Service tax credit denied for distant windmill site services; penalty annulled. Legal nexus lacking with factory activities.

The Tribunal upheld the denial of service tax credit for services used at a windmill site distant from the factory premises, emphasizing the lack of direct nexus with the manufacturing activities at the factory. The penalty imposed was annulled as the Tribunal deemed the issue a pure legal matter without suppression or misstatement, aligning with previous decisions. Consequently, the appellant's appeal resulted in the denial of service tax credit and the cancellation of the penalty imposed.

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Issues: Availment of modvat credit for services used at a windmill site located far from the factory premises and penalty imposition.

Availment of Modvat Credit: The judgment revolves around the dispute concerning the availment of modvat credit for services utilized for installation, civil work, and maintenance of a windmill situated at a distance from the factory premises. The appellant argued that the electricity generated at the windmill is transferred to the Gujarat Electricity Board (GEB), which then supplies it back to the appellant's factory in Ahmedabad. However, the lower authorities denied the modvat credit, stating that there was no direct nexus between the service received at the windmill site and the items manufactured at the factory. They emphasized that the electricity generated at the windmill is not directly consumed in the factory and that the services used at the windmill site cannot be considered input services for the manufacturing unit in Ahmedabad. The Tribunal referred to previous decisions to support the denial of modvat credit, concluding that the issue had already been settled, and upheld the denial of service tax credit.

Penalty Imposition: Regarding the penalty imposed, the Commissioner (Appeals) acknowledged that there was no suppression or misstatement in the case and reduced the penalty to Rs. 2000. The Tribunal, in line with previous decisions, held that since the issue was a pure legal matter of interpretation, no penalty should be imposed. Consequently, the Tribunal set aside the penalty of Rs. 2000 imposed on the appellant. The appeal was disposed of accordingly, with the denial of the service tax credit upheld and the penalty being annulled.

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