2007 (7) TMI 109 - AT - Service Tax

Court denies appellants' CENVAT credit for windmill services; ruling on nexus with factory output.

The appellants, cement manufacturers, were denied CENVAT credit for service tax on expenses including insurance, security, maintenance, and telephones. ... Stay/Dispensation of pre-deposit - Appellant availed the Cenvat credit of service tax paid on insurance for fire policy for colony building of factory, security, maintenance and repair charges for windmill located away from factory and mobile phones - Held that all services not qualify as input services and ordered for pre-deposit of Rs.1 lakh Issues: Denial of CENVAT credit on service tax paid for insurance, security charges, maintenance and repair charges, telephones, and windmill electricity.In this case, the appellants, who are cement manufacturers, were denied CENVAT credit for service tax paid on various expenses, including insurance for the colony building of the factory, security charges, maintenance and repair charges for windmills away from the factory, and telephones installed outside the factory premises. The total amount demanded was Rs. 3,16,127. The majority of the denied credit, amounting to Rs. 3,07,373, was related to security charges, maintenance, and repair for windmills located away from the cement factory. The denial was based on the lack of evidence showing that the electricity generated by the windmills was used in the cement factory. The appellants argued that there was a clear nexus between the windmill-generated electricity and the final product, making the services eligible for 'input service' tax credit. However, after analyzing the definitions of 'input' and 'input service' under the CENVAT Credit Rules, it was concluded that the electricity generated by the windmills did not fall within the definition of 'input,' and therefore, services related to the windmills did not qualify as 'input-service.' Additionally, no nexus was established between the colony building or telephone services and the final product. As a result, the appellants were directed to pre-deposit Rs. 1,00,000 for compliance with Section 35F of the Central Excise Act. The deadline for depositing the amount was set for four weeks, with a compliance report due on 7th September, 2007.