Gujarat High Court

Rajhans Metals Pvt. Ltd vs Commissioner Of Central Excise on 13 November, 2025

Author: Bhargav D. Karia

Bench: Bhargav D. Karia

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                        C/TAXAP/1037/2008                                    CAV JUDGMENT DATED: 13/11/2025

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                                                                           Reserved On   : 15/10/2025
                                                                           Pronounced On : 13/11/2025

                                   IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

                                                R/TAX APPEAL NO. 1037 of 2008


                      FOR APPROVAL AND SIGNATURE:


                      HONOURABLE MR. JUSTICE BHARGAV D. KARIA

                      and
                      HONOURABLE MR. JUSTICE PRANAV TRIVEDI

                      ==========================================================

                                  Approved for Reporting                     Yes           No
                                                                                           ✓
                      ==========================================================
                                               RAJHANS METALS PVT. LTD.
                                                        Versus
                                            COMMISSIONER OF CENTRAL EXCISE
                      ==========================================================
                      Appearance:
                      MR ANAND NAINAWATI(5970) for the Appellant(s) No. 1
                      MR ANKIT SHAH(6371) for the Opponent(s) No. 1
                      ==========================================================

                         CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
                               and
                               HONOURABLE MR. JUSTICE PRANAV TRIVEDI


                                                CAV JUDGMENT

(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)

1. Heard learned advocate Mr. Anand

Nainawati for the appellant and learned

advocate Mr. Ankit Shah for the

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respondent.

2. This Tax Appeal is filed under section

35G of the Central Excise Act, 1944 (For

short "the Act") arising out of the final

order dated 07.09.2007 passed by the

Customs, Excise and Service Tax Appellate

Tribunal, Ahmedabad (For short "the

Tribunal") in Appeal No.E/696/2007.

3. The appeal is admitted vide order

dated 25.06.2009 for consideration of the

following substantial questions of law:

"1. Whether on the facts and circumstances of the case, the CESTAT is correct in holding that the services received in respect of setting up the captive wind mill plant are not entitled for the Cenvat Credit under rule 2(l) of the Cenvat Credit Rules, 2004?

2. Whether on the facts and circumstances of the case, the CESTAT is correct in rejecting the

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appeal on the ground that in order to qualify under the definition of input service, the service has to be received in the factory of production?

3. Whether on the facts and circumstances of the case, the Appellate Tribunal is correct in rejecting the appeal of the Appellants on the ground that the services received in respect of generation of electricity a non excisable product which is used in or in relation to the manufacture of dutiable products, are not entitled for Cenvat credit?"

4. Brief facts of the case are that the

appellant was engaged in manufacture of

alloy products falling under Chapter 74 of

Central Excise Tariff Act, 1985 (For short

"the Act,1985") at its factory at Plot No.

21/3, GIDC Industrial Estate, Shanket

Tekri, District Jamnagar, Gujarat.

5. The appellant was availing Cenvat

Credit of inputs, capital goods and input

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services under the provisions of the Act

and under the Cenvat Credit Rules, 2004

(For short "the Rules"). The appellant was

regularly filing monthly ER-1 return along

with other returns as prescribed under the

Rules.

6. The appellant decided to install Wind

Mills to generate electricity to be used

for manufacturing of excisable goods by

way of "Wheeling Agreement" entered with

M/s. Gujarat Energy Transmission

Corporation Ltd. (GETCO) in view of

progressive power policy of the Gujarat

Government.

7. The appellant purchased Windmill

devices/equipments along with all

necessary accessories from M/s. ENERCON

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(India) Ltd. and also authorised them for

services of erection and commissioning of

Wind Mills along with necessary civil

construction.

8. Accordingly, while setting up of the

Windmills, the appellant availed the

services for the purpose of installation,

erection and commissioning of the

Windmills. The electricity generated at

Windmills were fed to grid of Gujarat

Electricity Board (GEB) on the basis of an

agreement and the appellant received equal

quantity of electricity fed by them from

GEB at the factory site and whatever

quantity of electricity is used in excess

of what was produced was charged to the

appellant by the GEB. The appellant

claimed Cenvat Credit of the services

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availed at the Windmill station.

