Electricity Supplied To State Board Not Eligible For CENVAT Credit: CESTAT Chandigarh

The Chandigarh Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that a manufacturer is not entitled to CENVAT credit on fuel used to generate electricity that is wholly supplied to the State Electricity Board (SEB), even if an equivalent quantity of power is later received back through a synchronisation arrangement.

A Bench of Judicial Member S.S. Garg and Technical Member P. Anjani Kumar observed that since the electricity generated using the inputs was entirely supplied to the grid and not used in the factory, credit on such fuel was not admissible.

The Bench opined that "the appellants are eligible for Cenvat Credit on the inputs used in the generation of steam used in the manufacture of electricity which is used in the factory of production, credit of inputs used in electricity which is not used in the factory of production is not admissible."

Jindal Stainless Ltd. (appellant) had set up a captive power plant with diesel generator sets to address power shortages. The electricity generated was unstable and unsuitable for use in furnaces and mills, and the company entered into synchronisation agreements with the Haryana SEB, under which electricity from the captive plant was injected into the grid and stable power drawn back, subject to 10% wheeling charges.

The appellant had availed CENVAT credit on furnace oil and other inputs used in generation, but the department issued multiple show cause notices, alleging that the electricity was cleared outside the factory and the credit was therefore inadmissible. The Commissioner confirmed a demand of approximately 6.58 crore with interest and imposed penalties.

The Tribunal observed that the electricity generated by the appellant was admittedly unusable in the factory and was entirely supplied to the grid.

The receipt of stable electricity from the grid in exchange constituted valuable consideration. Such a transaction, though described as synchronisation or wheeling under the Electricity Act, amounted to a sale or barter of electricity under the Central Excise law.

In the case at hand, the Tribunal opined that the transaction involves supply of the entire electricity being unsuitable to be used in the factory of the appellants in the production of excisable goods, to the grid and receiving the stable power from the grid in return. The electricity the appellants receive from the grid is the consideration.

The Bench stated:

"The term 'sale' is to be understood in the context of the Central Excise Act or Sale Tax Act, GST Act etc. as applicable to goods. It is not denied that Electricity is goods.........., transfer of goods for a consideration constitutes a sale."

On limitation, the Tribunal noted that the department was aware of the captive generation and wheeling arrangement, audits had been conducted, and declarations filed by the appellant. In the absence of any suppression or intent to evade duty, the extended period could not be invoked.

Accordingly, the Tribunal set aside the demand in the show cause notice as time-barred and quashed all penalties, while upholding the denial of CENVAT credit for the remaining period.

For Appellant: Advocates, B.L. Narasimhan, Amar Pratap Singh and Mahesh Singh

For Respondent: Authorised Representatives, Aniram Meena and Amita Gupta