Case Law Details
Commissioner of GST Vs India Pistons Ltd (CESTAT Chennai)
The issue is whether the credit availed on the service tax paid on lease rental charges paid to the Ashok Leyland Wind Energy Ltd. for the power that has been drawn by the respondent at Chennai is admissible. On perusal of the Show Cause Notice, it is seen that the electricity generated by the windmills is transmitted to the Udumalpet TNEB Grid and the respondent draws the same quantity of electricity at Chennai. There is no allegation in the Show Cause Notice that any excess electricity has been sold to any other party. The respondent has availed credit on the lease rental which is calculated on the basis of the electricity consumed by them. Electricity being in a nature which cannot be transported in an ordinary manner, the respondent has made the facility of transmitting it through TNEB grid and drawing it at Chennai. It is not in dispute that the said electricity is supplied to the factory of the respondent and the same is used for manufacturing activity. Merely because the wind generation plant is situated far away from the manufacturing activity, credit cannot be denied.
FULL TEXT OF THE CESTAT CHENNAI ORDER
Brief facts are that the respondents are engaged in the manufacture of parts of IC engines, parts of air compressors and circuits. They are also registered with the Central Excise Department. They availed the facility of CENVAT credit of duty paid on inputs, capital goods and input services. On verification of CENVAT account, it was noticed that the respondent has availed CENVAT credit of lease rentals paid to M/s. Ashok Leyland Wind Energy Ltd. They had taken lease of 27 windmills from M/s. Ashok Leyland Wind Energy Ltd. located in Udumalpet, Coimbatore District. The said company was responsible for development, maintenance and operation of the windmills and for effective functioning of the same. The energy generated by these windmills was surrendered to the power grid at Udumalpet and in turn the same quantum of electricity was supplied to the respondent at Chennai. On perusal of the lease agreement, it was seen that the lease rental is computed on the actual power consumed by respondent on agreed rates. The respondent availed credit of the service tax paid on the lease rental charges. Show Cause Notice dated 25.1.2008 was issued proposing to disallow the credit and also recover the same along with interest and for imposing penalty. After due process of law, the original authority confirmed the demand along with interest and imposed penalty of Rs.2,000/- in terms of Rule 15 of CENVAT Credit Rules, 2004. Against such order, the respondent filed appeal before the Commissioner (Appeals) who vide the order impugned herein set aside the order passed by the lower authority and held that the respondent is eligible for credit. Aggrieved by such order, the department is now before the Tribunal.
2. The learned AR Shri R. Rajaraman appeared and argued for the department. He submitted that the windmill is situated at Udumalpet, Coimbatore and the manufacturing activity is taking place at Sembiam which is in Chennai. The electricity generated at Udumalpet is received through the TNEB Power Grid at Chennai. The service tax paid on services of generation of electricity (which is not excisable) and situated far away from the factory premises cannot be said to be related to the manufacturing activity carried out at Chennai. The view taken by the Commissioner (Appeals) is therefore erroneous and he prayed that the same may be set aside by allowing the appeal.
3. The learned counsel Shri M.N. Bharathi appeared for the respondent. He submitted that even as per Show Cause Notice, it can be seen that the same quantum of electricity that is generated at Udumalpet is being drawn by the respondent at Chennai TNEB power grid. This is very clear from the lease agreement and therefore the credit availed is legal and proper. He relied upon the decision of Hon’ble jurisdictional High Court in the case of CCE Vs. Ashok Leyland Ltd. reported in 2019 (369) ELT 162 (Mad.) to argue that on very same issue, the Hon’ble High Court has held that input service credit is eligible. The Hon’ble High Court has taken the view that there is no necessary that the windmill has to be situated in the place of manufacture. He prayed that the appeal may be dismissed.
4. Heard both sides.
5. The issue is whether the credit availed on the service tax paid on lease rental charges paid to the Ashok Leyland Wind Energy Ltd. for the power that has been drawn by the respondent at Chennai is admissible. On perusal of the Show Cause Notice, it is seen that the electricity generated by the windmills is transmitted to the Udumalpet TNEB Grid and the respondent draws the same quantity of electricity at Chennai. There is no allegation in the Show Cause Notice that any excess electricity has been sold to any other party. The respondent has availed credit on the lease rental which is calculated on the basis of the electricity consumed by them. Electricity being in a nature which cannot be transported in an ordinary manner, the respondent has made the facility of transmitting it through TNEB grid and drawing it at Chennai. It is not in dispute that the said electricity is supplied to the factory of the respondent and the same is used for manufacturing activity. Merely because the wind generation plant is situated far away from the manufacturing activity, credit cannot be denied.
