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Reliance Gas Transportation Infrastructure Ltd Versus Commissioner of Service Tax, Mumbai-II

2015 (6) TMI 307 - CESTAT MUMBAI

Waiver of pre deposit - Capital goods - erection of pipelines - whether appellant is eligible for the Cenvat credit of the service tax paid by the contractors who were laying pipelines for transportation of gas through pipeline - Difference of opinion - Majority order - Held that:- appellant is procuring pipes which are imported by them under EPCG system. The said pipes are then handed over to the pipeline laying contractors, who lay the pipes undertake the entire job of pipeline and bill the ap .....

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actors would be eligible for Cenvat credit on the ratio of the law as has been laid down by the Hon'ble High Court in the case of CCE Vs. Sai Samhita Storages (P) Ltd. - [2011 (2) TMI 400 - ANDHRA PRADESH HIGH COURT]

GSPL had floated a tender for laying of pipeline system of transportation of oil and gas under EPC contract. The pipes which were procured by the award winning contractor and the Cenvat credit of the Central Excise duty paid of such pipeline was availed by GSPL which was .....

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ine laying contractors directly to appellant herein for laying the pipeline and other input services which are required for rendering of the service by the appellant, prima facie the Cenvat credit cannot be denied to the appellant; the same view is applicable in respect of the capital goods which are procured by the appellant directly for construction/laying of the pipeline. - appellants have made out a prima facie case for complete waiver of pre-deposit of the amounts involved - Stay granted. - .....

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ery thereof during the pendency of the appeal. (Pronounced in the open court on 12.5.2015) ORDER NO. M/2232/15/STB THIRD MEMBER Per: M V Ravindran: 1. This difference of opinion is placed before me by the order of the Hon'ble President to resolve the following difference: "i) Whether in the facts and circumstances of the case the applicant has made out a case for complete waiver of service tax on inputs, input services and capital goods used in laying down the pipeline which is used for .....

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ether an amount of ₹ 25 Crores should be deposited by the appellant within two months of the date of receipt of this order and the recovery of balance amount of service tax, interest and penalties be stayed till the disposal of the appeal as held by Member (Technical)" 2. Heard both the sides and perused the records. 3. The facts which are not in dispute, the entire issue is regarding the pre-deposit of an amount of hearing and disposing of the appeal on merits. It is also undisputed .....

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id judgement of the Tribunal and submit that the issue was slightly different in that inasmuch, GSPL had given EPC contract to various contractors and the pipes were procured by the contractors and hence, the Tribunal upheld the denial of the Cenvat credit on duty paid on pipes as not available to the service provider, namely, GSPL. He would also take me through the findings recorded by the Tribunal as to the Cenvat credit of the services rendered by the service provider directly to the GSPL. He .....

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e goods) Rs.42.60 crores (iii) Capital goods credit availed prior to commissioning of pipeline (valves, compressor pump, pipes-all specified capital goods) Rs.23.78 crores Total Rs.262.13 crores 5. Learned Special Counsel for Revenue on the other hand while reiterating the order of the Hon'ble Member (Technical) would submit that the pipes which were used for the laying of pipeline have become immovable property. He would submit that the said pipes having become pipeline system and had the c .....

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by the Hon'ble Member (Technical) is correct. 6. I have considered the submissions made by both the sides and perused the records. 7. The issue involved in this case is to whether appellant is eligible for the Cenvat credit of the service tax paid by the contractors who were laying pipelines for transportation of gas through pipeline. It is undisputed that the appellant is rendering the services of transportation of gas through pipeline services, the said activity of the appellant falls und .....

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actors classification of service is not accepted. It is noted that there is no dispute that as to the fact that the pipeline system which is put in place by the contractors is used for rendering of out put services falling under the head of "transport of goods (other than water) through the pipeline or conduit services". I find that the services rendered by the contractors for laying the pipeline is towards bringing into existence a system which is the back bone for rendering the servi .....

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S for coating pipes, supply of tangible goods services, I find that these services are rendered by the service provider for bringing into existence, pipeline through which the appellant transports the goods and discharges services tax liability. If any services which are rendered for the purpose of providing taxable output services, Cenvat credit, prima facie cannot be denied. 7.2 As regards the Cenvat credit of the Central Excise duty paid on valves, compressor plmp, pipes, I find that these it .....

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e service tax is discharged. Prima facie Cenvat credit of the duty paid cannot be denied. 7.3 As regards the reliance placed by the learned Counsel for the Revenue that judgement of the Tribunal in the case of GSPL (supra) wherein I was one of the member) will apply. I find that the said judgement is in a peculiar facts and circumstances of that case. In the said case of GSPL, the GSPL had floated a tender for laying of pipeline system of transportation of oil and gas under EPC contract. The pip .....

