L.G. BALAKRISHNAN AND BROS. LTD. Vs. COMMR. OF C. EX.

JUDGEMENT

(1.) THESE applications have been filed by M/s. L.G. Balakrishnan & Bros Limited (LGB) seeking waiver of pre -deposit and stay of recovery of service tax credit demanded under Rule 14 of the CENVAT Credit Rules, 2004 (CCR) read with Section 11A of the Central Excise Act, 1944 (the Act) along with interest and penalties of equal amount imposed under Rule 15 of the CCR read with Section 11 AC of the Act vide orders impugned in both the captioned appeals. The details of the demands and penalties are as follows:

(2.) THE facts of the case in brief are that LGB, manufacturers of automotive and industrial chains and its parts based in Coimbatore, set up windmills at Nagercoil and Palladam. The power generated by the windmills is transferred to Tamil Nadu Electricity Board (TNEB) grid, which the assessee received for use in its manufacturing facility. LGB availed credit of service tax paid on account of erection/commissioning of windmill projects, security charges, annual maintenance contract charges etc. paid in respect of the windmills. On the basis that that there was no nexus between the windmills and the production process in the factory two Show Cause Notices were issued to recover credit of service tax paid in respect of erection and maintenance of the windmills and taken by the appellants. Notices also alleged LGB availing credit pertaining to its sister units as well as taking double credit for the same payment. The original authority demanded credit of service tax availed by LGB along with interest and imposed penalties on them in adjudication of the allegations in the notices. In the impugned orders, the Commissioner (Appeals) affirmed orders of the original authority. In the appeals before the Tribunal, it is submitted that services received at windmills qualified as input service of the appellants. Every service used directly or indirectly, in or in relation to the manufacture of the final products and clearance of final products from the place of removal was covered by definition of input service. It was immaterial whether the input service was received or used in the factory, for the purpose of the definition. In the inclusive part of the definition of input service, services in relation to activities relating to business are covered. This would cover the services received at the windmills, the electricity generated at which was used by the appellants in the manufacture of excisable goods. The input service was qua the manufacturer and not qua the factory. Therefore, taxes paid on services received outside the factory premises could not be denied credit on that account. This was evident from Rule 3(i) of the CCR, which allowed manufacturer of final product to take credit of tax paid on any input service received by the manufacturer of final product or by the provider of output services on or after 10 -9 -2004. The windmills were captive power plants as the power generated in by the windmills was transmitted to the factory and used in the manufacture of final products. The fact that windmill was not a factory and that the service received in the plant would not qualify as input service was incorrect. The definition of input services included services in relation to activities relating to business of a manufacturer. The expression activities relating to business had to be given a wider meaning as held by the Larger Bench of the CESTAT in CCE, Mumbai v. G.T.C. Industries Ltd. in . The appellants were eligible to take CENVAT credit of tax paid on all those input services which were connected with the business of a manufacturer. The appellants relied on the following cases:

(3.) THE alleged wrong availment of credit had taken place owing to an interpretation different from that held by the department as regards the appellants' eligibility to the same. Therefore penalty imposed was not sustainable. Penalty under Section 78 could be imposed only on a provider of output service and the appellant not being a provider of output service, penalty imposed under Section 78 was not sustainable. Section 11AC had no application as CENVAT credit in respect of inputs or capital goods was not the issue involved. They had taken input service credit on a bona fide belief of their eligibility to the same. Therefore in the light of the ratio of Hindustan Steel Limited v. State of Orissa reported in , penalty could not be imposed on the appellants. Demand of interest was not payable as the demand of service tax credit was not sustainable. Ld. Counsel for the appellants reiterates the above grounds and takes me through the various case law submitted.