Mythili L And vs Associates/Dr
- Case No.Appeal No. E/00328/2007
Ratio decidendi
The rule this decision rests on
Where the Tribunal has already held, in a prior final order, that CENVAT credit is admissible on input services and inputs used in setting up, generating power from, and maintaining a windmill, and the parties agree that the same reasoning governs the present appeals, the same credit is allowable in these appeals, since the energy generated is bartered to the electricity board for power consumed at the place of manufacture or provision of output service, and there is no material showing the energy was used otherwise. CENVAT credit of service tax paid on rental services is admissible where the rent paid is directly attributable to the generation of wind energy. CENVAT credit of service tax paid on security services is admissible where the protection of the windmill is an integral part of generating wind energy and the department adduces no evidence of the absence of such integral relation. CENVAT credit of service tax paid on term loan processing charges is admissible where the borrowing is shown to be connected with the purchase of windmill machinery and no finding is made that the processing related to any other acquisition or activity. CENVAT credit of service tax paid on insurance taken for the welfare of workers is admissible where the policy is an obligation of the employer under the Factories Act and no evidence shows it relates to any other property or contingency. CENVAT credit of service tax paid on a passenger carrying package policy is not admissible where no evidence shows any integral connection between the policy and any output or output service. CENVAT credit on a capital good, a gear box intimately connected with the set-up and running of the windmill, is admissible. CENVAT credit of service tax paid on telephone services installed outside the factory and used by staff is not admissible where no evidence connects those services with output services or the manufacture of output. CENVAT credit of service tax paid on insurance of a factory-residential colony is not admissible where nothing shows the colony was for the workers of the factory, so that the policy has no connection with the workplace or workers. CENVAT credit on outward transportation of goods is admissible where the service formed part of the contract and was inseparable from it, and the department has no evidence to rebut this. CENVAT credit of service tax paid on crane services for replacing windmill blades is admissible, the activity having a nexus with the maintenance of the windmill. CENVAT credit of service tax paid on club services is not admissible where those services bear no connection with manufacture or the provision of output services. Where the law on CENVAT credit has been difficult of interpretation for a long time, no penalty is imposed.
Written by Miss Lucy from the judgment below, not taken from a headnote.
Judgment
As delivered
When the appeals listed below came up, concerned advocates appearing in those cases submitted a tabular statement showing the issues involved in each such appeal with the demand of duty and penalty involved therein as under:- Sl. No. Appeal No Period Issue Demand Penalty 2 E/00328/2007 Oct 2004 to Jan 05 and Apr 2005 to Mar 2006 Maintenance and service charges for the windmill 64,148 5,000 3 E/00026/2009 Dec-06 Term loan Processing charges for purchase of windmill and machinery 1,31,580 2,000 4 E/00474/2010 Oct 2006 to Jun 2007 Maintenance charges for windmill 29,326 -
5 E/00625/2010 Jul 2007 to Dec 2007 Maintenance charges for windmill 40,893
-
6 E/00639/2010 Jan-09 Annual Operation and Maintenance of windmill 91,726
-
7 E/78/2011 Aug 2008 and Sep 2008 Lease rentals and operation and maintenance charges on Windmill situated outside Factory 56,95,626 2,000 8 E/00326/2008 Sep 2006 & Oct 2006 Service charges for windmill 1,42,045 1,42,045
Jan-05 Workers Welfare policy 11,446 11,446
Oct-06 Passengers carrying package policy 2,431 2,431 9 E/00294/2008 invoice No 729 dated 14.09.2006 Cenvat Credit on capital goods (Gear Box for Windmill) 1,51,256 1,51,256 10 E/00401/2007 Aug 2005 to March 2006 Telephone installed outside factory and used by staff 6,248 30,000
Insurance paid towards fire policy of factory residential colony 2,506
-
Security charges, maintenance and repair charges towards windmill 3,07,373
-
11 E/00340/2008 Apr 2005 to Jul 2005 Security charges, maintenance and repair charges towards windmill 1,10,456 1,10,456
Telephone installed outside factory and used by staff 1,884 1,884 12 E/00412/2008 Jan 2006 to Apr 2006 Outward transportation of goods 1,141
-
Maintenance of windmill 2,040
-
13 E/00268/2010 Sep 2007 to Dec 2007 Crane charges for windmill blade replacement 30,900
-
Club services 2,445
-
15 ST/00432/2009 Apr 2006 to Sep 2006 Maintenance service of windmill 18,218
-
2. Summarily, service tax/excise duty paid on following services/goods availed were claimed by the appellants as CENVAT credit which was denied by Revenue in the proceedings before the authorities below:-
(i) Maintenance and service charges for windmill.
