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In Re : M/s GSPL INDIA TRANSCO LTD AND M/s GSPL INDIA GASNET LTD

2015 (7) TMI 826 - Advance Ruling Authority

CENVAT Credit - Capital goods being immovable property - Revenue contended that the applicants would receive constructed pipeline system which is embedded to the earth and therefore cannot be termed as "goods" for availing Cenvat credit of duty, as they are neither moveable nor marketable - Next issue raised by the Revenue is that the EPC Contractors who received the duty paid pipes and valves (capital goods) for laying the pipeline, were only eligible to take Cenvat Credit on capital goods unde .....

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ce the applicant would receive the pipes and valves as owners and then issue them on bailment to the EPC contractor for a specific purpose of providing services to bring into existence a pipeline. Therefore, the contention of Revenue that when pipes and valves are transferred from manufacturer to the applicant, applicant would get possession of pipes and valves from the manufacturer but same is not for consideration and thus, there would be no "sale" in terms of Section 2 (h) of Central Excise A .....

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ermediary dealer is a "registered dealer". Therefore, the contention that the applicant is eligible to Cenvat credit of Central Excise duty paid by the manufacturer on pipes and valves on the basis of documents issued by "intermediary dealer", would be as per Central Excise Rules read with Cenvat Credit Rules, only when said "intermediary dealer" is a "registered dealer".

Appellants are eligible to avail Cenvat Credit of excise duty that would be paid on the pipes and valves procured .....

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ransco Limited (F.No. AAR/44/ST/02/13) and M/s GSPL India Gasnet Limited (F.No. AAR/44/ST/04/13) (hereinafter referred to as applicant) are a subsidiary of Gujarat State Petronet Limited (GSPL), winch is a Government Company under the Companies Act, 1956. As the facts and question, on which Advance Ruling sought, is same in respect of above referred applicants, both applications are taken up for common ruling. 2. Both these cases had a checkered journey so far. Applicants filed applications befo .....

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e to these changes, the applicants filed corrigendum to the original applications on 12.11.2012. However, on the instructions of this Authority, fresh applications dated 01.03.2013 were filed, i.e. present applications. This Authority vide Order dated 16.01.2015 restored the applications, which were dismissed earlier for non-prosecution on 21.04.2014. 3. Applicant will be engaged in rendering taxable service in the nature of transport of gas through pipelines, classified under the erstwhile taxa .....

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d activity, as described by the applicant, is as under; 4. The activity of laying of pipelines begins with identification of route of the pipeline from the source to destination. The identification of the route involves a feasibility analysis to ensure that an acceptable route for the pipeline exits that provides the least impact to the environment and public infrastructure already in place. Once the route for the pipeline is identified, the next step is to acquire Right of Use and Right of Way .....

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rivately negotiated contracts. For the purposes of laying pipeline, the applicant would be required to procure steel pipes and valves and further would have to get the pipes and valves installed and commissioned along the identified routes so as to connect the source to the destination. In this regard, applicant would grant various turnkey contracts ("EPC Contracts") involving supply of pipes and valves as well as installation and commissioning of the said pipes and valves to bring int .....

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the EPC Contracts, the applicant will procure the pipes and valves from the EPC Contractors, under a "Bill to ship to" arrangement whereby, the pipes and valves purchased by EPC contractors from the manufacturers would be directly shipped by such manufacturers to the applicant's project site ( with applicant as consignee) under the cover of appropriate statutory documents/invoice. Further, it would be specifically provided in terms of the EPC Contracts that the ownership of such p .....

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11 of the Central Excise Rules, 2002. Upon receipt of the pipes and valves at the project site, the applicant would issue the same to the EPC Contractors free of cost (on bailment) for laying the pipeline along the identified route. The receipt of the pipes and valves and the issuance thereof to the EPC Contractors would be evidenced by appropriate documentation. The applicant would use the pipes and valves so received under the EPC Contracts for transport of gas through pipelines thereby using .....

