The definition of input service under the Cenvat Credit Rules is broad, allowing for services related to electricity generation at a distant site to qualify for credit if used in manufacturing activities.

JUDGMENT :

BHARGAV D. KARIA, J.

1. Heard learned advocate Mr. Anand Nainawati for the appellant and learned advocate Mr. Neel P. Lakhani for the respondent.

2. This Tax Appeal is filed under section 35G of the Central Excise Act, 1944 (For short “the Act”) arising out of the final order dated 15.10.2010 passed by the Customs, Excise and Service Tax Appellate Tribunal, Ahmedabad (For short “the Tribunal”) in Appeal No.E/1327 & 1388/2009.

3. The appeal is admitted by this Court vide order dated 29.12.2011 for consideration of the following substantial questions of law:

“ i) Whether on the facts and circumstances of the case, the CESTAT is correct in holding that the services received in respect of operation, maintenance, erection, commissioning and installation of captive wind mill plant are not entitled for the Cenvat Credit under rule 2(I) of the Cenvat Credit Rules, 2004?

ii) Whether on the facts and circumstances of the case, the CESTAT is correct in rejecting the appeal of the appellant on the ground that in order to qualify under the definition of input service, the service has to be received in the factory of production?

iii) Whether on the facts and circumstances of the case, the CESTAT is correct in rejecting the appeal of the Appellants on the ground that the services received in respect of generation of electricity which is used in or in relation to the manufacture of dutiable products, are not entitled for Cenvat credit?”

4. Brief facts of the case are that the appellant is a company having its factory at Himmatnagar and is engaged in the manufacture of Cotton Yarn which attracts excise duty. The appellant avails Cenvat Credit of input, capital goods, and input services.

5. The appellant had set up a wind farm at village Kuranga, Taluka Dwarka, District Jamnagar i.e. 450 kilometres away from its factory premises. For setting up of this wind farm, the appellant had entered into an agreement with GEB for transmitting the power from site of windmill to its factory premises. It is the case of the appellant that as per the agreement with GEB, the electricity generated at the site of windmill will be supplied to the GEB, which in turn will supply the electricity to the factory of the appellant after deducting wheeling charges. It is the case of the appellant that GEB adjusts the number of units supplied by the windmill farm while raising the bills for consumption of electricity by the factory of the appellant.

6. For installation and commissioning of this windmill, the appellant has availed erection, commissioning, installation and maintenance services on which the Agency providing the above services has paid service tax inclusive of Education cess. Subsequently, the appellant after receiving invoices of the erection, commissioning and installation has availed credit of this amount of service tax. It is the case of the appellant that these transactions were also duly reflected in the Cenvat register and extracts thereof were also submitted with the monthly returns of the above period. Further, it is the case of the appellant that no objection was raised by the Range and Divisional Officers in this regard.

7. It is the case of the appellant that, after the said agency installed, commissioned and erected the windmill and after windmill started operating successfully, Gujarat Energy Development Agency (GEDA) has also issued certificates for commissioning of windmill so as to certify that the appellant had done all that was necessary under the Government policy for setting up a wind farm for generating wind energy. The appellant having started producing electricity using the above windmill, the units of electricity so generated were giv