Setback for Ashok Leyland: CESTAT Rejects Input Service Credit on Windmill Expenses Over Lack of Lease Arrangement [Read Order]

The Chennai Bench of Customs, Excise and Service Tax Appellate Tribunal(CESTAT) dismissed Ashok Leyland’s appeal, rejecting its claim for input service credit on windmill expenses due to the absence of a lease arrangement in the agreement

Ashok Leyland Limited,appellant-assessee, manufactured cast iron and aluminum articles for motor vehicles under CETA, 1985. It claimed input service credit on service tax paid for leasing and maintaining windmills in Tirunelveli. The electricity generated was sent to the Tamil Nadu Electricity Board (TNEB) grid, and an equal amount was drawn for its factory use.

The Revenue found that, as per an agreement dated October 18, 2010, Ashok Leyland Wind Energy Limited (ALWEL) sold the power generated from its windmills to the assessee through invoices based on units supplied.

Clear all Your Doubts on RCM, TCS, GTA, OIDAR, SEZ, ISD Etc... Click Here

This led to 11 Show Cause Notices for recovering input service credit availed between October 2009 and June 2013. Despite the assessee’s replies, the Original Authority upheld the demand, ordering recovery with interest and penalties. The present appeals challenge this order.

Read More: Credit is admissible even when Windmill is not located inside Factory Premises: CESTAT

The two member bench comprising P.Dinesha(Judicial Member) and Vasa Seshagiri Rao(Technical Member) examined whether the assessee was justified in claiming input service credit on service tax paid for windmill lease rentals and maintenance.

The assessee argued that it claimed credit for service tax paid on windmill leasing and maintenance, as the electricity generated was sent to the TNEB grid and an equal amount was used in its factory. It maintained that the credit should not be denied since the electricity was used in manufacturing.

The Revenue countered that the agreement with ALWEL only covered the sale of electricity, not windmill leasing. The appellate tribunal found that ALWEL handled windmill operation and maintenance, bore the costs, and retained ownership. The agreement did not mention any lease arrangement.

Know Practical Aspects of Tax Planning, Click Here

Since the assessee failed to prove its claim, the CESTAT ruled that input service credit was not justified and dismissed the appeal.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates