Denial of Cenvat Credit on services not received within factory premises

PJ/Case Laws/2011-12/1561

Case: MAHARASHTRA SEAMLESS LTD. v/s COMMISSIONER OF C. EX., RAIGAD

Citation: 2012 (25) S.T.R. 167 (Tri.-Mumbai.)

Issue:- Whether denial of Cenvat credit on the ground that services were not received by the respondent in factory premises is sustainable?

Brief Facts:- The manufacturing unit of the appellant is located in Nagothane, Raigad District and they are engaged in manufacturing of excisable goods falling under Chapter 73 of Central Excise Tariff Act, 1985. They availed CENVAT credit amounting to Rs. 3,45,836/- and Rs. 4,25,185/- on various services rendered for their wind mill farm situated in Satara District. During the audit of CENVAT records of the appellant, department found that the appellant is not eligible for CENVAT credit, on the service tax paid on the inputs services used at their wind mill situated at Satara, and availed at their manufacturing unit at Raigad. The proceedings against them were initiated accordingly. The lower adjudicating authority confirmed the various proposals in the show-cause notice. The appellants challenged the same before the Commissioner (Appeals), who upheld the lower adjudicating authority's order of confirmation of demand of CENVAT credit along with interest and imposition of penalty of equal amounts.

Appellant’s Contention: - The appellant contended that they have availed CENVAT credit on Service tax paid on input services for maintenances of wind mill at Satara. The electricity generated at Satara is transmitted to MSEB Power Grid at Satara and in turn equal quantum of electricity are credited to MSEB Pen circle from where their company is supplied power for the manufacturing of finished goods. She further submitted that in case of input services, there is no mandate under the definition that input services should be used in factory of manufacturing alone. They tried to distinguish from definitions 4(1) & 4(7) that there is a requirement that inputs should be used in the factory whereas same is not the case with input service. Therefore, the ground taken by the department that service tax paid on the input services, which is not used in the factory is not sustainable. The electricity transmitted to MSEB is in turn received by their unit which is used for manufacture of their final product establishes nexus or connection in relation to manufacture of the goods. In support of their contention, she relied on decisions of the Tribunal in the case of Indian Rayon & Industries Ltd. - 2006 (4) S.T.R. 79 (Tri.- Mum.) and Hon'ble High Court of Bombay in the case of Commissioner of Central Excise, Nagpur v. Ultratech Cement Ltd. - 2010-TIOL-745-HC-MUM-ST = 2010 (20) S.T.R. 577 (Bom.) = 2010 (260) E.L.T. 369 (Bom.).

Respondent’s Contention:- The respondent argued that the electricity generated at wind mill at Satara has no nexus between the manufacture of final products. He placed reliance on the Tribunal's decision in the case of Rajhans Metals Pvt. Ltd. v. Commissioner of Central Excise, Rajkot - 2007 (8) S.T.R. 498 (Tri. - Ahmd.) wherein it was held that services used at the site of the wind mills cannot be held as input services by the unit situated at different place. He also placed reliance on the Tribunal's decision in the case of Asian Tubes Ltd. v. Commissioner of Central Excise, Ahmedabad - 2011 (21) S.T.R. 58 (Tri.- Ahmd.) = 2011 (263) E.L.T. 707 (Tri. - Ahmd.). He also submitted that they are not receiving the same quantum of electricity at their unit, which is produced at their wind mill. In the rejoinder, he submitted that this was not the issue in any of the proceedings of the department.

Reasoning of Judgment:- The Tribunal held that the CENVAT credit, on Service Tax paid on input services used in maintenance of wind mill located at Satara, was denied to their manufacturing unit situated at Raigad on the ground that the services are not used by the manufacturer directly or indirectly in or in relation to manufacture of their final products. Input service is defined under Rule 2(1) (ii) of Cenvat Credit Rules, 2004, from which, 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 were 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 product. Therefore, the service falls under the definition of input service. As regards input service used at a 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 Rules 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 Ultra tech 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 v. Ultra tech Cement Ltd. - 2010-TIOL-1227- CESTAT-MUM = 2011 (21) S.T.R. 297 (Tri. - Mum.), 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.

So far as contention of the department that the same quantum of electricity has not been received in the factory for manufacturing of final products, they find force in the contention of the appellant that this was not an issue in any of the proceedings of the department. The appellant has paid service tax on the input services is also not in dispute. As regard the reliance placed by the learned JDR in the case of Rajhans Metals (supra) and Asian Tubes Ltd. (supra), he note that decision of the Hon'ble High Court of Bombay in the case of Ultra tech Cement Ltd. (supra) was not before the Tribunal in both the cases. In view of this, the Tribunal found that the order of the Commissioner (Appeals) is not sustainable in law.

Decision:- Appeal allowed.

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PJ/Case Laws/2011-12/1561

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