2014 (1) TMI 614 - AT - Service Tax

Denial of credit of service tax Tax paid on input service used in or in relation to the generation of electricity in a captive power plant Waiver of Pre-deposit Held that - The adjudicating authority denied the credit in respect of service tax paid on the taxable services which are used in or in relation to generation of electricity - Part of such electricity was sold outside the factory - The applicants are availing proportionate credit in respect of the service tax paid on the taxable services which are used in or in relation to manufacture of goods - the applicants are availing only proportionate credit in respect of the taxable services which are used in or in relation to generation of electricity which is, further used in the manufacture of excisable goods thus, the applicants made out a prima facie case for waiver of pre-deposit pre-deposits waived till the disposal Stay granted.

Summary

Issues: Application for waiver of pre-deposit of duty, interest, and penalty; denial of credit in respect of service tax paid on input services used in or in relation to the generation of electricity in a captive power plant.

Analysis:
1. The applicant filed an application for waiver of pre-deposit of duty, interest, and penalty amounting to Rs. 1,69,77,363. The demand was confirmed after denying credit for service tax paid on input services used in or in relation to the generation of electricity in a captive power plant.

2. The applicant contended that they were availing proportionate credit for input services used in generating electricity, part of which was used in manufacturing final products and part was sold to a state electricity corporation. The denial of credit by the adjudicating authority was challenged based on the argument that input services used in generating electricity are indirectly used in manufacturing final products cleared on payment of duty.

3. The Revenue argued that the applicant did not follow the provisions of Rule 6 of the Cenvat Credit Rules for availing proportionate credit and failed to inform the Revenue about it. Additionally, the Revenue claimed that the applicant did not disclose the sale of electricity to the state electricity corporation, justifying the demand.

4. The Tribunal found that the denial of credit for service tax paid on taxable services used in generating electricity, part of which was sold outside the factory, was not justified. The applicant was availing proportionate credit for taxable services used in manufacturing goods. The Tribunal held that the Revenue's arguments during the hearing were not sufficient to deny credit. As the applicant was availing proportionate credit for taxable services used in generating electricity for manufacturing excisable goods, the Tribunal granted waiver of pre-deposit and stayed the recovery during the appeal process. The stay petition was allowed.