6. The very same issue was analysed by the Hon’ble jurisdictional High Court in the case of Ashok Leyland (supra) wherein it was held as under:-
“6. The respondent/assessee (M/s. Ashok Leyland Ltd.) is engaged in the manufacture of engines for use in heavy vehicles, gensets, etc. They have units in Ennore, Ambattur and Hosur. The assessee procured windmills on outright purchase and lease basis located in Udumalpet and Palladam Taluks in Coimbatore District and Radhapuram Taluk in Tirunelveli District. The assessee entered into an agreement with the Tamil Nadu Electricity Board (TNEB) for generation of power through the windmills and transmit the same to the TNEB grid and the TNEB, in turn, would transmit the power agreed to the factory premises of the assessee. The assessee was paying lease rentals for the windmills operated on lease basis and operations, and maintenance charges for the windmills owned by them and availed Cenvat credit on service tax paid on lease rentals and operations and maintenance charges. The Assessing Officer issued show cause notice dated 13-11-2007 setting out the facts and referred to Rule 2(l)(ii) of the Rules, which defines “input service” and pointed out that so far as generation of electricity through windmills is concerned, it is seen that though the electricity generated by such windmills is transferred to the power grid of TNEB and equal quantity of electricity is drawn from the power grid of TNEB to the factory o f the assessee, it cannot be construed that it is in relation to manufacture or clearance of final product whether directly or indirectly, as there exists no nexus between the windmills located outside the factory and the production process. Therefore, the Assessing Officer proposed that the assessee was not eligible to avail Cenvat credit on service tax paid on lease rentals and operations and maintenance charges. Therefore, it was proposed that the assessee has contravened Rule 2(l)(ii) of the Rules, inasmuch as they have wrongly availed credit. Further, the respondent invoked the extended period of limitation under proviso to Section 11A(1) of the Central Excise Act, 1944 (hereinafter referred to as “the CEA, 1944”) alleging that the assessee suppressed the fact of availment of Cenvat credit on the service tax paid on lease rentals, operations and maintenance charges o f windmills, which do not come under the purview of i“nput services” under Rule 2(l)(ii) of the Rules. Accordingly, they were called upon to show cause as to why Cenvat credit on service tax, availed by them, under the said head, should not be demanded; why interest should not be levied; and why penalty should not be imposed.
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16. As pointed out earlier, the adjudicating authority did not dispute the fact that the assessee had drawn equal quantity of electricity from the TNEB grid equivalent to the amount which it had generated through windmills and supplied to the TNEB. Therefore, we are no t required to go into the question as to whether there was any excess energy generated, whether it was sold to third parties or whether the assessee had sold it to the Electricity Board on costs, etc., and these issues become hypothetical in the instant case because, there is no such allegation against the assessee on any excess generation than what was utilised. The only allegation against the assessee is with regard to the fact that the windmills are located far away from the manufacturing unit. Undoubtedly, the windmills cannot be located at any place, and it is to be erected, wherever the wind power is available. Therefore, such an interpretation if to be accepted, would defeat the very concept of generation of green power in the country. Therefore, this interpretation should lean towards the sustenance o f such environmental friendly measures for which the Government has granted certain special concessions.
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25. As already pointed out, there is no dispute that the electricity generated by the windmills are exclusively used in the manufacturing unit for final products, there is no nexus between the process o f electricity generated and manufacture of final products and there is no necessity for the windmills to be situated in the place o f manufacture. Further, as already noticed, the definition of “input service” is wider than the definition of i“nput”. Furthermore, if one takes a look at the Rules, more particularly Rule 2(k), as it stood prior to 1-4-2011, which defines “input”, the following has been specifically inserted.
“within the factory of production”.
However, these words are physically missing in Rule 2(l), which defines “input service” and it would mean any service used by a provider of taxable service for providing an output service or used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal. Though the definition of “input service” has to be widely construed, and in terms of Rule 3, which allows the manufacturer of final products to take the credit of service tax inputs or capital goods received in the factory of manufacture of fina l products, insofar as any input service is concerned, the only stipulation is that it should be received by the manufacturer of fina l products. Therefore, this would be the correct manner of interpreting Rule 2(l) of the Rules.”
7. The Hon’ble High Court held that the credit is admissible and that it is not necessary that the windmill has to be located inside the factory premises.
8. After appreciating the facts and following the decision of the Hon’ble High Court, I am of the view that the impugned order does not call for any interference. The appeal is devoid of merit. The same is dismissed.
(Dictated and pronounced in open court)
