Service Tax | Windmill Installation, Commissioning Services Construable As 'Input Service', Credit Admissible: Gujarat High Court

The Gujarat High Court has allowed CENVAT credit of service tax paid on input used in setting up of a Windmill, away from factory premises, on the strength of nexus of the inputs with output activity, electricity generation. A Division Bench comprising, Justice Bhargav D. Karia and Justice Pranav Trivedi in twin writ petitions has set aside order of CESTAT Ahmedabad that disallowed CENVAT credit on the ground that credit of inputs and input services utilized away from the factory site for setting-up Windmill could not be availed. In turn, the Gujarat High Court emphasized on 'nexus with manufacturing activity' noting that installation, erection and commissioning were 'exclusively' used in the manufacturing activity viz. electricity generated at Windmill. Therefore, the aforesaid services Appellant installed Windmills to generate electricity to be used for manufacturing of excisable goods by way of “Wheeling Agreement” entered with Gujarat Energy Transmission Corporation Ltd. under Gujarat Government's progressive power policy. The electricity generated at the Windmill was fed to the grid of Gujarat Electricity Board. They had a manufacturing unit and a Windmill set up about 100 Kms. away from each other. While setting up of the Windmills, it availed services for the purpose of installation, erection and commissioning of the Windmills. The Respondent contended that electricity generated at windmills had no direct connection with factory operations. Therefore, as services linked to windmills could not qualify as input services. As opposed to the aforesaid view that credit of service tax could be availed only for generation of electricity with the help of the windmills within the factory premises, the Gujarat High Court explained how 'nexus' existed between windmill related services and manufacturing activity in terms of Rule 2l of the CENVAT Credit Rules, 2004. The Gujarat High Court illustrated that credit of service tax paid on mobile phones was held to be admissible even when same was not at the business premises. In this respect, the Gujarat High Court cited Circular No.97/8/2007-S.T. dated August 23, 2007. Thus, the Gujarat High Court clarified that Electricity generated by windmills was utilized in factory manufacturing via GEB grid. Further, as there was no provision in the Rules which stipulated that input services received by the manufacturer must be received by the manufacturer at the factory premises, the Gujarat High Court held that services of installation, erection and commissioning constituted as 'Input Services' for the purpose of 2004 CENVAT Credit Rules. The Gujarat High Court followed the decisions of Excel Corp Care and Endurance Technologies wherein credit was allowed for mobile services even if phones were used outside factory and windmill services were treated as input service, respectively. Accordingly, the Gujarat High Court entitled the Appellant to CENVAT credit of service tax paid on windmill-related services and allowed the appeals. Case Name: Rajhans Metals Limited vs. Commissioner of Central Excise Case No.: R/TAX APPEAL NO. 1564 of 2011 & R/TAX APPEAL NO. 1037 of 2008 Date of Decision: 13.11.2025 For Appellant: Advocates Anand Nainawati For Respondent: Advocate Ankit Shah Clickhere to read theorder in Rajhans Metals.Clickhere to read theorder in Real Strips.

Service Tax | Windmill Installation, Commissioning Services Construable As 'Input Service', Credit Admissible: Gujarat High Court

Parul Bose

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