A company cannot claim CENVAT credit on CVD paid by a separate legal entity.

The appellant, M/s The India Cements Ltd., manufactured dutiable cement and availed CENVAT credit under the CENVAT Credit Rules, 2004.

The disputed credit, amounting to ₹8,13,91,044, represented CVD paid on capital goods imported during 2004, 2005 and 2012 for establishing a captive power plant at Valantharavai, Ramanathapuram District.

The capital goods were imported by Coromandel Electric Company Ltd. (CECL), a separately incorporated special purpose vehicle formed to generate electricity for captive consumption by the appellant.

The appellant initially held 25% of CECL’s shares and subsequently acquired more than 51% shareholding.

The Commissioner confirmed recovery of ₹8,13,91,044, along with applicable interest and equal penalty under Rule 15(2) of the CENVAT Credit Rules, 2004 read with Sections 11A and 11AC of the Central Excise Act, 1944.

1. Whether the appellant was entitled to avail CENVAT credit of the CVD paid on capital goods imported by CECL, a separate legal entity?

2. Whether the demand of ₹8,13,91,044, together with applicable interest and penalty, was legally sustainable?

The Tribunal applied Rules 2(a)(1A), 3(1), 4(3), 14 and 15(2) of the CENVAT Credit Rules, 2004, holding that CENVAT credit is a statutory entitlement available only in accordance with the prescribed conditions and to the legally entitled manufacturer or service provider; credit cannot ordinarily be claimed by one corporate entity for duty paid on goods imported by another independent entity.

Recovery of inadmissible credit follows under Rule 14, while interest is compensatory and penalty may be imposed under Rule 15(2) read with Section 11AC of the Central Excise Act, 1944.

The Tribunal relied on the principle of separate corporate personality, holding that majority or controlling shareholding does not extinguish the separate legal identity of a subsidiary.

It distinguished Vikram Cement v. Commissioner of Central Excise, 2006 (197) E.L.T. 145 (S.C.), and Birla Corporation Ltd. v. Commissioner of Central Excise, 2005 (186) E.L.T. 266 (S.C.), because those cases concerned capital goods used within the integrated operations of the same assessee.

It also relied on TVS Motor Company Ltd. v. State of Tamil Nadu, 2019 (13) SCC 403, for the principle that tax credit is a statutory concession governed by legislative conditions and cannot be founded merely on equity, economic integration or business convenience.

The Tribunal held that the decisive question was not whether the capital goods were functionally connected with the appellant’s cement manufacturing operations, but whether the appellant could claim credit for duty paid by a different legal entity.

The Bills of Entry were in CECL’s name, CECL paid the customs duty and CVD, and the machinery remained installed in the power plant owned by CECL.

Although the appellant controlled CECL and consumed the electricity generated by it, those circumstances did not eliminate CECL’s independent corporate personality or create a statutory right in the appellant to claim CECL’s credit.

The Tribunal found that the specific statutory modes permitting credit where capital goods are acquired through lease, hire-purchase or loan arrangements did not apply because the appellant had neither imported the goods nor acquired them under a recognized arrangement under Rule 4(3).

The authorities cited by the appellant concerning captive mines, integrated manufacturing operations and liberal interpretation of credit provisions were distinguished as cases involving the same assessee, not cross-entity transfer of credit.

The earlier customs proceedings concerning CECL’s eligibility for concessional duty were also held irrelevant because they arose under a different notification and statutory scheme and did not determine entitlement under the CENVAT Credit Rules.

Since the credit was substantively inadmissible, the plea of revenue neutrality could not validate it; recovery, interest and penalty were consequently held sustainable.

It held that India Cements Ltd. was not entitled to avail CENVAT credit of the CVD paid on capital goods imported by CECL, notwithstanding the captive-power arrangement, controlling shareholding and economic integration between the companies.

The demand of ₹8,13,91,044, together with applicable interest and equal penalty under Rule 15(2) of the CENVAT Credit Rules, 2004 read with Section 11AC of the Central Excise Act, 1944, was upheld.

The appeal was dismissed and the Commissioner’s Order-in-Original dated 5 December 2014 was affirmed.