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case and the facts of the case in hand are totally different as has been already recorded by me. In my view if the services which are rendered by the pipeline laying contractors directly to appellant herein for laying the pipeline and other input services which are required for rendering of the service by the appellant, prima facie the Cenvat credit cannot be denied to the appellant; the same view is applicable in respect of the capital goods which are procured by the appellant directly for con .....

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view of the difference of opinion between Member (Judicial) and Member (Technical), the matter may be placed before the President to nominate Third Member to resolve the difference of opinion on the following points:- 1. Whether in the facts and circumstances of the case the applicant has made out a case for complete waiver of service tax on inputs, input services and capital goods used in laying down the pipeline which is used for transport of gas as held by Member (Judicial). OR Whether the ap .....

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n two months of the date of receipt of this order and the recovery of balance amount of service tax, interest and penalties be stayed till the disposal of the appeal as held by Member (Technical) (Pronounced in court on 30.1.2015) ORDER NO.M/615/15/STB Per: Ashok Jindal: The appellant is seeking waiver of pre-deposit of service tax of ₹ 262.13 crores along with interest and various penalties imposed on the applicant for the period April 2008 to March 2012 by way of denial of CENVAT Credit .....

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s were issued to the contractors for laying pipeline. The pipeline was commissioned around February-March 2009. For laying down the pipeline, the applicant availed certain services namely design and engineering of the pipeline to be laid, GTA services, rent-a-cab services, CHA services, Business Auxiliary services relating to laying down the pipeline. These aforesaid services were directly availed by the applicant from the service providers for laying down the pipeline. Pursuant to an audit, a s .....

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ought to be denied on the premise that the said inputs, input services and capital goods were required by the pipeline laying contractors and not by the applicant. Thereafter, the adjudication took place and it was held that laying pipeline by the contractors resulted in the creation of an immovable property, hence CENVAT Credit on inputs, input services and capital goods is not admissible till April 2009. Aggrieved by the said order, the applicant is before us seeking waiver of pre-deposit of t .....

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iii) Capital goods credit availed prior to commissioning of pipeline (valves, compressor pump, pipes-all specified capital goods) Rs.23.78 crores 3.1 He submitted that the sole reason for denial of the CENVAT Credit is on the premise that service being rendered by the pipeline laying contractors resulted in the creation of an immovable property, is clearly untenable. The said contention is not acceptable as per the decision of this Tribunal in the case of Gujarat State Petronet Ltd. vs. CCE Orde .....

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services were used by it for rendering its output services. It is further submitted that in the show-cause notice it is only the presumption that the said services may be input services for the pipe line laying contractors. 3.3 He further submitted that mere fact that the service which the applicant had availed of could also, if the same within the scope of the pipeline laying contractor, be an input service for the said contractor, is no ground for denying credit to the applicant who had direct .....

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pumps, pipes availed prior to commencing of pipeline it is submitted that the said goods are specified in the definition of capital goods in Rule 2a(A) of the Cenvat Credit Rules and credit in respect of the same was clearly admissible as the same were used for providing output services. He further submitted that the question whether any goods are capital goods for a service provider or its contractor depends entirely on the scope of supply and the deliverables. 3.5 He further submitted that the .....

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submits that denial of credit is barred by limitation as the credit which is being denied have been availed till March 2009 whereas the show-cause notice was issued on 21.10.2013. In these circumstances, he prays for waiver of pre-deposit of the entire demands be granted. 4. On the other hand, Shri V.K. Singh, learned Spl Counsel appearing for the Revenue opposed the contention of the learned Counsel and submits that the service tax paid by the contractor is for laying pipeline which is capital .....

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nt are not entitled to credit of these taxes and duty. 4.1 He also took the support of the proposition of GSPL (supra) to say that the case of the applicant is similarly placed as they have supplied the pipe and other equipment to contractors free of charge and its value is not included in value of pipeline system on which service tax paid, therefore following the same ration, in this case also the applicant is not entitled to credit of duty paid on inputs. He further submits that in the case of .....

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same is not available for the applicant. 4.2 On limitation, he submitted that the applicant has not brought in the knowledge of the department that the services of laying pipeline have been sub-contracted to the pipeline laying contractors therefore, the extended period of limitation is rightly revoked. 5. Considered the submissions made by both the sides. 6. In this case we have seen that the CENVAT Credit has been denied to the applicant for inputs, input service and capital goods which have .....

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contractors for laying pipeline which means that the applicant remained owner of the said inputs and capital goods during pipeline laying by the pipeline laying contractor. As the agreement between the applicant and the pipeline laying contractors is limited for laying of the pipeline is only on jobwork basis. Therefore, the applicant being the owner of the said goods i.e. inputs and capital goods. 6.1 The learned Commissioner in the impugned order has relied on the decision of GSPL (supra) to .....

