A. BRIEF FACTS

A.1    The Appellant in their factory at Deoband, District Saharanpur manufacture sugar and molasses chargeable to Central Excise Duty. On the other side of the road just opposite sugar mills of the Appellant, there is co-generation power plant which generated power by burning bagasse generated by sugar mill in the course of crushing of sugar cane. The co-generation power plant is connected through overhead conveyer by which bagasse is transferred to co-generation power plant which is used for generation of electricity.  The electricity generated is used in the sugar mill for its entire operation and surplus electricity was being sold to the state electricity board.

A.2    The dispute in this case is about eligibility for Cenvat Credit of various items of capital goods received by the Appellant for setting up co-generation power plant and also various input service covered by Rule 6 (5) of Cenvat Credit Rules, 2004 which was utilized in respect of co-generation power plant.

A.3    Another issue is whether common Central Excise Registration could be granted under Rule 9 of Central Excise Rules, 2002 to the sugar mill as well as co-generation power plant.  The Appellant applied for common Central Excise Registration claiming the co-generation plant is part of the factory premises (sugar mill).  The Assistant Commissioner rejected the request of the Appellant for common registration and this order of the Assistant Commissioner was upheld by the Commissioner (Appeals) vide Order-in-Appeal dated 31.7.2007 observing that the electricity is used only to run the machines to produce sugar and molasses and the electricity  is  not semi finished goods used in the manufacture of final product of the sugar mill and therefore there is no interlinked process involved herein in this case and accordingly co-generation plant cannot be considered as an extended premises of sugar mill. The Commissioner (Appeals) while rejecting the request for common registration for sugar mill and co-generation power plant, also observed that the raw materials are not common of the two units, because in case of sugar unit the main raw material is sugar cane which has nothing to do with generation of power plant.

A.4    Since the Appellant request for common Central Excise Registration for sugar mill and co-generation power plant was rejected, the Department was of the view that the capital goods meant for co-generation power plant have not been used within the factory of manufacturer, and therefore the same would not be eligible for credit and similarly input service credit on the services of installation, erection and commissioning of plant and machinery of co-generation plant, and repair and maintenance of co-generation plant covered by rule 6 (5) of Cenvat Credit Rules ,2004 would not be eligible for Cenvat Credit. Accordingly the Commissioner vide Order-in-Original confirmed the capital goods credit demand of Rs.2,06,86,247/- along with interest on it under section 11AB and besides this, imposed penalty of equal amount under Rule 15(2) of Cenvat Credit Rules, 2004.

A.5    Subsequent to the above order passed by the Commissioner, the Assistant Commissioner passed 10 orders confirming the capital goods credit demand/input service demand of different amounts and these orders were upheld by the Commissioner (Appeals).

B. SUBMISSIONS OF THE APPELLANT

B.1    The learned Counsels representing the Appellant, pleaded that the Cenvat Credit would be admissible in respect of capital goods which are used in the factory of the manufacturer receiving them for the manufacture of final products, that co-generation power plant in which the capital goods, in question, have been used and in respect of which the services of  installation, erection and commissioning of plant and  machinery, and repair and maintenance of plant covered by Rule 6 (5) of Cenvat Credit Rules, 2004 have been used, is part of sugar mill, that just because of sugar mill and co-generation power plant located opposite the factory are separated by a public road, the two cannot be treated as two different factories premises.

B.2    That in terms of Boards  supplementary instructions issued under Rule 31 of Central Excise Rules,2002, separate registration is required in respect of separate premises, except in cases where two or more premises are actually part of the same factory (where processes are interlinked), but are segregated by public road, canal, or railway-line, that in the supplementary instructions examples have been given where two more premises treated as part of the same factory such as, (a)  interlinked process when the products manufactured/produced in one premises are substantially used in other premises for manufacture of final products, (b) large number of raw materials being common and received/proposed to be received, commonly for both/ all the premises, (c) common electricity supply, (d)  common labour/work force, (e) common administration/work management, (f) common sales tax registration and assessment, (g) common income tax assessment and (h) any other factor as may be indicative of inter-linkage of the manufacturing process.

B.3    That the sugar mill and co-generation power plant connected through overhead conveyor  by which bagasse is transferred to co-generation power plant where it is used in the boiler  for generation of electricity constitute one factory as the electricity generated in the co-generation power plant is used in the factory only and the surplus electricity is sold to state electricity board, that the premises of sugar mill and its co-generation power plant are interlinked and as such the operation of the sugar mill is dependent upon the electricity generated by the co-generation power plant and the operation of co-generation power plant is dependent upon the supply of bagasse received from the sugar mills.

B.4    That in view of this, that the order of Commissioner (Appeals) upholding denial of common registration is totally incorrect, that once the sugar mills and co-generation power plant are treated as part of the same factory, credit in respect of capital goods and input service covered by Rule 6(5) would be admissible.