9. The adjudicating authority held that

service tax paid in relation to the

services availed for the purpose of the

erection, commissioning of Wind Mills away

from the factory site, cannot be taken as

credit and the same was upheld by the

Commissioner (Appeals) in the appeal

preferred by the appellant.

10. Being aggrieved, the appellant

preferred an appeal before the Tribunal

contending that in terms of Rule 2(l) of

the Rules, any service used by the

manufacturer, whether directly or

indirectly, in or in relation to the

manufacture of final product and clearance

of final product from the place of removal

is to be treated as input service and

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therefore, electricity was an input

required in manufacturing and though

generated by the appellant at the Wind

Mills installed away from the factory and

transferred for its manufacturing purpose

through GEB power grid, the appellant was

entitled to credit of service tax paid by

the appellant on the services availed for

installation of windmills.

11. The Tribunal however, dismissed the

appeal observing as under:

"6. I have fully considered the submissions made by both sides. If it is the case of generation of electricity with the help of the windmills within the factory premises, there should be no doubt about extending service credit tax claimed by them. In this case, the electricity is being generated in wind mills far away from the factory premises. The electricity as such is not excisable. The electricity is generated by them

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at place away from the factory. The electricity generated by them is surrendered to the Electricity Board. The quantum of electricity which is going to be used by them need not be exact quantity of electricity produced in their windmills. The services used at the site of the windmills cannot be held as input services by the unit in Jamnagar. As electricity is not excisable, the cenvat credit is not available even at the premises of the windmills.

Cenvat credit claimed is inadmissible and the order of the Commissioner in this regard deserves to be upheld."

12. Learned advocate Mr. Anand Nainawati

appearing for the appellant submitted that

the respondent authorities and the

Tribunal have committed an error by not

allowing Cenvat Credit only on the ground

that the electricity was being generated

in Wind Mills far away from the factory

premises and as electricity is not

excisable, Cenvat Credit is not available

even for service tax paid for installation

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of the Wind Mills.

13. It was submitted that the electricity

generated by the Windmills was utilised by

the appellant in its manufacturing unit

through GEB as per the agreement with GEB

for the purpose of utilising the power

generated by the Windmills for consumption

at factory for manufacturing purpose which

is connected through GEB Power Grid/High

tension supply lines.

14. It was submitted that the appellant

was already paying charges for excess use

of power to GEB in addition to power

generated by the Windmills transmitted

through GEB power grid. It was therefore,

submitted that there is nexus between the

power generated through Windmills and the

goods manufactured as three activities

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i.e. sale, supply and consumption take

place immediately even though place of

generation of electricity by Windmills and

manufacturing factory site are different

and therefore, the appellant is entitled

to avail the credit of service tax

incurred in relation to the Windmills. In

support of his submissions, reliance was

placed on the following decisions:

1) Commissioner of Central Excise v.

Excel Crop Care Ltd. reported in 2018 (12)

STR 436 (Guj.).

2) C.C.E. & Cus., Aurangabad v. Endurance

Technology Pvt. Ltd. reported in 2017 (52)

S.T.R. 361 (Bom.)

3) Commissioner of C. Ex. & S.T., Chennai

v. Ashok Leyland Ltd. reported in

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2019(369) E.L.T. 162 (Mad.)

4) Parry Engg. & Electronics P. Ltd. v.

C.C.E. & S.T., Ahmedabad-I,II,III reported

in 2015(40) S.T.R. 243 (Tri.-LB)

5) Endurance Technologies P. Ltd. v.

Commr of C. Ex., Aurangabad reported in

2011 (273) E.L.T. 248 (Tri.-Mumbai)

15. It was submitted that this Court in

case of Excel Crop Care Ltd.(supra) after

considering the provisions of the Act and

the Rules and more particularly,

definition of "input service" as defined

in Rule 2(l)(i) of the Rules has held that

mobile service provider, who is liable to

pay service tax and recovers the same by

adding such service tax in the bill, is

the person providing taxable service and

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is rendering "output service" so as to

constitute "input service" in the hands of

respondent assessee. It was therefore,

submitted that the service tax paid by the

appellant on the installation and erection

of the Windmills is required to be given

credit under the provisions of the Rules.