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cation, it was clearly held by this Tribunal that whatever services have taken by the assessee directly from the service provider, the appellant is entitled to take CENVAT Credit. The same principle will applicable to this case also to inputs and capital goods as the same were directly availed by the applicants only. 6.2 Therefore, prima facie we are of the view that the applicant is entitled to take CENVAT Credit on inputs and capital goods which were used by pipeline laying contractor for layi .....

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In this case, it has to be noted that EPC contractors have not paid service tax on 'pipeline system' but on the services provided for constructing the system. Definition of 'input service' clearly covers this and it cannot be said that this service is not provided to output service. Moreover the decision of Hon'ble Andhra Pradesh High Court in the case of Sai Samhita Storages (P) Ltd. - 2011 (270) ELT 33 (A.P.) also supports the case of appellants. In this case it was held t .....

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put service as the definition of input service includes services used for providing output service therefore, input and input service are para material for the service providers. The observation of the Tribunal is given here-in-under:- "3.2 The definition of 'inputs' is limited to the definition of 'input services' as can be seen from the definition given above. Credit of duty paid on inputs is available when the inputs are used for providing an 'output service'. The .....

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n that case also, the Hon'ble High Court took the view that without use of cement and TMT bars for construction of warehouse assessee could not have provided 'storage and warehousing service.' In this case also, without utilizing the service, mall could not have been constructed and therefore the renting of immovable property would not have been possible. The issue involved is squarely covered by the decision of the Hon'ble High Court of Andhra Pradesh. Since the service tax dema .....

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ply of tangible goods, the applicant is entitled to take CENVAT Credit as per the decision of GSPL supra) wherein while considering the ROM application, this Tribunal held that - "5. On careful consideration of the submission made by both sides on this issue, and on perusal of the records, we find that our final order dated 15.04.2013 at paragraph No. 5.2 reads as under:- 5.2 The learned Special Counsel also submitted that in respect of services rendered to the contractor by other service p .....

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ey are used for providing output service by the EPC contractors. It can be seen from the above reproduced findings that we had only considered the ineligibility of CENVAT Credit of the service tax paid by the service provider on the inputs services received by the EPC contractors. We had not recorded any findings on the input services which were received by the appellant directly from the service providers in respect of the laying down of the pipelines system. We also note that in paragraph No. .....

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rom other contractors directly and used in execution of the pipeline system which is used by the appellant for providing an output services i.e. "Transportation of goods through pipelines or other conduit services" they are eligible to avail CENVAT Credit. To that extent we agree that there is an error apparent on the face of our order in paragraph No. 5.2. The said error is rectified by replacing paragraph No. 5.2 as indicated hereinabove by the following paragraph No. 5.2. "The .....

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ppellant is eligible since those are not input services used for providing output service by the appellant but they are used for providing output service by the EPC contractors". It is also made clear that these findings would be applicable only in respect of eligibility of CENVAT Credit of service tax paid by provider for services provided to EPC contractors and may not be applicable to the services provided by the service providers directly to the assessee, in respect of Engineering Consu .....

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of the view that the applicant has made out a case for complete waiver of service tax, interest and penalty demanded from them. Accordingly, we grant waiver of the requirement of pre-deposit of service tax, interest and penalty and stay recovery thereof during the pendency of the appeal. 8. As the amount of service tax involved in this case is more than ₹ 262 crore therefore we direct the Registry to list the appeal for final hearing on ........................... (Pronounced in Court on .....

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ugh pipeline or other conduit" covered under Section 65 (105) (zzz) of the Finance Act, 1994. The appellant also availed services of various other service providers for providing services such as design and engineering of the pipeline, GTA services, rent-a-cab services, CHA services, business auxiliary services relating to coating of pipes etc. The contracts with such service providers were entered into directly by the appellant with the service providers. Proceedings were initiated against .....

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(iii) Capital goods credit availed prior to commissioning of pipeline (valves, compressor pump, pipes-all specified capital goods) Rs.23.78 crores 3. Three questions need to be answered namely: (1) Whether cenvat credit of service tax paid by the pipeline laying contractors on Works Contract Service (WCS) provided for laying the pipeline is admissible to the appellant? (2) Whether input service credit on services such as design and engineering of the pipeline, GTA services, Rent-a-cab services, .....

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o provided services i.e. Works Contract Service (WCS) and Erection, Commissioning and Installation service (ECIS). The service tax on the service component is paid by these contractors either under the normal rates or under the composition scheme which provides for service tax to be paid on a flat lower rate but on value which includes the value of the material supplied. The value and rate at which the service tax was paid by the contractors is not the subject matter of debate here. What needs t .....

