2026 (1) TMI 574 - AT - Central Excise

Maintenance and repair of windmills as input services eligible for CENVAT credit; re-credit upheld and SCN dropped

Dominant issue 1 - eligibility of CENVAT credit for maintenance/repair services of windmills located outside the factory: relying on SC precedent that ... CENVAT credit of service tax paid on maintenance and repair services of windmills located outside the factory premises - re-credit taken in January 2017 pursuant to the Tribunal’s Final Order dated 25.02.2015 is legally sustainable or not - correctness in dropping the proceedings initiated by the Show Cause Notice dated 05.02.2019. Eligibility of CENVAT Credit on Windmill related Services - HELD THAT:- The Hon’ble Supreme Court in Vikram Cement v. CCE [2006 (1) TMI 130 - SUPREME COURT] has clearly held that inputs or services need not be used within the factory premises so long as they are integrally connected with the manufacturing activity - The Hon’ble Bombay High Court in Endurance Technology Pvt. Ltd. [2015 (6) TMI 82 - BOMBAY HIGH COURT] and the Hon’ble Madras High Court in Ashok Leyland Ltd. [2019 (1) TMI 430 - MADRAS HIGH COURT] have affirmed the Larger Bench view, holding that denial of credit merely on the ground of geographical distance would defeat the objective of the CENVAT scheme and renewable energy policy. The Department’s argument that electricity is routed through the grid does not dilute the nexus, since the fact of equivalent electricity being consumed in the factory is undispute - CENVAT credit of service tax paid on maintenance and repair of windmills located outside the factory premises is admissible under Rule 2(l) of CCR, 2004. Validity of Re-credit Taken in January 2017 - HELD THAT:- It appears that the respondent reversed the credit under protest during the pendency of litigation. Once the Tribunal decided the issue in favour of the respondent, the right to re-credit accrued - It is a settled legal position that when duty or credit is reversed under protest and the assessee succeeds on merits, restoration of credit follows automatically - The Substantial questions of law were answered in favour of the taxpayer affirming that maintenance services for windmills are eligible as input services. Legality of Dropping SCN Proceedings - HELD THAT:- The identical issue, earlier relied upon by the Department as pending, has now been conclusively decided by the Hon’ble Gujarat High Court in Ajanta Transistors Clock Mfg. Co. [2025 (11) TMI 1936 - GUJARAT HIGH COURT]. In paragraph 21 of the said judgment, the Hon’ble High Court has categorically held that services availed for installation, operation and maintenance of windmills located away from the factory premises qualify as input services, once the electricity generated therefrom forms part of the energy requirement of the manufacturing unit. The Court has further held that wheeling of electricity through the State Electricity Board does not sever the nexus with the manufacture. Therefore, once the legal issue itself stands settled in favour of the assessee, continuation of proceedings would be futile. The adjudicating authority was fully justified in dropping the proceedings. The impugned Order-in-Original does not suffer from any legal infirmity and warrants no interference - Since the credit itself is held admissible on merits, the question of recovery does not arise - Consequently, interest under Rule 14 of CCR and penalty under Rule 15 read with Section 11AC automatically fails. The demand of CENVAT credit, interest and penalty is unsustainable in law. All questions framed are answered on merits in favour of the respondent and against the Department - Appeal of Revenue dismissed. Issues: (i) Whether CENVAT credit of service tax paid on maintenance and repair services of windmills located outside the factory premises is admissible under Rule 2(l) of CCR, 2004; (ii) Whether re-credit taken in January 2017 pursuant to the Tribunal’s Final Order dated 25.02.2015 is legally sustainable; (iii) Whether the adjudicating authority was justified in dropping the proceedings initiated by the Show Cause Notice dated 05.02.2019.Issue (i): Whether CENVAT credit of service tax paid on maintenance and repair services of windmills located outside the factory premises is admissible under Rule 2(l) of CCR, 2004.Analysis: Rule 2(l) defines 'input service' to include services used directly or indirectly in or in relation to manufacture. Precedents of higher fora have held that inputs or services need not be physically received within factory premises if integrally connected with manufacturing activity; decisions of the Tribunal and various High Courts have applied this principle to windmill maintenance services where electricity generated forms part of the manufacturing unit's energy requirement. The routing of electricity through the State grid (wheeling) does not sever the requisite nexus where equivalent units are drawn and consumed in manufacture.Conclusion: In favour of the Assessee.Issue (ii): Whether re-credit taken in January 2017 pursuant to the Tribunal’s Final Order dated 25.02.2015 is legally sustainable.Analysis: Credits reversed under protest during litigation are restoratively re-creditable if the substantive dispute is decided in favour of the assessee; a binding Tribunal order in favour of the assessee vests the right to re-credit, and pendency of a departmental appeal without stay does not negate the binding effect of that order.Conclusion: In favour of the Assessee.Issue (iii): Whether the adjudicating authority was justified in dropping the proceedings initiated by the Show Cause Notice dated 05.02.2019.Analysis: Where binding decisions of the Tribunal, High Courts or Supreme Court conclusively settle the legal question in favour of the assessee, continuation of proceedings is futile; reliance on such authoritative precedents by the adjudicating authority is permissible and legally sustainable.Conclusion: In favour of the Assessee.Final Conclusion: The legal effect of the decision is that services for maintenance and repair of windmills located away from the factory, where the electricity generated forms part of the manufacturing unit's energy requirement, qualify as input services and related re-credit and discontinuance of recovery proceedings are legally supported by binding precedent.Ratio Decidendi: Services used for maintenance and repair of windmills located outside factory premises qualify as input services under Rule 2(l) of the CENVAT Credit Rules, 2004 when the electricity generated forms part of the manufacturing unit's energy requirement, and binding appellate or judicial decisions in favour of the assessee render restoration of credits and dropping of recovery proceedings lawful.