Cenvat credit on captive windmill services upheld where electricity generated supported manufacture through grid wheeling arrangement.
Services used for erection, installation, commissioning, repair, maintenance and insurance of windmills qualified as input services for Cenvat credit where the windmills functioned as captive power plants for the manufacturer. The fact that the windmills were located away from the factory and that electricity was routed through the State Electricity Board grid under a wheeling arrangement did not break the nexus with manufacture. Because the electricity generated was used to run the factories, the services had a direct connection with the business of manufacturing final products. Credit could not be denied merely because power was not supplied directly to the factory premises.
Issues: Whether services used for erection, installation, commissioning, repair, maintenance and insurance of windmills situated away from the factory, but used as captive power plants through a wheeling arrangement with the State Electricity Board, qualify as input services eligible for Cenvat credit.
Analysis: The windmills were established for captive use, and the electricity generated was transmitted to the State Electricity Board grid and supplied back to the factories after deduction of wheeling charges. The distance of the windmills from the factories did not break the nexus between the services used for the windmills and the manufacture of final products. The services had a direct connection with the business of manufacture because the electricity so generated was used for running the factories. The absence of direct supply of electricity to the factory premises was not a ground to deny credit where the windmills functioned as captive power plants.
Conclusion: The services used in respect of the windmills were input services eligible for Cenvat credit, and the denial of credit was unsustainable.
Ratio Decidendi: Services used for a captive power plant remain eligible input services where the electricity generated is used for manufacture, even if transmission is routed through the electricity grid under a wheeling arrangement and the power is not directly supplied to the factory.
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