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ds and price for rendering of services. The EPC Contractors would charge separately for the supply of goods like pipes and valves from the applicant. In fact, separate invoices would be raised by the EPC Contractors for the sale of pipes and valves and provision of construction / erection, installation and commissioning services for the laying of the pipelines. In respect of provision of services for erection and commissioning of pipelines, the EPC Contractors would qualify their services as &qu .....

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ods are transported and there exists an integral nexus between the process involved in provision of the output services and the use of the pipes; that without the pipes, provision of the output services of the applicant of transport of goods through pipelines would not only be commercially inexpedient, but also theoretically and practically impossible; that without the pipes, pipeline services would not ever be possible; that the applicant submits that the eligibility of an assessee to avail Cen .....

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services as "works contract services" [as defined under Section 65B (54) of the Act, post July 1, 2012] and discharge Service Tax accordingly to one of the options given under Rule 2A of Service Tax (Determination of value) Rules, 2006. 8. As per the Explanation 2 to Rule 2A of Service Tax (Determination of Value) Rules, 2006, applicant submits that restriction on credit availment is on the provider of taxable service viz., the EPC Contractors and no restriction on availment of credit .....

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the provisions of Valuation Rules as above cannot be used to restrict credit availment by the applicant. 9. Applicant submits that he would fulfill all the statutory requirements for availment of credit of excise duty paid on pipes and valves by manufacturers against the applicant's output service tax liability; that accordingly, the applicant would be eligible to avail credit of excise duty paid on pipes and valves by manufacturers against the applicant's output service tax liability fo .....

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irst point urged by the Revenue is that the question raised by the applicant in present applications, are same as already decided by the Appellate Tribunal in the case of Gujarat State Petronet Ltd. Vs. CCE, Ahmedabad reported in 2013 (32) STR 510 (Tri.-Ahmed). Therefore, as per provisions to Section 96 D (2) of the Finance Act, 1994, the Authority shall not allow the application where the question raised in the application is same as in a matter already decided by the Appellate Tribunal or any .....

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n conflicting or incompatible decision as order of AAR would be binding only on the applicants and tax authorities. In view of the above decision of the Hon'ble High Court in the present case, the matter was taken up by this Authority. Therefore, contention of Revenue is not correct. 12. Second issue raised by the Revenue is that the applicants would receive constructed pipeline system which is embedded to the earth and therefore cannot be termed as "goods" for availing Cenvat cred .....

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eline systems, which in-turn gets embedded to earth, they become immoveable property and therefore, can-not be goods. Revenue relied upon the judgment of Hon'ble High Court of Bombay in the case of Bharti Airtel Ltd. vs. Commissioner of Central Excise 2014 (35) STR 865 (Bom). It is observed that the question before the Hon'ble High Court was whether the appellant i.e. cellular telephone company, would be eligible to avail Cenvat credit of excise duty paid on tower and parts, pre-fabricat .....

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of sub-clause (a) (A) (i) and (iii) and sub rule (2) of the Cenvat Credit Rules indicates that only the category of goods in Rule 2 (a) (A) falling under clause (i) and (iii) used for providing output services can only qualify as capital goods and none other. Hon'ble Court further observed that goods in question, namely; the tower and part thereof, the PFB and the printers do not fall within the definition of capital goods and hence the appellants cannot claim the credit of duty paid on thes .....

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t falls under Chapter 84) at (i) in Rule 2 (a) of the Cenvat Credit Rules. Further, pipes and valves are proposed to be used for providing output service of transport of gas through pipelines. As they are specifically mentioned under the definition of "capital goods", even though pipes may be immovable and are to be used for providing output service, they are "capital goods". This argument further gets support from the fact that "storage tank" though immovable prope .....

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ho are service providers in the first instance and subsequently in the works executed by them under works contract results into an immoveable property. The pipes and fittings no longer remain capital goods but after their erection along-with certain other structures and civil works become pipeline system, which no longer be termed as capital goods. At the most they can be termed as capital assets. Applicant submits that whether or not an item qualifies as a "Capital good" for the purpo .....

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s) are used by EPC contractors for providing construction / erection, installation and commissioning services. Therefore, in present case, capital goods (pipes and valves) are to be used for providing output service and it is not relevant whether these goods provide such service by being embedded to the earth. Therefore, we agree with the applicant that the relevant date to determine whether an item qualifies to be 'capital good' is the time of its receipt and not subsequent date. 16. Ne .....

