2019 (3) TMI 860 - HC - Central Excise

Court Upholds CESTAT's Decision on Input Service Definition, Emphasizes Environmental-Friendly Measures

Commissioner of Service Tax Versus M/s. Bharat Sanchar Nigam Limited

The court dismissed the appeals and answered the substantial questions of law against the Revenue. It upheld the CESTAT's decisions, emphasizing the broad ... Contravention of the 2nd proviso to Rule 3(5) of CCR or not? - demand of duty or reversal of credit? - Held that:- The substantial questions of arising for consideration in these cases were considered in the case of Commissioner of Central Excise and Service Tax vs. M/s.Ashok Leyland Ltd. [2019 (1) TMI 430 - MADRAS HIGH COURT] wherein though there may be slightly a factual difference in the said case, the legal issue is one and the same - It was held in the case of there is no dispute that the electricity generated by the windmills are exclusively used in the manufacturing unit for final products, there is no nexus between the process of electricity generated and manufacture of final products and there is no necessity for the windmills to be situated in the place of manufacture. These appeals are dismissed and the substantial questions of law are answered against the Revenue. Issues Involved:1. Whether the CESTAT was correct in holding that there had been no contravention of the 2nd proviso to Rule 3(5) of CCR as it existed at the material time.2. Whether the CESTAT was correct in setting aside the order of the adjudicating authority holding that there was no requirement for any demand of duty or reversal of credit.3. Whether the CESTAT was correct in applying the amended provision under Rule 3(5) of CCR which came into effect from 01.04.2008 for the period prior to that date.Issue-wise Detailed Analysis:1. Contravention of the 2nd Proviso to Rule 3(5) of CCR:The primary issue was whether the CESTAT correctly held that there was no contravention of the 2nd proviso to Rule 3(5) of the CCR as it existed at the material time. The court referred to the case of Commissioner of Central Excise and Service Tax vs. M/s. Ashok Leyland Ltd., where it was established that the electricity generated by windmills, though located far from the factory, was used in the manufacturing process. The court noted that the windmills could not be located at any place other than where wind power is available, and this interpretation supports environmental-friendly measures. The court concluded that there was a nexus between the energy generated and the manufacturing activity, thus supporting the CESTAT's decision.2. Requirement for Demand of Duty or Reversal of Credit:The second issue was whether the CESTAT was correct in setting aside the order of the adjudicating authority, which held that there was no requirement for any demand of duty or reversal of credit. The court observed that the adjudicating authority did not dispute that the assessee had drawn an equivalent quantity of electricity from the TNEB grid, equivalent to what was generated by the windmills. The court emphasized that there was no allegation of excess generation or sale to third parties. The court highlighted that the definition of 'input service' is broader than 'input' and that the rules do not require input services to be received at the factory premises. Therefore, the CESTAT's decision to set aside the adjudicating authority's order was upheld.3. Application of Amended Provision under Rule 3(5) of CCR:The third issue was whether the CESTAT was correct in applying the amended provision under Rule 3(5) of CCR, effective from 01.04.2008, for the period prior to that date. The court referred to the decision in Endurance Technology Pvt. Ltd., where it was held that management, maintenance, and repair of windmills are input services as defined in Rule 2(l) of the CCR. The court reiterated that the rules allow manufacturers to take credit for input services used in the manufacture of final products, regardless of whether these services are received at the factory premises. The court agreed with the CESTAT's application of the amended provision, noting that the definition of 'input service' is broad and inclusive.Conclusion:The court dismissed the appeals and answered the substantial questions of law against the Revenue. The court upheld the CESTAT's decisions, emphasizing the broad definition of 'input service' and the nexus between the energy generated by windmills and the manufacturing activity. The court also highlighted the importance of supporting environmental-friendly measures and the correct interpretation of the rules in favor of the assessee.