16. Reliance was also placed on Circular

No.97/8/2007-S.T. dated 23.08.2007 more

particularly, clause 8.3 thereof in which

doubt raised regarding the admissibility

of the Cenvat Credit on service tax paid

in respect of mobile phones was answered

to the effect that in the Rules, no

condition has been prescribed with regard

to admissibility of credit of service tax

only on telephone connection installed in

the business premises. It was therefore,

submitted that similarly, for the

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electricity utilised for manufacturing by

the appellant provided by GEB against

supply of electricity generated by

Windmills, the appellant was entitled to

the credit of service tax.

17. Per contra, learned advocate Mr.

Ankit Shah for the respondent reiterated

the contentions raised before the Tribunal

and submitted that there is no connection

between the electricity generated at the

place of installation of Windmills by the

appellant and the manufacturing activity

taking place at its factory as the

electricity is being received through GEB.

It was pointed out that the electricity

itself is not excisable and therefore,

service tax credit is rightly rejected by

the Tribunal.

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18. Having heard the learned advocates

for the respective parties and having

considered the facts of the case, it would

be germane to refer to the relevant

provisions of the Act and the Rules.

Finance Act, 1994:

"65(29) - "commissioning and installation agency" means any agency providing service in relation to erection, commissioning or installation."

"(39a) "erection, commissioning or installation" means any service provided by a commissioning and installation agency, in relation to,-

(1) erection, commissioning or installation of plant, machinery or equipment; or

(ii) installation of-

(a) electrical and electronic devices, including wirings or fittings therefor; or

(b) plumbing, drain laying or other installations for transport of fluids; or

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(c) heating, ventilation or air-

conditioning including related pipe work, ductwork and sheet metal work; or

(d) thermal insulation, sound insulation, fire proofing or water proofing; or

(e) lift and escalator, fire escape staircases or travelators; or

(f) such other similar services;"

Cenvat Credit Rules, 2004 :

"Rule 2(l)"input service" means any service, -

(i) used by a provider of taxable service for providing an output service, or

(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal,

and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales

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promotion, market research, storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal;"

Rule (4) Conditions for allowing CENVAT credit (1) The CENVAT credit in respect of inputs may be taken immediately on receipt of the inputs in the factory of the manufacturer or in the premises of the provider of output service."

19. Definition of term "input service"

as appearing in Rule 2(l) of the Rules

would also include any service used by a

provider of taxable services for providing

an output service, or used by the

manufacturer, whether directly or

indirectly, in relation to the manufacture

of final products and clearance of final

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products from the place of removal.

20. In the facts of the case, the

appellant has utilised the electricity

supplied by GEB against the electricity

generated by Windmills and therefore,

service tax paid by the appellant on the

installation, erection and services in

connection with maintenance of the Wind

Mills are exclusively used in relation to

manufacturing activity and therefore, the

same would be squarely covered under the

definition of "input service", as the

management, maintenance and repair of

Windmills installed by the appellant would

fall within "input service" as defined by

clause (l) of Rule 2 read with Rule 4 of

the Rules which provides that any input or

capital goods received in factory or any

input services received by the

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manufacturer of final product would be

susceptible to Cenvat Credit.

21. It is pertinent to note that there is

no provision in the Rules which stipulates

that input services received by the

manufacturer must be received by the

manufacturer at the factory premises.

22. This Court in case of Excel Crop Care

Ltd. (supra) while considering the

question as to the allowability of Cenvat

Credit on mobile services after

considering Rule 2(l) of the Rules held

that the mobile service provider who is

liable to pay service tax and recovers the

same by adding such service tax in his

bill, is the person providing taxable

service and is rendering output service so

as to constitute input service in the

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hands of the assessee and therefore, the

ground on which the credit was disallowed

as the phones were not installed in the

factory premises was held to be a ground

not germane to the provisions of the

Rules.