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paid on any input or capital goods, or of service tax paid on input service, the provisions of such other rule or notification shall prevail over the provisions of these rules Further, Explanation 2 to Rule 2A of Service Tax (Determination of Value) Rules, 2006 clarifies that the provider of taxable service shall not take Cenvat Credit of duties or cess paid on any inputs, used in or in relation to the said works contract, under the provisions of Cenvat Credit Rules, 2004. Revenue submits that o .....

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it under this option. Further, applicant submits that they are not availing any exemption on condition of non-availability of credit of duty paid on any input or capital goods or of service tax paid on input service, therefore, there is no warrant to invoke Explanation to Rule 3(7) of Cenvat Credit Rules, to deny credit of capital good to the applicant. 18. It is observed that as per Explanation to Rule 2A of Service Tax (Determination of Value) Rules, 2006, provider of taxable service shall not .....

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under Rule 3 of Cenvat Credit Rules, due to such restriction imposed by virtue of Explanation to Rule 3 (7) (C) of said rules. Now the question comes whether applicant can take the Cenvat Credit of Central Excise duty paid on the pipes and valves, which are purchased by him from EPC Contractor, who in-turn has purchased the same from the manufacturer. Rule 3 of Cenvat Credit Rules, 2004 inter-alia permits provide of output service to take credit of duty of excise paid on any input or capital go .....

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f Central Excise duty paid on pipes and valves is revenue neutral, which was not opposed by the Revenue. 19. Another issue raised by the Revenue is that the documents under which the applicant proposes to avail Cenvat credit are not the proper documents under Rule 9 of Cenvat Credit Rules, 2004. Revenue submits that Circular No. 96/7/95-Cx dated 13.02.1995 issued by the Central Board of Excise & Customs (CBEC) clarifies that the credit is admissible even if the goods are sent directly to the .....

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transfer of property in goods involved in execution of EPC contract; that in-spite of transfer of property at above four stages, only first and fourth instances can be termed as "sale" under Section 2 (h) of the Central Excise, Act, 1944, in view of the fact that in said two instances, transfer of possession of goods (pipes) are actually associated with payment/consideration. Revenue concludes that under Rule 9(1) (a) of Cenvat Credit Rules, invoice issued by the manufacturer becomes .....

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the pipes and valves purchased by EPC contractors from the manufacturers, which would be directly shipped by such manufacturers to the applicant's project site under the cover of appropriate statutory documents/invoice showing applicant as consignee and same would be received by the applicant at the project site. Further, it would be specifically provided in terms of the EPC Contracts that the ownership of such pipes and valves would pass to the applicant from the EPC Contractor(s) ex works .....

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to EPC contractors, the EPC contractors would have possession of pipes and valves. Applicant submits that the manufacturer of pipes and valves would not raise the invoice on the applicant - he would merely dispatch the goods directly to the applicant as per instructions from the EPC contractors under the cover of a manufacturer's invoice (raised on the EPC contractor only); that actual invoicing would happen from manufacturer to EPC contractor to the applicant. Applicant submits that CBEC C .....

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EPC contractors to get registered under the Central Excise Act in order to take Cenvat credit by the applicant on manufacturers' invoice. Applicant submit that as far as transfer of possession of property vested in pipes is concerned, while the transfer of property would happen in the pipes from the manufacturer to the EPC contractors the possession of the pipes would be directly transferred to the applicant (since pipes and valves would be directly consigned to the applicant from the manufa .....

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has been amended and a proviso has been added mandating that "if the goods are directly sent to any person on the direction of the registered dealer, the invoice shall also contain the details of the registered dealer as the buyer and the person as the consignee, and that person shall take CENVAT credit on the basis of the registered dealer's invoice"-essentially, what has been prescribed is that in a bill-to-ship-to scenario, the document for credit availment should be invoice rai .....

