2018 (4) TMI 1384 - AT - Central Excise

CENVAT credit - input services - operation, maintenance, repair and insurance charges of windmill installed out side the factory premises - tripartite wheeling and banking agreement between the appellant company, Suzlon Energy Limited and Jaipur Vidyut Vitran Nigam Limited - Held that - the appellant is drawing the power in exchange at their factory in lieu of the power injected in the grid which is located at a distance and they are required to pay only the wheeling/grid charges - the appellant is indirectly receiving power in their factory which is one of the factors of production, without which they cannot manufacture their dutiable outputs. Issue squarely covered by the decision in the case of Parry Electronics and Engg. Pvt Ltd 2016 (1) TMI 546 - CESTAT AHMEDABAD wherein it has been held that in case of Windmills located away from the factory and electricity generated is surrendered to the grid and the same is withdrawn in the factory from the grid, Cenvat credit is available for the services received and used at the windmills located away from the factory. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Disallowance of Cenvat credit for service tax on windmill operation, maintenance, repair, and insurance charges.
2. Appeal against the order allowing the disallowed credit on the grounds of location and relationship to manufacturing activity.
3. Interpretation of the 'input service' definition under Rule 2(l) of the Cenvat Credit Rules, 2004.
4. Application of the 'wheeling and banking agreement' in relation to power generation and consumption.

Analysis:
1. The appellant, engaged in manufacturing various chemicals, claimed Cenvat credit for service tax on windmill operation and maintenance charges. The Adjudicating Authority disallowed the credit, citing the operation of windmills outside the factory premises as not constituting an input service under Rule 2(l) of the Cenvat Credit Rules, 2004. A penalty was also imposed under Rule 15(1) of the same Rules.

2. The Revenue appealed the order, arguing that the windmill services were not related to the manufacturing activity at the appellant's factory due to the distant location of the windmills. The Commissioner (Appeals) had allowed the credit, contending that the service tax was wrongly disallowed. The Revenue emphasized the lack of connection between the windmill services and the manufacturing unit.

3. The Revenue's position was supported by the argument that the electricity generated by the windmills was injected into the power grid and not directly utilized in the manufacturing process. The Revenue urged that such electricity did not contribute to the manufacture of dutiable goods at the factory. The dispute centered on the interpretation of the term 'input service' under the Cenvat Credit Rules, 2004.

4. The Tribunal examined a 'wheeling and banking agreement' involving the appellant, Suzlon Energy Limited, and Jaipur Vidyut Vitran Nigam Limited. The agreement allowed the appellant to set up windmills for power generation, inject power into the grid, and draw power at their factory in exchange. The Tribunal referenced specific clauses of the agreement related to wheeling, banking of energy, meter reading, sealing, billing, and record-keeping. The appellant's counsel relied on a precedent where Cenvat credit was allowed for services used at windmills located away from the factory.

5. The Tribunal found that the dispute was akin to the precedent cited, where Cenvat credit was permitted for services utilized at windmills distant from the factory. Consequently, the Tribunal allowed the appeal, granting the appellant consequential benefits as per the law.

In conclusion, the judgment addressed the disallowance of Cenvat credit for windmill services, the location-based appeal, the interpretation of 'input service,' and the application of the wheeling and banking agreement in the context of power generation and consumption.