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.
Facts:
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 taxmann.com 173 (Allahabad)