CENVAT Credit Available For Installation And Maintenance Of Windmills Even When Located Away From Factory Premises: Gujarat HC

The Gujarat High Court has held that CENVAT credit on service tax paid for installation, commissioning, civil works, and maintenance of windmills is admissible even when the windmills are located away from factory premises. The bench of Justice Bhargav D. Karia and Justice Pranav Trivedi has observed that CENVAT credit on services relating to windmills is admissible when the electricity generated is used in manufacturing, even if the windmills are located at distant sites. The crucial test is the existence of a nexus between the service and the manufacturing activity, not the physical location where the service is received. The case arose from a tax appeal filed under Section 35G of the Central Excise Act, 1944, challenging a 2011 order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT). The Tribunal had upheld the denial of CENVAT credit on service tax paid for erection, commissioning, installation, and maintenance services related to a windmill installed in the Kutch district of Gujarat, on the ground that the windmill was situated outside the factory premises and the electricity generated was non-excisable. The appellant company, engaged in the manufacture of hot-rolled and cold-rolled steel coils, had installed a windmill to generate electricity for use in its manufacturing operations. The electricity generated was transmitted through the state grid and adjusted against the power consumed at the factory, after deduction of wheeling charges. The company availed CENVAT credit of service tax paid on various services used for setting up and maintaining the windmill, which was duly reflected in statutory records and returns. During an audit, the Central Excise department objected to the availment of credit and issued a show cause notice proposing recovery of the credit along with interest and penalty. The adjudicating authority confirmed the demand, and although the penalty was later reduced by the Commissioner (Appeals), the denial of credit was upheld. The Tribunal also dismissed the appeal, relying on earlier decisions that held such services to be ineligible for credit when windmills were located far from the factory and generated non-excisable electricity. The manufacturer argued that there was a clear nexus between the electricity generated by the windmill and the manufacturing activity carried out at the factory, as the power was actually consumed in production. It was contended that the definition of “input service” under Rule 2(l) of the CENVAT Credit Rules, 2004, was wide enough to cover such services, and that the rules did not require input services to be received within the factory premises. The department maintained that the windmill was located outside the factory and that electricity was not an excisable product. It was argued that services used at the windmill site could not be treated as input services for the manufacturing unit, and therefore CENVAT credit was rightly denied. After examining the statutory provisions and a series of judicial precedents, the High Court rejected the department’s stand. The Court noted that Rule 2(l) defining “input service” does not contain the restrictive words “within the factory of production,” unlike the definition of “input” under the rules. It held that the definition of input service must be construed broadly to include services used directly or indirectly in relation to manufacturing activities. The Court further observed that electricity generated by the windmill was exclusively used by the manufacturer for producing dutiable final products, and that adjustment of generated power against factory consumption through the state grid clearly established the required nexus. The mere fact that electricity itself is not excisable was held to be irrelevant for determining eligibility to CENVAT credit on input services. The Court answered the substantial questions of law in favour of the assessee and against the Revenue, holding that denial of CENVAT credit was legally unsustainable. The appeal was allowed, providing important clarity and relief to manufacturers investing in renewable energy infrastructure and reinforcing a liberal interpretation of “input service” under the CENVAT Credit Rules. Case Details Case Title: Real Strips Ltd Versus Commissioner Of Central Excise - II Case No.: R/Tax Appeal No. 1564 Of 2011 Date: 13/11/2025 Counsel For Petitioner: Sudhanshu Bissa Counsel For Respondent: Hetvi H Sancheti Click Here To Read Order Read More: FAKE NEWS ALERT: AI Deepfake Scams Misusing Names of Om Birla and Nirmala Sitharaman

CENVAT Credit Available For Installation And Maintenance Of Windmills Even When Located Away From Factory Premises: Gujarat HC

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