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119 of 2012 as also by the Hon'ble Mumbai High Court in the case of Hutchinson Max Telecom P. Ltd. 2008 (224) ELT 191 (Bom.). In those casese, the issue was of admissibility of Cenvat Credit on steel, cement and other infrastructure items used for erection of telecom towers. It was held by the Hon'ble High Court that the resultant product is not goods but immoveable property and therefore, cenvat credit is not admissible on inputs used for erection of telecom towers. Drawing linkage from .....

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apital goods received in the factory of manufacture of final product or [by] the provider of output service on or after the 10th day of September, 2004; and (ii) any input service received by the manufacturer of final product or by the provider of output services on or after the 10th day of September, 2004". The Rule above clearly states that the appellants could have availed Cenvat Credit on inputs or capital goods received by them or on any input service received by them, they being a ser .....

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1) in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or" In terms of the above Rule, the pipeline system being immoveable property cannot be termed as goods "used in the factory of manufacture of the final products". Therefore, the service tax paid by the contractors for laying pipeline system which is immoveable property does not fall in the category of service tax paid on either capital goods or inputs or .....

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s/accessories are manufactured and bought out parts are received and all are assembled to bring plant or machinery into existence. In such a situation capital goods used within the factory have been allowed for the purpose of CENVAT credit. No doubt pipes are covered by capital goods. But once again as discussed earlier in respect of inputs, in this case also capital goods are required to be "used for" providing output service according to the definition of 'capital goods' unde .....

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can be sold that the pipes are used for providing output service by the service provider namely EPC contractor and not the appellant. The definition of 'input' also would not be of any help to the appellant since definition of 'input' also requires the input to be used for providing output service. Appellant is not using pipes for providing any output service but have supplied it for construction of pipeline to the EPC contractor. Being a free supply material, if the value of the .....

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s them to take credit of duty paid on pipes and also service tax paid on construction of pipeline system. A conscious decision was made by the appellant and the EPC contractor to avail the benefit of Notification No. 12/2003 especially in the case of appellants, they had also taken a legal opinion. Once a choice is made the consequences of the chose also inevitably follows and has to be suffered. 3.2. As a matter of reiteration, I may state that the above judgement held that in the case of capit .....

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onstruction of the pipeline system, because, the pipeline system is not output service for the contractor. 3.3 Reliance on the case of Sai Sahmita is not correct because the facts in that case were different. In that case the material was used directly by the appellants to construct the godown from which they provided storage and warehousing service. In the present case inputs have been used by the contractor to whom the work of constructing pipeline system was given. Under Rule 2(k) (iv) of Cen .....

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by the contractor, even if supplied free of charge by the appellant. The credit on inputs and input services used by the contractors is not admissible to the appellant as they were used directly by the contractors. This is what is also held by the Tribunal in the case of Gujarat Petronet (supra) inpara 5.2 as below "The learned Special Counsel also submitted that in respect of services rendered to the contractor by other service providers, Notification No. 12/2003 does not disallow credit .....

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tors". It is also made clear that these findings would be applicable only in respect of eligibility of CENVAT Credit of service tax paid by provider for services provided to EPC contractors and may not be applicable to the services provided by the service providers directly to the assessee, in respect of Engineering Consultancy, inspection services, ROV/ROW Consultancy services, and paid for by the appellant directly." Reliance is placed on the decision of the Tribunal in the case of M .....

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e of providing". The expression for the purpose of business stands interpreted by the Hon'ble Supreme Court to be of wide import. As they have contended that jetty is used for providing port services and cement and steel in question are used for construction of such jetty. As such it has to be held that cement and steel stand used for providing the output services. We find that the definition of input is provided in Rule 2(k), in two different clauses i.e. (i) and (ii). Clause (i) refer .....

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urpose, within the factory of production. As is seen from the above, the definition of input as contained in clause (i) is to ________ a definition and refers to all inputs either used in or in relation to the manufacture of the final product or for any other purposes within the factory of production. On the other hand the definition of inputs as contained in clause (ii) is limited to all goods, used for providing any output service. If the expression used for providing any output service is req .....

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identical treatment is to be given to the definition of inputs as contained in clause (ii), the distinction drawn by the legislation, i.e. by giving wider scope to the definition of input as contained in clause (i) and restricted as given in clause (ii) would become otiose and as such frustrative of the legislative intent." 3.4. The definition of input service requires that the input service is to be used for providing an output service. This definition under Rule 2(1) of Cenvat Credit Rul .....

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ch factory or premises, advertisement or sales 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; [but excludes],- As seen from the above definition, the inclusion cl .....

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