Whether credit in respect of services used for generation of electricity for captive use admissible?

PJ/Case Law/2013-14/1722

Case:-JSWSTEEL LTD Vs COMMISSIONER OF CENTRAL EXCISE, THANE-II

Citation:- 2013-TIOL-1146-CESTAT-MUM

Brief facts:-Material facts of this case are that Revenue denied credit in respect of Service Tax paid on Input services which are used in or in relation to the generation of electricity in a captive power plant on the ground that definition of Inputs & Input Services are different and there is no provision in the definition of “Input Service” for allowing credit in respect of services used for generation of electricity for captive use. Appellant submitted that the power generated in the captive power plant is partly used in manufacture of dutiable final products and partly sold to Maharashtra State Electricity Development Corporation and they had taken proportionate credit in respect of input services which had gone into generation of electricity which is used in manufacture of final product and in case of taxable services covered under rule 6(5) of CCR, they availed full credit. Revenue also contended that applicants had not opted to follow the provisions of Rule 6 and not informed regarding taking of proportionate credit. The applicant filed this application for waiver of pre-deposit of duty of Rs. 1,69,77,363/-, interest and penalty. The demand is confirmed after denying the credit in respect of the service tax paid on input services which are used in or in relation to the generation of electricity in a captive power plant.

Appellant’s contention:- The contention of the applicant is that the applicants were having the captive power plant and the power generated in the active power plant is partly used in the manufacture of final product which is cleared on payment of duty and partly the electricity was sold to Maharashtra State Electricity Development Corporation. The applicants were availing proportionate credit in respect of the input services which have gone into generation of electricity which is used in the manufacture of final product. In case of taxable services which are covered under Rule 6(5) of the Cenvat Credit Rules, the applicant’s availed full credit of service tax paid. The applicants relied upon annexures B and C to the show cause notice where it is admitted that the applicants were taking proportionate credit in respect of the input services which have gone into the generation of electricity used in the manufacture of goods. The contention is that the adjudicating authority denied the credit on the ground that the definition of input and input services are different and inputs used in or in relation to generation of electricity whereas no such provision is under the definition of input service. The input service also includes any service used by the manufacturer whether directly or indirectly in relation to the manufacture of final product. The input services which are used in the generation of electricity are directly and indirectly used in the manufacture of final product which is cleared on payment of duty, therefore the interpretation given by the learned Commissioner in the impugned order is contrary to the provisions of the Cenvat Credit Rules.

Respondent’s contention:-The Revenue submitted that the applicants had not opted as per the provisions of Rule 6 of the Cenvat Credit Rules for availing proportionate credit and had not informed the Revenue regarding taking of proportionate credit. The Revenue also submitted that the applicants never disclosed to the Revenue that part electricity so generated is sold to Maharashtra State Electricity Development Corporation hence the demand is rightly made.

Reasoning of judgement:- The bench found 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 arguments raised by the Revenue during the hearing of the stay application were not the basis for denying the credit in the impugned order. As the applicants were availing only proportionate credit in respect of the taxable services which were used in or in relation to generation of electricity which is, further used in the manufacture of excisable goods hence the applicants made out a case for waiver of pre-deposit of the dues. Therefore, the pre-deposit of the dues is waived and recovery of the same is stayed during the pendency of the appeal.

Decision:-The stay petition was allowed.

Comment:-The analogy drawn from this case is that prima facie the manufacturer is eligible for claiming the service tax credit in respect of services that are used in the generation of electricity that is captively consumed in the manufacture of the final dutiable products.

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PJ/Case Law/2013-14/1722

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