“Madras HC: CENVAT Credit for Sister Unit Electricity”

Introduction:

The Hon’ble Madras High Court recently ruled in the case of India Cement Limited v. Commissioner of Customs regarding the eligibility of CENVAT credit for electricity supplied to sister units. This landmark decision addresses the interpretation of relevant provisions under the Central Excise Act and CENVAT Credit Rules.

Key Points:

1. Background: India Cement Limited operated a Captive Power Plant (CPP) within its factory premises and supplied electricity to sister units engaged in manufacturing cement. The Revenue Department disputed the eligibility of CENVAT credit for coal imported to generate electricity, leading to a Show Cause Notice and subsequent legal proceedings.
2. Legal Analysis: The court analyzed the definition of ‘input’ under the CENVAT Credit Rules, particularly focusing on the period in question (September 2012 to May 2013) and the substituted definition of ‘input’ which includes goods used for generating electricity for captive use.
3. Interpretation of ‘Input’: The court emphasized that electricity generated for captive use qualifies as an ‘input’ regardless of the specific location where it is used. It distinguished between goods used in the factory for manufacturing final products and those used for generating power, highlighting the inclusive nature of the definition.
4. Precedent and Substitution: The court referred to previous rulings and the substitution of the definition of ‘input’ effective from April 01, 2011. It underscored the importance of considering the purpose and benefit of setting up a Captive Power Plant, which should extend to the Appellant and its sister concerns.

Conclusion:

The Madras High Court’s decision clarifies the eligibility of CENVAT credit for electricity supplied to sister units within the framework of the Central Excise Act and CENVAT Credit Rules. By recognizing the substantial cost involved in setting up a Captive Power Plant and its intended benefit to the entire group, the court upholds the principle of fair treatment and operational efficiency for businesses operating under similar arrangements.