B.5    The learned Counsels relied on the Tribunals decision in the case of  Konark Met Ltd. vs. CCE, Bhuvaneswar-I-2007 (207) ELT 470 (Tri.-Kol.) wherein it was held that when the electricity generated in the power plant, which was not located within the same factory premises of KML Met Ltd. located outside but the electricity generated in the power plant was used in the KMCL, Cenvat Credit of capital goods used in the power plant would be admissible, that the ratio of this decision of the Tribunal is squarely applicable to the facts of this case, that just because a part of electricity was sold to State Electricity Board, Cenvat Credit cannot be denied, that Hon’ble Chhattisgarh  High Court in the case of  Union of India vs. HEG Ltd.-2012 (275) ELT 316 (Chhattisgarh) has held that even when the capital goods were used in the power plant when major portion of electricity so generated was sold outside through distribution lines of MPEB and only a part of electricity generated in the factory for manufacture of sponge iron, which is not exempt, the credit in respect of capital goods used in the power plant would be admissible, that the Tribunal in the case Nizam Deccam Sugars Ltd., Hyderabad vs. CCE, Hyderabad-2008-TIOL-764-CESTAT-BANG has held that the credit in respect of the capital goods used in the co-generation plant of sugar mill, cannot be denied,  even if during the off season period, the power generated is sold to the Andhra Pradesh Electricity Power Grid in terms of the agreement entered into between the sugar mill and the Electricity Board, that as regards the credit in respect of services of installation, erection and commissioning of plant and machinery and repair and maintenance of plant, etc. covered by rule 6 (5) of Cenvat Credit Rules ,2004 during the period prior to 1.4.2011, when Rule 6(5) was there, in terms of Rule 6(5) in respect  all the services  covered by the sub-rule (5), the Cenvat Credit was admissible to the appellant on these services, when the services had been exclusively used in or in relation to the manufacture of exempted final products while this is not so in the present case, and that in view of above , the impugned orders are not sustainable.

C. SUBMISSIONS MADE BY THE DEPARTMENTAL REPRESENTATIVE

C.1    The learned DR, defended the impugned order by reiterating the findings of the Commissioner (Appeals) and pleaded that as regard the question as to whether the sugar mill and co-generation power plant are to be treated as one factory in terms of Boards supplementary instruction issued under Rule 31 of Central Excise Rules, 2002 for issue of common Central Excise Registration, the request for common registration of factory premise has been correctly rejected. He pleaded that since the common registration request has been denied to sugar mill and co-generation plant, the capital goods used in the co-generation power plant and input service covered by Rule 6(5) of Cenvat Credit Rules, 2004 used in  respect of power plant would not admissible the Cenvat Credit. He, therefore, pleaded that there is no infirmity in the impugned order.

D. HELD

D.1    After hearing both the sides, the main dispute in this group of Appeals is as to whether common registration under Rule 9 of Central Excise Rules, 2002 can be issued to sugar mill and its co-generation power plant which are separated by a public road.  In this case, there is no dispute about the fact that the sugar mills and co-generation power plant separated by a public road are connected through overhead conveyor by which bagasse is generated in the sugar mill is transferred to co-generation power plant where it is used in the boiler for generation of steam which is used for generation of electricity. The electricity generated is used in the sugar mill in its various parts and surplus electricity was sold to the state electricity board.  In terms of supplementary instructions issued by the board under Rule 31 of Central Excise Rules, 2002 (Chapter 2 of CBECs Excise Manual of Supplementary Instructions, 2005) separate Central Excise Registration is required in respect of separate premises except in cases where two or more premises are actually part of the same factory (where processes are interlinked), but are segregated by public road, canal, or railway-line.  In para 3.2 of supplementary instructions examples have been given where two or premises can be treated as part of the same factory and these examples are, (a)  interlinked process, (b) products manufactured/produced in one premises are substantially used in other premises for manufacture of final products, (c) large number of raw materials are common and received/proposed to be received commonly for both/ all the premises, (d) common electricity supply, (e) there is common labour/work force, (f) common administration/work management, (g) common sales tax registration and assessment, (h) common income tax assessment and (h) any other factor as may be indicative of inter-linkage of the manufacturing process. In our view, when sugar mill and co-generation power plant are connected through overhead conveyor  by which bagasse generated in the sugar mill is transferred to co-generation power plant where it is used in the boiler for generation of electricity and the electricity generated in the co-generation power plant is used in the sugar mill for its operation and only surplus electricity is sold to the state electricity board and when it is not disputed that administrations/work management of the sugar mill and co-generation power plant is common, the functioning of the sugar mill and its co-generation plant located across  the public road has to be treated as interlinked and the two have to be treated as one factory. The Commissioner (Appeals) findings in the impugned order on the functioning of the sugar mill and co-generation power plant that the two are totally incorrect.  In our view, the reasons have been given by the Commissioner (Appeals) for upholding denial of common registration for sugar mill and co-generation power plants are absurd. Therefore, we have no hesitation to set aside the Order-in-Appeal NO.157/2007 dated 31.7.2007 passed by the Commissioner (Appeals) and similar findings given by the Commissioner in the Order-in-Original No.09-14/2007 dated 23.2.2007.

D.2    Since in our view, the sugar mills and co-generation power plant even though separated by a public road have to be treated as one factory as their operations are interlinked and common registration has been wrongly denied to them, the appellant would be eligible to credit on capital goods used in the co-generation power plant. Similarly, they are also eligible for credit of service tax paid on installation, erection and commissioning of machine, plant, repair and maintenance of plant, etc. which have been used in the co-generation power plant.  One of the reasons given by the Department for denying inputs service credit that the services are covered by rule 6 (5) of Cenvat Credit Rules, 2004 is that during off season the electricity generated in the co-generation power plant  is not used for manufacture of excisable goods but it is sold outside. In this case, no evidence  has been produced to show that co-generation power plant was functioning during off season when there is no supply of bagasse generate in the course of crushing of sugar cane and other fuel like diesel, furnace oil.  Moreover, the Tribunal in the case of Nizam Deccam Sugars Ltd. (supra) has held that even if power generated in the co-generation power plant is partly is used in sugar mill and partly is sold during the off season and the power generated is sold to the Andhra Pradesh Electricity Power Grid in terms of the agreement entered into between the sugar mills and the Electricity Board, the credit on the capital goods used in their co-generation plant of sugar mill is admissible.  The ratio of this judgment of the Tribunal is squarely applicable to the facts of the present case.  In view of this, the impugned orders are not sustainable.  The same are set aside and the appeals are allowed.

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