Proportionate CENVAT Credit Reversal Equals Non-Availment; CESTAT Delhi Quashes Demand Against Hindustan Zinc

The Principal Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi has set aside a more than ₹7.18 crore demand, along with interest and penalties, raised against Hindustan Zinc Limited over electricity wheeled out from its captive power plant to sister concerns and the state distribution utility.

A coram of President Justice Dilip Gupta and Technical Member P. Anjani Kumar held that the reversal of proportionate CENVAT credit attributable to such electricity amounted to non-availment of credit.

“No duty was payable by the appellant under section 11A of the Central Excise Act as the amount of credit availed by the appellant on the sale of electricity sold to the State Electricity Board had been reversed as reversal of credit amounts to not taking credit at all.”

The dispute arose after the department alleged that Hindustan Zinc had availed CENVAT credit on furnace oil, capital goods and input services used in its captive power plant generating electricity, part of which was consumed internally and part wheeled out or transferred to sister concerns and AVVNL.

According to the department, the company failed to maintain separate records for capital goods, inputs and input services used for dutiable and exempted goods, making it liable to pay 5%/6% of the value of electricity wheeled out or sold.

Three show cause notices covering the period 2011-12 to June 2017 demanded amounts aggregating to over ₹7.18 crore along with interest and equal penalties.

Before the Tribunal, Hindustan Zinc contended that it had already reversed proportionate CENVAT credit attributable to electricity sold to sister concerns and AVVNL and had informed the department of such reversals from time to time.

The company argued that once a proportionate reversal was made, it amounted to non-availment of credit in view of Supreme Court rulings in Chandrapur Magnets Private Limited and Precot Meridian Limited.

The department attempted to distinguish earlier rulings in Hindustan Zinc's favour by arguing that Rule 14 recovery provisions had specifically been invoked in the present matter.

Rejecting the submission, the tribunal held that those decisions were based on settled jurisprudence relating to reversal of credit and not merely on procedural grounds.

For Appellant: Advocates Sukriti Das and Arushi Prabhakaran

For Respondent: Bhagwat Dayal, Authorized Representative