WHETHER CENVAT CREDIT IS ADMISSIBLE ON MAINTENANCE AND REPAIR FOR POWER PLANT SITUATED AWAY FROM FACTORY?

[Mr. M. GOVINDARAJAN]

                        The CENVAT Credit Rules, 2004 ('Rules' for short) allows a person who is liable to pay service tax on the services provided by him or excise duty to set off his liability by claiming credit for the amount of duties and cess he has paid on the goods he used and also the amount of service tax and cess he has paid on the services he used to provide such taxable services or manufacture final products.

                        The manufacturers, services providers as well as the professionals practicing in indirect taxes area would come across various case laws as to the allowability of CENVAT credit. There have come so many case laws in this regard.

                        Yet another case has arisen in 'Ellora Times Ltd., V. Commissioner of Central Excise, Rajkot' -2009 (13) STR 168 (Tri. Ahmd.);[2009-TMI-32159-CESTAT AHEMDABAD] in which the answer for the question whether CENVAT credit is admissible on maintenance and repairs for power plant situated away from the factory.

                        The appellants are engaged in the manufacture of electric products falling under Chapters 85 and 91 of the Central Excise Tariff Act, 1985 and the products manufactured attract excise duty. The appellants availed CENVAT credit of service tax paid on maintenance and repair services received for the wind energy plant set up by them from M/s Suzlon. The wind mills were set up in the land leased out by the State Government and the electricity produced in the wind mill is sent to the electricity grid of Gujarat Electricity Board and the appellants are permitted to draw power from the grid for use in their factory on payment of fixed wheeling charge. The benefit is extended by deducting the electricity received by the grid and wheeling charges from the total electricity consumed by the appellants.

                        The department initiated action against the appellants denying the CNEVAT credit of service tax paid on maintenance and repair services culminating into orders-in-original.   The Commissioner (Appeals) held that the CENVAT credit is not admissible. The Commissioner (Appeals) held that in view of the fact that wind mills are located far off from the factory and is not excisable, CENVAT credit is not admissible. He further held that the wind mill farm is neither a captive power plant nor the power generated at the wind mill is an intermediate product to the manufacturing unit located in some other place.

                        The appellants in the appeal before the tribunal submitted the following:

·        Even though the wind mills have been located at more than 200 kilometers away from the factory, they are able to utilize the electrical energy produced in the wind mills after reduction of 2% of the electricity produced as wheeling charges;

·        The services received at wind mill will qualify as input services and the CENVAT Rules in view of definition of input services under Rule 2(l) of the CENVAT Rules and Rule 3(1) of CENVAT Rules, which allow credit of service tax paid on any input service received by the manufacturers of final product or by the provider of output service;

·        The ratio of Hon'ble Supreme Court's judgment in M's Vikram Cement's case (2006 (194) ELT 3);[2006 -TMI - 301 - Supreme court] is applicable in their case.  The test for qualifying for the definition of input services is whether such service is used directly or indirectly in the manufacture of final products and in this case services received at wind mill farm are used in relation to the manufacture of final products. The Vikram Cement's case also supports the stand there are no conditions that input services must be received in the factory;

·        What is important in deciding eligibility for credit of service tax paid on input services is nexus between the final product manufactured and the service received and not the place of receipt. In support of this argument, the following case laws are cited:

§         In 'Commissioner of Central Excise, Rajkot V. M/s Rolex Rings Private Limited' - 2008 (230) ELT 569 (Tri); [2008 -TMI - 30898 - CESTAT, AHMEDABAD] it was held that CHA service is covered under the definition of input service;

§         Credit of service tax paid on phones and land line at the Directors' residences have been allowed by the tribunal in the case of M/s Keltech Energies Ltd., - 2008 (10) STR 280(Tri.); [2008 -TMI - 4051 - CESTAT BANGALORE]

§         Service tax paid on repairs and maintenance of civil construction relating to residential colony of factory employees has been held to be eligible for CENVAT credit by CESTAT, WZB, Mumbai in the case of 'M/s Manikgarh Cement' - 2008 (9)STR 554(Tri.); [2008 -TMI - 3506 - CESTAT, MUMBAI]

The Department submitted the following before the tribunal:

Ø      Full electricity is not used and 2% is deducted towards wheeling charges;

Ø      In all cases cited by the appellants, there is a direct nexus between the final product manufactured and the services received which is not the case here;

Ø      As regard CHA services the case has been referred to Larger bench and therefore may not be relied upon.

It has already been examined and considered by the tribunal the fact that power is delivered by electricity board after charging wheeling charges and decision has been taken that credit is not admissible in such situation. Input services have been received in the power plant belonging to the applicants but the power has been delivered to the electricity board. The transaction of delivery of power to the electricity board and sale of power by the electricity board with the assessee are two independent transactions. The electricity board is only giving credit for the power received in the grid and it does not mean that there is a direct nexus between the service received in the power plant and the items manufactured in the factory belonging to the appellants.

                  In view of the totally independent transactions unrelated to each other and in view of the fact that the power produced at the wind mill and power requirement of factory also need not have to be matched or tallied and the appellants are not eligible for the benefit.