(ii) Annual operation and maintenance of windmill.
(iii) Crane charges for windmill blade.
(iv) Lease rental.
(v) Term loan processing charges for purchase of windmill and machinery.
(vi) Service charges for windmill.
(vii) Cenvat credit on capital goods [Gear box for windmill].
(viii) Insurance policy for workers welfare.
(ix) Passengers carrying package policy.
(x) Telephone expenses.
(xi) Insurance paid towards fire policy of residential colony.
(xii) Security charges of windmill.
(xiii) Outward Transportation of goods.
(xiv) Club charges.
3. It is agreed by both sides that in terms of Final Order No.40281-40326/15, dated 25.02.2015, Tribunal has allowed Cenvat credit in respect of both input and input services used in setting up of windmill, generation of power and maintenance as well as operation thereof.
4. To support their claim of Cenvat credit on the above services availed and capital goods acquired all the Appellants submitted that para 2 to 6 of the above said final order being relevant that equally applies to the present appeals. Revenue agreed to such proposition. 5.1 In view of the agreement of both sides on both facts in issue and law, the said paragraphs are reproduced below for appreciation:-
2. Ld. Counsels submit that even though the wind mills are located outside the factory where manufacturing is done energy generated by such the wind mills were barterd to Tamil Nadu Electricity Board to avail equivalent MW of power from that Board at the place of manufacture or place of provision of output service of the concerned appellants. There is no allegation that energy generated by wind mills have been utilized otherwise.
3. In absence of any material on record to the contrary, above proposition of appellants remained uncontroverted by Revenue.
4. Power shortage is well known to the economy. Hydro power, thermal power as well as wind energy are normally generated at a place nearness to the source of raw material. Wind energy is generated at the place where wind is available and reciprocal arrangement is made with Electricity Board for bartering the energy so generated. This is an accepted phenomena since power/energy generated cannot be stored. Places where wind energy generated is not consumable thereat. Therefore arrangement between the generator of energy and power distributing agency like electricity board is obvious to save the power so generated and make that available at the place of manufacture.
5. Our view above is fortified from the judgment of the Honble High Court of Bombay in Central excise appeal No. 14/2012 in the case of CCE, Aurangabad Vs. Endurance Technology Pvt. Ltd., disposed on 02.12.2014. The Honble Court examining the meaning of the input under Cenvat Credit Rules, 2004 and admissibility of credit of tax on such input held that there should not be inadmissibility of input credit on input or input services used by wind mills to generate energy which is made available through electricity board under barter system.
6. For the reasoning above and in absence of any materials on record showing energy generated by wind mills was used for the purpose other than manufacture or providing of service, all the appeals listed in the aforesaid Sl. Nos. are allowed. Consequential relief if any in these appeals shall flow in accordance with law.
5.2 For the reasons stated in the aforesaid paragraphs extracted, the appellants praying for allowance of Cenvat credit on annual operation and maintenance service of windmill, normal maintenance and services availed in respect of functioning of windmill are allowed.
6. So far as lease rental is concerned, it is agreed by both sides that Tribunal in the above said final order has dealt this issue in para 10 of its order and allowed even Cenvat credit on the rent paid. For appreciation of the reasoning, the said para is reproduced below:-
10. In appeals at Sl. No. 106 & 107 of the cause list, ld. Counsel says that these two appeals have been filed by Revenue against cenvat credit of service tax paid on lease rental allowed by the authority below. Record reveals that rent paid is directly attributable to the generation of wind energy. Therefore, these two appeals of Revenue fail.
7. In view of the above, the issue of Cenvat credit of service tax paid on rental services is also allowed.
8. So far as the availing of security services is concerned, it is submitted by the appellants that protection of the windmill being an integral part of generation of wind energy, the service tax paid on security services availed should be allowed as Cenvat credit. Revenue has no evidence to discard such submission placing any cogent evidence to the contrary to establish that there is no integral relation between the security services availed to protect the windmill and ensure operation thereof. Accordingly, Cenvat credit on this count is also allowed.
9. The term loan processing charges suffered service tax, Cenvat credit of such tax was claimed. Authority below has no findings to show that the processing of term loan related to any other acquisition or activity, not connected to purchase of windmill machinery. Appellant having established the connection of the processing charges paid to the financial institutions to borrow fund for purchase of windmill and machinery, service tax paid on such services is allowed towards Cenvat credit.
