Maintenance services for wind turbines qualify as input services under Cenvat Credit Rules; distance from manufacturing does not negate eligibility for credit.

JUDGMENT :

BHARGAV D. KARIA, J.

1. Heard learned advocate Mr. Anand Nainawati for the appellant and learned advocate Mr. Utkarsh R. Sharma 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 29.04.2008 passed by the Customs, Excise and Service Tax Appellate Tribunal, Ahmedabad (For short “the Tribunal”) in Appeal No.E/146/2008.

3. The appeal is admitted by this Court vide order dated 29.01.2010 for consideration of the following substantial questions of law:

“(1) Whether on the facts and circumstances of the case, the CESTAT is correct in holding that the services received in respect of operation, maintenance of captive wind mill plant are not entitled for the Cenvat credit under rule 2(1) of the Cenvat Credit Rules, 2004?

(2) Whether on the facts and circumstances of the case, the CESTAT is correct in rejecting the appeal of the appellants 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?

(3) 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 engaged in the manufacture of electronic products falling under Chapters 85 and 91 of the Central Excise Tariff Act, 1985. The products manufactured by the appellants attract excise duty. The appellants have its factory at Morbi.

5. The appellant had set up a wind farm at village Bhogat which is approximately 225 km away from the factory premises. The appellant entered into an agreement with Gujarat Electricity Board (GEB) for transmitting the power from wind mill site to the factory premises. As per the arrangement with GEB, the electricity generated at wind farm was to be supplied to GEB which in turn supply the electricity to the factory after deducting wheeling charges.

6. It is the case of the appellant that the GEB adjusts the number of units supplied by wind farm while raising the bills for the consumption of electricity in the factory.

7. For the purpose of operation and maintenance of the wind farm located at Bhogat, the appellant had entered into an agreement with M/s Suzlon Energy Ltd (hereinafter referred to as “Suzlon”) whereby the appellant received maintenance and repair service and reimbursed the service tax amount paid by Suzlon on such services. The Appellant availed Cenvat credit of such service tax amount as input service.

8. The Internal Audit Party of the Department raised an objection about the availability of the cenvat credit of the maintenance or repair services availed at wind mill site which is approximately 225 km away from the factory of the appellants. Accordingly, a show cause notice dated 26.03.2007 was issued to the appellant denying the Cenvat credit of Rs. 1,25,110/- being availed by the appellant on the maintenance or repair services received at the wind mill site on the ground that the services received at wind mill site were not input services inasmuch as the electricity generated at wind mill site was not used in the manufacture of dutiable products and the wind mill farm was located at a distance from the factory of production. The show cause notice also proposed to impose penalty under Rule 15 of the Cenvat Rules.

9. In response to the show cause notice, the appellant filed reply stating that the services received at wind farm did qualify as input service since such services were used directly or directly in the manufacture of final products and the wind farm has been set up in accordance with the policy of the State Government and the electricity generated at wind farm is entirely used in the manufacture of dutiable products and therefore, the appellants