrating purpose of law in granting credit;
2)  Generation of electricity in one unit for use in all neighbouring units of a manufacturer is more efficient and economical than setting-up generating facility at each and every factory;
3)  So long as factory and manufacturer are one, credit cannot be denied merely because of separate registration and/or different line of production as there is no such statutory regulation or rule;
4)  It is logical that if two units are being run at one place, producing two different items and electricity is supplied to both of them by a common generator; credit benefit shall be available in respect of both the manufacturing units, unless statutorily provided otherwise; and

5) It was neither expedient nor desirable unless provided otherwise statutorily to have separate electricity generating sets for different manufacturing units. Accordingly, credit was to be allowed. - Commissioner of Customs & Central Excise, Noida, U.P v. Jindal Polyester [2014] 41 173 (Allahabad)