2008 (10) TMI 112 - AT - Service Tax

Input service stay of pre-deposit - credit of service tax paid on account of erection/commissioning and maintenance of windmill projects power generated is utilized in mfg. of final product credit denied on ground that there was no nexus between the windmills and the production process in the factory merely because windmills are situated at a distance from factory credit cannot be denied - appellant has made a prima facie case against the demands and penalties in the orders impugned

Issues Involved:
1. Waiver of pre-deposit and stay of recovery of service tax credit.
2. Nexus between windmills and production process in the factory.
3. Eligibility for CENVAT credit on input services related to windmills.
4. Alleged wrong availment of credit pertaining to sister units and double credit.
5. Imposition of penalties and demand for interest.

Issue-wise Detailed Analysis:

1. Waiver of Pre-deposit and Stay of Recovery of Service Tax Credit:
The applications were filed by M/s. L.G. Balakrishnan & Bros Limited (LGB) seeking waiver of pre-deposit and stay of recovery of service tax credit demanded under Rule 14 of the CENVAT Credit Rules, 2004 (CCR) read with Section 11A of the Central Excise Act, 1944 (the Act) along with interest and penalties of equal amount imposed under Rule 15 of the CCR read with Section 11AC of the Act. The Tribunal granted waiver of pre-deposit and stay of recovery of the adjudged dues till the final disposal of the appeal, noting that the appellants had made a prima facie case against the demands and penalties.

2. Nexus Between Windmills and Production Process in the Factory:
The Tribunal considered whether services received at windmills qualified as input services of the appellants. The appellants argued that every service used directly or indirectly in relation to the manufacture of final products was covered by the definition of input service, regardless of whether the input service was received or used in the factory. The Tribunal highlighted that the definition of input service included services in relation to activities relating to business, which would cover services received at the windmills, as the electricity generated was used in the manufacture of excisable goods.

3. Eligibility for CENVAT Credit on Input Services Related to Windmills:
The Tribunal examined the appellants' eligibility to take CENVAT credit of tax paid on input services connected with the business of a manufacturer. The Tribunal referred to various case laws supporting the appellants' claim, including CCE, Hyderabad v. Deloitte Tax Services India Pvt. Ltd., where it was held that the scope of input service was wide and included various services used in relation to business. The Tribunal concluded that the appellants were eligible to take CENVAT credit of service tax paid on services related to windmills, as the power generated was used in their manufacturing facility.

4. Alleged Wrong Availment of Credit Pertaining to Sister Units and Double Credit:
The appellants submitted that the credit alleged to have been taken in respect of service tax paid by their sister units had already been reversed, and the same could not be demanded again. The Tribunal noted that the notices demanded erroneously credit of service tax availed twice, accounting for a demand of Rs. 1,57,664/-. The Tribunal found that the appellate authority had not verified the appellants' claim in this regard and instead affirmed the demand.

5. Imposition of Penalties and Demand for Interest:
The appellants argued that the alleged wrong availment of credit had taken place due to an interpretation different from that held by the department regarding their eligibility. Therefore, the penalty imposed was not sustainable. The Tribunal referred to the case of Hindustan Steel Limited v. State of Orissa, where it was held that penalty could not be imposed on the appellants if the demand of service tax credit was not sustainable. The Tribunal also noted that Section 11AC had no application as CENVAT credit in respect of inputs or capital goods was not the issue involved. Consequently, the Tribunal found that the penalty imposed under Section 78 was not sustainable, and the demand for interest was not payable.

Conclusion:
The Tribunal concluded that the appellants had made a prima facie case against the demands and penalties. Accordingly, the Tribunal granted waiver of pre-deposit and stay of recovery of the adjudged dues till the final disposal of the appeal.

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