Gujarat High Court Allows CENVAT Credit on Windmill Services Used for Power Supplied to Factory

Gujarat Ambuja Exports Ltd., engaged in manufacturing cotton yarn at its Himmatnagar factory, installed a windmill 450 km away in Jamnagar under the State’s renewable energy policy. Electricity generated at the windmill was injected into the GEB/GETCO grid, and an equivalent unit-to-unit credit, after deducting wheeling losses, was supplied to the assessee’s factory for use in its manufacturing operations. The assessee availed CENVAT Credit on the erection, commissioning, installation, and maintenance services of the windmill.

A show-cause notice alleged that services received at the remote windmill site did not qualify as “input services” since electricity was not generated inside the factory, and electricity itself was not excisable.

The adjudicating authority, the Commissioner (Appeals) and the CESTAT rejected the claim, relying on Rajhans Metals, holding that the windmill was an independent unit and that the credit could not be availed of for services received outside the factory.

The assessee appealed to the High Court.

Main Issue: Whether services used for erection, commissioning, installation and maintenance of a captive windmill located far from the factory qualify as “input services” under Rule 2(l) of the Cenvat Credit Rules, 2004 for manufacture of dutiable final products.

HC Ruled: The Hon’ble HC allowed the appeal, answering all substantial questions of law in favour of the assessee. The Court held that Rule 2(l) defining “input service” does not require the service to be received “within the factory of production.” Electricity generated by the windmill was directly used in the manufacturing unit through GEB’s adjustment mechanism, establishing a clear nexus between the services received and the manufacture of final products.

The definition of input service is broad, covering services used directly or indirectly in the manufacture of final products, and includes services used for setting up, maintaining, and operating facilities related to business.

The Court held that CENVAT Credit cannot be denied merely because the windmill is located far away. Thus, CESTAT’s order was set aside, and the assessee’s entitlement to CENVAT Credit was upheld.

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