2007 (9) TMI 34 - AT - Service Tax

Cenvat credit - Revenue contended that appellant is not entitle for credit of service tax on the ground that there is no nexus between the electricity generated and manufacturing activity undertaken - Held that credit not admissible to appellant

Summary

Issues:
- Admissibility of service tax credit for services availed for windmills away from the factory site.

Analysis:
The appellant, a manufacturing unit, set up windmills at a location distant from their factory. They availed services for installation, erection, and commissioning of the windmills. The electricity generated at the windmills was fed to the grid of Gujarat Electricity Board, and the appellant received an equal quantity of electricity at the factory site. The appellant claimed service tax credit for the services availed at the windmill station. The original authority and the Commissioner (Appeals) held that the service tax paid for services related to windmills away from the factory site cannot be credited.

The appellant argued that as per Rule 2(1) of the Cenvat Credit Rules, 2004, services used directly or indirectly in or in relation to the manufacture of the final product are considered input services. They contended that electricity is a crucial input required for manufacturing, and since they generated electricity at a distant location for their own use, the credit for service tax paid should be allowed. On the other hand, the SDR contended that there was no nexus between the electricity generated at the distant location and the manufacturing activity at the factory. The electricity was received through the Gujarat Electricity Board and was not excisable, hence service tax credit should not be permitted.

The Tribunal considered both arguments and observed that if electricity was generated within the factory premises, the service tax credit would be permissible. However, in this case, electricity was generated far away from the factory premises and was not excisable. The electricity generated was surrendered to the Electricity Board, and the quantity used need not match the quantity produced. Therefore, the services used at the windmill site could not be classified as input services for the unit in Jamnagar. As electricity was not excisable, Cenvat credit was deemed inadmissible even at the windmill premises. The Tribunal upheld the decision that the Cenvat credit claimed was not allowable.

Regarding the penalty, the Tribunal noted that the issue was one of interpretation, and found no justification for imposing a penalty. Consequently, the appeal was rejected, except for setting aside the penalty imposed.