10. Pressing claim by one of the appellants that insurance policy was taken for the welfare of workers, it was submitted that workers contribute to the production for which their welfare measure is essential under the Factories Act. Therefore, insurance policy taken to protect them from various health hazards is obligation of the employer under the Factories Act. Accordingly, service tax paid in respect of such services is considerable for allowance of Cenvat credit. Revenue does not dispute to such claim since there was no evidence on record to show that policy relates to any other property or contingency. Accordingly, the Cenvat credit relating to service tax paid on availing insurance services for workers is allowable.
11. In one of the appeals, Cenvat credit on service tax paid to avail passenger carrying package policy is claimed. But no evidence was produced to show that such a policy has any integral connection either to any output or output services. In absence of such integral connection, Cenvat credit thereon is not allowable.
12. Issue relating to Cenvat credit on capital goods (Gear box for windmill) was agitated in one of the appeals. Gear box for windmill being intimately connected with the set up and running of the windmill credit of duty paid thereon is allowable.
13. The telephone installed outside factory and used by staff is not backed by any evidence to show that such services were in any way connected with output services or manufacture of the output. Accordingly, Cenvat credit of service tax paid to avail such service is not allowable.
14. There is a claim of insurance paid towards fire policy of factory-residential colony. Nothing was brought to record to show that the residential colony was for workers of the factory. Therefore, without the connection of the insurance policy to the workplace or workers, the claim of Cenvat credit on service tax paid in respect of insurance service is not allowable.
15. There is a claim of Cenvat credit on Outward Transportation of goods. It was established by learned counsel that such services was part of the contract and was inseparable. Revenue has no evidence to repel such argument. Accordingly, appeal on this count is allowed.
16. Crane charges for windmill blade replacement claimed in one of the appeal was not refuted by Revenue. Such activity is not strange to the windmill operation or set up. Blades being affixed to the windmill at a quite high level from the earth, using of service of crane for such purpose cannot be said to be without nexus to maintenance of the windmill. Therefore, Cenvat credit in respect of service tax paid to avail the services of the crane is allowed.
17. There is a claim of availing club services, which are no way concerned for either manufacture or providing of output services. In such circumstances, the claim of input credit thereof is not allowed.
18. In view of the aforesaid decision, the appeals listed in S.No.2 to 13 and 15 of cause list are disposed in the manner indicated above and result of all such appeals is tabulated below:-
Sl. No. Appeal No Issue Demand Result 2 E/00328/2007 Maintenance and service charges for the windmill 64,148 Allowed 3 E/00026/2009 Term Processing charges for purchase of windmill and machinery 1,31,580 Allowed 4 E/00474/2010 Maintenance charges for windmill 29,326 Allowed 5 E/00625/2010 Maintenance charges for windmill 40,893 Allowed 6 E/00639/2010 Annual Operation and Maintenance of windmill 91,726 Allowed 7 E/78/2011 Lease rentals and operation and maintenance charges on Windmill situated outside Factory 56,95,626 Allowed 8 E/00326/2008 Service charges for windmill 1,42,045 Partly Allowed
Workers Welfare policy 11,446
Passengers carrying package policy 2,431
9 E/00294/2008 Cenvat Credit on capital goods (Gear Box for Windmill) 1,51,256 Allowed 10 E/00401/2007 Telephone installed outside factory and used by staff 6,248 Partly Allowed
Insurance paid towards fire policy of factory residential colony 2,506
Security charges, maintenance and repair charges towards windmill 3,07,373
11 E/00340/2008 Security charges, maintenance and repair charges towards windmill 1,10,456 Partly Allowed
Telephone installed outside factory and used by staff 1,884
12 E/00412/2008 Outward transportation of goods 1,141 Allowed
Maintenance of windmill 2,040
13 E/00268/2010 Crane charges for windmill blade replacement 30,900 Partly Allowed
Club services 2,445
15 ST/00432/2009 Maintenance service of windmill 18,218 Allowed
18. In view of the difficulty of interpretation of law relating to Cenvat credit involved for long time there shall not be penalty in any of the appeals.
(Dictated and pronounced in open court)
(R. PERIASAMI) (D.N. PANDA) TECHNICAL MEMBER JUDICIAL MEMBER
ksr 06-05-2015
DRAFT Remarks
I II III
Date of dictation 29.04.2015
Draft Order - Date of typing 05.05.2015
Fair Order Typing 06.05.2015
Date of number and date of dispatch 07/05/2015
2 E/328/2007 & 12 Ors.
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