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be directly shipped to the applicants (as a consignee) under the cover of the manufacturer's invoice and other documents, is widely followed industry practice which is well accepted by the department as well. Applicant further submits that bill-to-ship-to arrangements have always been valid for the purposes of credit availment and they continue to be valid even now. The only thing that has changed vide the recent notification no. 8/2015-Central Excise(N.T) dated 1.3.2015 is that the documen .....

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e 9 of Cenvat Credit Rules, 2004 inter-alia states as under; (1) The CENVAT credit shall be taken by the manufacturer or the provider of output service or input service distributor, as the case may be, on the basis of any of the following documents, namely :- (a) an invoice issued by- (i) a manufacturer for clearance of - (i) inputs or capital goods from his factory or depot or from the premises of the consignment agent of the said manufacturer or from any other premises from where the goods are .....

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also be countersigned by the Inspector of Central Excise or the Superintendent of Central Excise before the cigarettes are removed from the factory. xxxxx (2) The invoice shall be serially numbered and shall contain the registration number, [address of the concerned Central Excise division,] name of the consignee, description, classification, time and date of removal, mode of transport and vehicle registration number, rate of duty, quantity and value, of goods and duty payable thereon: Provided .....

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r's invoice. xxxxx (7) The provision of this rule shall apply mutatis mutandis to goods supplied by an importer who issues an invoice on which CENVAT Credit can be taken or a first stage dealer or a second stage dealer; xxxxx Explanation.- For the purpose of this rule, "first stage dealer" and "second stage dealer" shall have the meanings assigned to them in Cenvat Credit Rules, 2004. 24. Rule 2 (ij) of Cenvat Credit Rules, 2004 reads as under; 2. In these rules, unless t .....

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oods imported by him under the cover of an invoice on which CENVAT credit may be taken and such invoice shall include an invoice issued from his depot or the premises of his consignment agent; 25. The question raised by the Revenue is whether the applicant can avail of said Cenvat Credit, paid on pipes and valves [the goods were first purchased by the EPC contractor and then sold to the applicant], when the goods are directly transported to the applicant's site without going to the premises .....

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f goods could take place directly on a invoice from the manufacturer's premises to user's premises on an order being placed by the dealer of excisable goods without being brought to latter's premises. Further, person taking part in transit sale need not be registered. It is further mentioned that in such a situation manufacturer will issue an invoice under Rule 52A and registered person's invoice is not required for availment of Modvat Credit; that the duplicate copy of manufactu .....

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rer to the EPC contractors but possession of the pipes would be directly transferred to the applicant (since pipes and valves would be directly consigned to the applicant from the manufacture's premises). Also, there would be no transfer of possession of property in pipes and valves from EPC contractors to the applicant at the project sites, since the applicant would receive the pipes and valves as owners and then issue them on bailment to the EPC contractor for a specific purpose of providi .....

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tractors at manufacturer's factory itself. Pipes and valves would be received by the applicant at the site. The manufacturer would dispatch these goods to the applicant under a manufacturer's invoice as per Rule 11 of Central Excise Rules. In the invoice, applicant would be shown as consignee, as envisaged in Rule 11 (2) of Central Excise Rules. Rule 11 ibid has been recently amended vide Notification No 8/2015 Central Excise (NT) dated 01.03.2015 Third proviso to Rule 11(2) of Central E .....

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. EPC contractor and they undertake to follow this new procedure. In short, the contention of the applicant is that they would take Cenvat Credit of Central Excise duty paid on pipes and valves on the basis of invoice raised by the "intermediary dealer" i.e. EPC contractor. It is noticed that as per Rule 9 of Cenvat Credit Rules, 2004, Cenvat Credit can be taken inter-alia by provider of output service (i.e. applicant in this case), on the basis of any of the following document; 1. An .....

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issued by an output service distributor Applicant proposes to take Cenvat Credit of Central Excise duly paid on pipes and valves based on the invoice raised by "intermediary dealer" i.e. LPC contractor it is observed that invoice issued by "intermediary dealer is not one of the documents, on the basis of which Cenvat Credit can be taken until and unless "intermediary dealer" is a "registered dealer". Recent amendment vide Notification No. 8/2015-Central Excise .....

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