UltraTech Entitled to Full CENVAT Credit on Fly Ash O&M Services: CESTAT Rules Dept Cannot Restrict Credit [Read Order]

The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) ruled that UltraTech was entitled to full CENVAT credit on the service tax paid to its subcontractor for the operation and maintenance of the Fly Ash Collection System at Mettur Thermal Power Station (MTPS) and held that the department could not restrict the credit based on the proportion of fly ash used in UltraTech’s factory.

UltraTech Cement Ltd., the appellant, had engaged a subcontractor, Shri R. Saravanan, to carry out the operation and maintenance of the fly ash system installed at MTPS. The subcontractor raised invoices on UltraTech, and UltraTech paid service tax on these services under the category of repair and maintenance. UltraTech availed CENVAT credit on this tax.

The department alleged that since UltraTech received only 60% of the total fly ash generated, credit should be restricted to the portion used in its own manufacturing activity. It also argued that part of the service related to fly ash allotted to India Cements and to TNEB, and therefore the credit was partly ineligible.

The appellant's counsel argued that the entire service was received by it alone and was used for procuring fly ash, which is an essential input for its cement manufacturing. It explained that the subcontractor had no contractual link with TNEB and rendered all services to UltraTech only.

The appellant’s counsel also pointed out that earlier orders in its own case had already accepted the eligibility of full credit and that these orders had attained finality.

The revenue counsel argued that the credit should be proportionate since only part of the fly ash was used by UltraTech and the rest was meant for other parties.

The bench comprising M. Ajit Kumar (Technical Member) and Ajayan T.V. (Judicial Member) observed that UltraTech alone was responsible under the MOU to maintain the fly ash system and that the subcontractor’s services were entirely for UltraTech.

The tribunal explained that the service was directly connected with procurement of inputs and was an eligible input service. It also pointed out that earlier adjudication orders had already accepted the availability of full credit and were not challenged by the revenue. The appeal on this issue was allowed.

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