Cenvat credit for wind mill inputs and services upheld where generated power was exchanged through the utility network.

Cenvat credit on inputs and input services used for setting up, generating power from, and maintaining wind mills was held admissible where the electricity generated was transferred to the electricity board under a reciprocal arrangement and equivalent power was made available for use at the factory or service location. The stated nexus between the wind-mill activity and the assessee's manufacturing or output-service business was accepted, and the absence of contrary material from Revenue supported that conclusion. A cited High Court ruling was relied on for the principle that credit cannot be denied merely because the wind mills are located away from the factory when the generated power is made available through the utility network. The connected demands and penalties did not survive.

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Issues: Whether Cenvat credit was admissible on inputs and input services used for setting up, generating power from, and maintaining wind mills, where the electricity generated was transferred to the electricity board under a barter arrangement and equivalent power was made available for use at the factory or service location; and whether related penalty and revenue objections could survive.

Analysis: The credit dispute turned on the use of wind-mill equipment and services in relation to the appellants' manufacturing or output-service activity. The arrangement showed that power generated by the wind mills was not used for unrelated purposes, but was exchanged through the electricity board so that equivalent power could be availed where manufacturing or service provision took place. In the absence of any contrary material from Revenue, the nexus between the wind-mill inputs/input services and the appellants' business activity was accepted. The view was supported by the cited High Court decision recognising that credit cannot be denied merely because the wind mills are located away from the factory, where the generated power is made available through the utility network under a reciprocal arrangement.

Conclusion: Cenvat credit on the inputs and input services used in relation to the wind mills was admissible, and the connected demands and penalties did not survive.

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