23. The Hon'ble Bombay High Court in case

of Endurance Technology Pvt. Ltd.(supra)

on similar issue of allowability of Cenvat

Credit on electricity generated from the

Windmills has held as under:

"5. On perusal of these Rules, it becomes clear that the management, maintenance and repair of windmills installed by the respondents is input service as defined by clause "I" of Rule 2. Rule 3 and 4 provide that any input or capital goods received in the factory or any input service received by manufacture of final product would be susceptible to CENVAT credit. Rule does not say that input service received by a

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manufacturer must be received at the factory premises. The judgments referred to above, also interpret the word "input" service in similar fashion.

In the case of Commissioner of Central Excise, Nagpur v. Ultratech Cement Ltd. [cited supra), the Division Bench of this Court held that the definition of "input service" is very wide and covers not only services which are directly or indirectly used in or in relation to manufacture of final product but also includes various services used in relation to business of manufacture of final product. The expression "activities" in relation to business is also discussed in this judgment by referring to judgment of Apex Court.

In the case of Deepak Fertilizers & Petrochemicals Corporation Ltd. v. C.C.Ex. Belapur [cited supra) the Division Bench held as under:

                                                    "The     definition    of      the
                                                    expression     input     service'

covers any services used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products. The words 'directly or indirectly' and 'in or in relation to' are

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words of width and amplitude. The subordinate legislation has advisedly used a broad and comprehensive expression while defining the expression 'input service'. Rule 2(1) initially provides that input service means any services of the description falling in subclauses (i) and (ii). Rule 2(1) then provides an inclusive definition by enumerating certain specified services.

                                                    Among    those     services     are
                                                    services    pertaining     to   the
                                                    procurement    of     inputs    and
                                                    inward      transportation       of

inputs. The Tribunal, proceeded to interpret the inclusive part of the definition and held that the Legislature restricted the benefit of Cenvat credit for input services used in respect of inputs only to these two categories viz. for the procurement of inputs and for the inward transportation of inputs. This interpretation which has been placed by the Tribunal is ex facie contrary to the provisions contained in Rule 2(1). The first part of Rule 2(1) inter alia covers any services used by the manufacturer directly or indirectly, in or in relation to the manufacture of final products. The inclusive part of

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the definition enumerates certain specified categories of services. However, it would be farfetched to interpret Rule 2(1) to mean that only two categories of services in relation to inputs viz. for the procurement of inputs and for the inward transportation of inputs were intended to be brought within the purview of Rule 2(1). Rule 2(1) must be read in its entirety. The Tribunal has placed an interpretation which runs contrary to the plain and literal meaning of the words used in Rule 2(1). Moreover as we have noted earlier, whereas Rule 3(1) allows a manufacturer of final products to take credit of excise duty and Service Tax among others paid on any input or capital goods received in the factory of manufacturer of the final product, insofar as any input service is concerned, the only stipulation is that it should be received by the manufacturer of the final product. This must be read with the broad and comprehensive meaning of the expression 'input service' in Rule 2(1). The input services in the present case were used by the appellant whether directly or indirectly, in or

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in relation to the manufacture of final products. The appellant, it is undisputed, manufactures dutiable final products and the storage and use of ammonia is an intrinsic part of that process."

6. In view of this discussion, we have no hesitation to hold that the answer to question No. (1) is in affirmative. Despite this settled position, learned counsel for the appellant tried to submit that the judgment cited at Sr. No. (2) is being challenged before Supreme Court. This submission does not really help us in deciding the appeals. Both appeals are dismissed."

24. Similarly, Hon'ble Madras High Court

in case of Ashok Leyland Ltd.(supra) after

considering the decision of Bombay High

Court in case of Endurance Technology Pvt.

Ltd.(supra) held as under:

"17. Thus, we are to consider as to whether there has been any nexus between the energy generated and the manufacturing activity of

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the assessee. This very issue was considered in Endurance Technology Pvt. Ltd. (supra). In fact, we find two substantial questions of law framed for consideration in Endurance Technology Pvt. Ltd. (supra), which are more or less identical to that of the questions of law framed in these appeals.

