Consolidated Demand Of CENVAT Credit Worth Rs. 71 Crore on Electricity Sold to Power Utility Against Hindustan Zinc Quashed: CESTAT

The New Delhi Principal Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has allowed six appeals filed by Hindustan Zinc Ltd., setting aside a consolidated demand of over Rs. 71 crore along with interest and penalties arising from alleged irregular availment of CENVAT credit on inputs and input services used for electricity generation. The bench of Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) observed that where proportionate credit attributable to electricity sold to the State power utility is reversed, it amounts to non-availment of credit altogether, leaving no scope for recovery, interest, or penalty. The appellant/assessee, Hindustan Zinc Ltd., engaged in the manufacture of zinc ingots and lead, operates a captive power plant for electricity generation. The electricity generated was partly consumed within its manufacturing units, partly wheeled out to its sister concerns, and partly sold to Ajmer Vidyut Vitran Nigam Limited, the State electricity distribution company. During audit, the Central Excise department objected to the availment of CENVAT credit on inputs and input services used in generating electricity that was sold or transferred outside the manufacturing unit. Six show cause notices were issued covering periods from January 2011 to June 2015, proposing recovery of CENVAT credit along with interest and penalties under the CENVAT Credit Rules, 2004. By a common adjudication order dated 26 June 2024, the Commissioner, CGST & Central Excise, Udaipur, dropped the demand relating to electricity wheeled out to sister concerns, relying on earlier Tribunal and Rajasthan High Court rulings in the assessee’s own case. However, the Commissioner confirmed recovery of ₹71.35 lakh (as per adjudication computation) relating to electricity sold to the State Electricity Board, holding that Hindustan Zinc had failed to furnish adequate proof of proportionate reversal of credit. Penalties under Rule 15(1) and interest under Section 11AA of the Central Excise Act were also imposed. Challenging the order, Hindustan Zinc contended that it had suo motu reversed the proportionate CENVAT credit every month corresponding to electricity sold to the State utility. The reversals were supported by detailed worksheets submitted with replies to the show cause notices and were also reflected in the ER-1 monthly returns. It was argued that the adjudicating authority failed to consider documentary evidence already on record. The company further relied on settled Supreme Court jurisprudence that reversal of credit—even at a later stage—amounts to non-availment, thereby nullifying the basis for demand, interest, or penalty. The CESTAT observed that the Commissioner’s finding regarding non-furnishing of reversal details was contrary to the record, as the appellant had consistently disclosed reversals in replies and statutory returns. Relying on Supreme Court judgments in Chandrapur Magnet Wires Pvt. Ltd. and Precot Meridian Ltd., as well as its own earlier rulings in Hindustan Zinc’s cases, the Tribunal reiterated that reversal of CENVAT credit attributable to exempted or non-manufacturing use of electricity is equivalent to not taking credit at all. The Tribunal held that Rule 15(1) penalties can be imposed only where credit is wrongly taken or utilized. Since the credit had been reversed and not utilized, the penalty was unsustainable. Similarly, interest under Rule 14 read with Section 11AA could not survive once reversal is treated as non-availment. The Tribunal set aside the Commissioner’s order in its entirety, quashing the demand, interest, and penalties. The ruling reinforces the legal principle that procedural reversals of CENVAT credit, when duly accounted for, cannot be converted into tax demands, offering significant relief to manufacturers operating captive power plants. Case Details Case Title: M/s Hindustan Zinc Ltd. Versus The Commissioner Case No.: EXCISE APPEAL NO. 50668 OF 2025 Date: 15.01.2026 Counsel For Petitioner: Sukriti Das, Advocate Counsel For Respondent: Bhagwat Dayal, Authorized Representative Click Here To Read Order Read More: CA Certificate Alone Can’t Cure Failure to Upload LoAs/WCCs in Institutional Sales Bids: Delhi High Court

Consolidated Demand Of CENVAT Credit Worth Rs. 71 Crore on Electricity Sold to Power Utility Against Hindustan Zinc Quashed: CESTAT

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