Cenvat Credit on Repair & Maintenance of Windmills situated outside Factory

PJ/Case Laws/2011-12/1506

Case: Endurance Technologies Pvt. Ltd. Vs CCE, Aurangabad

Citation: 2011-TIOL-1045-CESTAT-MUM

Issue:- Cenvat Credit of Service tax on Repair and maintenance service utilized for windmills situated outside factory for producing electricity – admissibility of.

Brief Facts:- Assessee is engaged in the manufacture of excisable goods viz. motor vehicle parts falling under Chapter 87 of Central Excise Tariff Act, 1985. The assessee availed CENVAT credit of Service Tax paid on repairs and maintenance service of their wind mills situated at Waluj, Aurangabad.

Proceedings were initiated against the assessee on the ground that they availed inadmissible CENVAT credit for the period from (i) 01/12/2006 to 01/01/2008, (ii) 01.04.2005 to 01.09.2006, (iii) Feb 2008 to March 2009 in their factory at Waluj, Aurangabad.

A show-cause notice was issued for recovery of CENVAT credit along with interest and imposition of penalty under Rule 15 of Cenvat Credit Rules, 2004 read with section 11AC of the Central Excise Act, 1944 stating that the above services cannot be treated as input services of the assessee as defined under Rule 2(1) of the CENVAT Credit Rules, 2004 as these services are utilized for repair and maintenance of wind mills installed at Supa and Satara which are far away from their factory at Waluj, Aurangabad.

The lower adjudicating authority confirmed the demand along with interest and also imposed a penalty of Rs.6, 66,856/-.

The Commissioner (Appeals) upheld the lower adjudicating authority's order to the extent of confirmation of demand and interest; however he has set aside the penalty imposed under rule 15 of the CENVAT Credit Rules, 2004 read with section 11AC of the Central Excise Act, 1944.

The assessee is in appeal against the confirmation of demand and interest and the department is challenging the setting aside of the penalty.

Appellant’s Contention:- The services in connection with maintenance of wind mills are exclusively used in relation to manufacturing activity and, therefore, are squarely covered under the definition of “input service”. Input service covers not only services used directly or indirectly in or in relation to the business of manufacturing of the final product and in their case the repair and maintenance service has nexus with the upkeep of their wind mills which is used for generation of electricity which in turn is used in their factory and they are fully covered under the definition of ‘input service' under CENVAT Credit Rules, 2004.

As regards the allegation of suppression of facts, they submits that they have been filing their Excise returns, Service Tax returns in time and the records have been audited by Excise officers and are having knowledge of their all activities. Under such circumstances, the allegation of suppression of facts is not sustainable and the extended period also cannot be invoked. In support of their contention they placed reliance on the decision of the Hon'ble Bombay High Court in the case of CCE vs. Ultratech Cement Ltd. 2010(260)ELT 369(Bom.).

Respondent’s Contention:- The service is not used in or in relation to the manufacture of final product. Respondent further submitted that the “input service” should be used in the premises of the factory, like inputs. In the case of repair and maintenance service used in the wind mill which is situated far away from the manufacturing unit is not permissible. The assessee has availed this credit by suppressing the facts therefore penalty is rightly imposable against them.

Reasoning of Judgment:- The CENVAT credit availed on Service Tax paid on input service used in maintenance of wind mill located at Supa and Satara, which was availed by their manufacturing unit situated at Waluj, Aurangabad on the ground that no services used by the manufacturer directly or indirectly or in relation to manufacture of their final products. From the definition of Input service defined under Rule 2(1) (ii) of Cenvat Credit Rules, 2004, it follows that the said definition not only covers services which are used directly or indirectly in or in relation to manufacture of final products and also includes other services, which have direct nexus or which are integrally connected in business of manufacture of final products.

Input services rendered for maintenance of wind mills for generation of electricity is not in dispute. The electricity so generated is used in the manufacture of final products. Therefore, the service falls under the definition of input service. As regards input service used at different place it is pertinent that there is no mandate in law that it should be used in the factory unlike inputs, which is clear from Rule 4(1) and 4(7) of the CENVAT Credit Rules, 2004.

The Tribunal in the case of Indian Rayon & Ind. Ltd. (supra) has held that no such stipulation regarding receipt of input service, which is separately defined under the rules is provided. The Hon'ble High Court in the case of Ultratech Cement Ltd. (supra) has held that the definition of input service read as a whole makes it clear that the said definition not only covers services, which are used directly or indirectly in or in relation to the manufacture of final product, but also includes other services, which have direct nexus or which are integrally connected with the business of manufacturing the final product. In the case of Commissioner of Central Excise, Nagpur vs. Ultratech Cement Ltd., this Tribunal has held that the denial of CENVAT credit on the ground that services were not received by the respondent in factory premises is not sustainable.

In view of the above, the Tribunal does not find any reason to interfere with the order of the learned Commissioner (Appeals) so far as it relates to confirmation of demand and interest is concerned. It is agreed that the contention of the appellant is right that once the demand is not sustainable, penalty is not warranted.

Decision:- Appeal allowed.

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PJ/Case Laws/2011-12/1506

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