Gujarat High Court Upholds CENVAT Credit for Windmill Services

Court rules electricity generated from windmills used in manufacturing is admissible for CENVAT Credit under CENVAT Credit Rules, 2004.

In a landmark judgment, the Gujarat High Court has upheld the admissibility of CENVAT credit for service tax paid on the installation and maintenance of windmills located away from factory premises, provided the electricity generated is utilized in the manufacturing process. The division bench comprising Justices Bhargav D. Karia and Pranav Trivedi delivered the verdict in the case of Real Strips Ltd v. Commissioner of Central Excise.

The appeal challenged a previous decision by the Customs, Excise and Service Tax Appellate Tribunal that denied CENVAT credit on grounds that the windmills were situated far from the manufacturing site and the electricity generated was not excisable. The appellant, Real Strips Ltd, argued that the electricity produced by the windmills was used in its manufacturing unit through the Gujarat Energy Transmission Corporation Limited (GETCO) grid.

The court examined Rule 2(l) of the CENVAT Credit Rules, 2004, which defines "input service" and emphasized the broad interpretation of the term. The judgment affirmed that services utilized in relation to manufacturing activities, even if performed away from the factory premises, qualify for CENVAT credit. The court cited previous judgments, notably the Bombay High Court's decision in Endurance Technology Pvt. Ltd, which recognized the wide scope of "input service" encompassing services indirectly used in manufacturing.

Advocates for Real Strips Ltd highlighted the legal precedent set by similar cases and argued that the electricity generated was intrinsically linked to the manufacturing process. The court agreed, stating that the location of the windmills does not negate the linkage between the generated electricity and manufacturing activities. It was further noted that the rules do not mandate that input services must be received at the factory premises.

The judgment provides clarity on the application of CENVAT credit rules, reinforcing that services contributing to manufacturing, directly or indirectly, are eligible for credit. This ruling is expected to impact similar cases and offers guidance for manufacturers utilizing renewable energy sources.

The decision marks a significant precedent for industries relying on alternative energy sources for production processes, ensuring they can fully benefit from the CENVAT credit system.

Bottom Line:

CENVAT Credit - Service tax paid on installation and maintenance of windmills located far from the factory premises is admissible as "input service" under Rule 2(l) of the CENVAT Credit Rules, 2004, when the electricity generated is utilized in the manufacturing process at the factory.

Statutory provision(s): CENVAT Credit Rules, 2004 Rule 2(l), Central Excise Act, 1944 Section 35G

Real Strips Ltd v. Commissioner of Central Excise, (Gujarat)(DB) : Law Finder Doc Id # 2823414