The first question framed for consideration was whether the assessee is entitled to avail Cenvat credit on management, maintenance or repair services provided on services to windmills installed and situated away from the factory premises. The second question was whether electricity generated on two different places far away could be said to have been used for manufacture of the final product of the assessee in its factory at Aurangabad.

18. So far as the second substantial question of law is concerned, it was answered in the affirmative in the light of the stand taken that admittedly, such electricity generated at those two different locations was adjusted to the electricity used in the factory at Aurangabad and this adjustment was admitted by the Revenue and accordingly, the second question was answered in favour of the assessee. In the case on hand also, in the show

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cause notice, the adjudicating authority does not dispute the fact that equivalent quantity, that is, the quantity generated is the same as the quantity drawn by the assessees from the TNEB grid. On the first question of law, with regard to the availment of cenvat credit on input services, the Hon'ble Supreme Court referred to the decisions of the High Court of Bombay in the case of Commissioner of Central Excise, Nagpur v. Ultratech Cement, 2010 (20) S.T.R. 589 (Bom.); Commissioner of Central Excise, Nagpur v.

Ultratech Cement Ltd., 2010 (260) E.L.Τ. 369 (Bom.); and Deepak Fertilizers & Petrochemicals Corporation Ltd. v. C.C. Ex. Belapur, 2013 (32) S.T.R. 532 (Bom.). The Hon'ble Supreme Court, after taking note of the relevant rules, held that it becomes clear that management, maintenance and repair of windmills installed by the respondents is input service as defined in Clause I of Rule 2. It was held that Rules 3 and 4 provide that any input or capital goods received in the factory or any input service received for manufacture of final product would be susceptible to Cenvat credit. Further, it was held that Rule does not say that input service received by a manufacturer must be received at the factory premises

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and the decisions relied on also interpret the word "input service"

in similar fashion.

19. Further, by referring to the decision in Commissioner of Central Excise, Nagpur v. Ultratech Cement, 2010 (20) S.T.R. 589 (Bom.) (supra), it was held that the definition of "input service" is very wide and covers not only services which are directly or indirectly used in or in relation to manufacture of final product, but also includes various services used in relation to business of manufacture of final product. Further, the expression "activities" in relation to business was also discussed in the said decision following the decisions of the Apex Court.

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25. As already pointed out, there is no dispute that the electricity generated by the windmills are exclusively used in the manufacturing unit for final products, there is no nexus between the process of electricity generated and manufacture of final products and there is no necessity for the windmills to be situated in the place of manufacture. Further, as already noticed, the

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definition of "input service" is wider than the definition of "input". Furthermore, if one takes a look at the Rules, more particularly Rule 2(k), as it stood prior to 1-4-2011, which defines "input", the following has been specifically inserted.

                                               "within      the               factory                    of
                                               production".

                                               However,    these     words    are

physically missing in Rule 2(1), which defines "input service" and it would mean any service used by a provider of taxable service for providing an output service or used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal. Though the definition of "input service" has to be widely construed, and in terms of Rule 3, which allows the manufacturer of final products to take the credit of service tax inputs or capital goods received in the factory of manufacture of final products, insofar as any input service is concerned, the only stipulation is that it should be received by the manufacturer of final products. Therefore, this would be the correct manner of interpreting Rule 2(1) of the Rules.

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26. In the light of the above, we are of the considered view that the decision in the case of Ellora Times Ltd. (supra) does not lay down the correct legal position and we agree with the decision of the High Court of Bombay in Endurance Technology Pvt. Ltd. (supra), which has been followed by the Larger Bench of the Tribunal in Parry Engg. & Electronics P. Ltd."

25. In view of above settled legal

position and in absence of words "within

the factory of production" in Rule 2(l)

which defines "input service" which would

mean that any service used by a provider

of taxable service for providing an output

service or used by the manufacturer

whether directly or indirectly, or in

relation to the manufacture of final

product and clearance of final product

from the place of removal, the definition

of 'input service' has to be widely