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2015 (7) TMI 826 - Advance Ruling Authority

2015 (7) TMI 826 - Advance Ruling Authority - 2015 (40) S.T.R. 398 (A. A. R.) , [2015] 83 VST 96 (AAR) - 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 valve .....

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ifies to be 'capital good' is the time of its receipt and not subsequent date.

Ownership - 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 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 .....

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d on pipes and valves on the basis of invoice issued by "intermediary dealer", until and unless, this intermediary 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".

Appellant .....

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The Appellant : Shri Sujit Ghosh, Adv For The Department : Shri Amresh Jain (AR) RULING M/s GSPL India Transco 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 .....

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ice Tax laws in India were replaced by a comprehensive Service Tax regime with effect from 01.07.2012. Due 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 .....

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rocurement and construction ("EPC") model for laying of gas transmission pipelines. The proposed 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. .....

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Central legislation and both are exactly pari-materia. The requisite rights of way are obtained through privately 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 suppl .....

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re within and outside India d) A civil works package for constructing the pipelines sub-stations 5. Under 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/invoi .....

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dispatch the pipes and valves to the applicant under a manufacturer's invoice as mandated under Rule 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 p .....

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mposite price, such composite price will be divided into two key components, viz. price for supply of goods 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 serv .....

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utility qua the output services of the applicant as it is the aggregate of these conduit via which the goods 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 service .....

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ovision of services for erection and commissioning of pipelines, the EPC Contractors would qualify their 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 i .....

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nation to Rule 3(7) of Cenvat Credit Rules, to deny credit of capital goods to the applicant; that thus, 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 d .....

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port of gas through pipeline? 10. Revenue has raised certain issues, which are discussed, as under; 11. First 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 qu .....

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f AAR pronounces advance ruling on the question raised by the petitioners, even then it will not result in 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 wh .....

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04, which define "input" and "capital goods". As pipes etc. gets transformed into pipeline 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 telepho .....

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of the Cenvat Credit Rules. In-fact, Hon'ble High Court at para 31 concluded that a combined reading 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 wit .....

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output service. x x x x x 14. It is observed that pipes are specifically mentioned at (vi) and valves (it 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&quo .....

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ise duty. 15. Revenue has raised another issue that pipes, fittings etc are received by EPC contractors who 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 as .....

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ined with reference to the date of receipt of capital goods. In the instant case, pipes etc (capital goods) 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 .....

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fication provide for grant of whole or part 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, 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 relat .....

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ent of credit has been prescribed for service recipients like the applicant; that he is eligible for credit 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 Explanat .....

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s are to avail benefit of Rule 2A ibid, they shall not take Cenvat Credit of duty paid on pipe and valves 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 inte .....

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thority, we were informed by the applicant that the above procedure i.e. applicant taking Cenvat Credit of 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 Excis .....

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site; c) From applicants to EPC contractor on site; and d) From EPC contractor to applicant by virtue of 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. Reven .....

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cant on the invoice under consideration would be incorrect. 20. Applicant submits that they would procure 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 th .....

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ong the identified route; that at no point in time prior to issuance of pipes and valves by the applicant 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 i .....

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rt in transit sale need not get themselves registered; that in the instant case, it is not necessary for 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 transfer .....

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applicant states that vide a recent Notification No. 8/2015-Central Excise (NT) dated 1.3.2015, Rule 11 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 .....

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d by the applicants wherein, pipes and valves purchased by the EPC Contractor from the manufacturer would 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 h .....

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, valves etc by the applicants in the factual matrix of the present Advance? Ruling Applications. 22. Rule 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 premi .....

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y the owner of the factory or his authorized agent and in the case of cigarettes, each such invoice shall 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 v .....

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he person as the consignee, and that person shall take CENVAT credit on the basis of the registered dealer'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 Cre .....

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sold by or on behalf of the said manufacturer, under cover of an invoice; or ii. an importer who sells goods 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 appli .....

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96/7/95-CX dated 13.02.1995 read with Circular No 218/52/9G-CX dated 04.06 1990 clarified that movement of 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 .....

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ral Excise. 26. It is observed that the transfer of property would happen in the pipes from the manufacturer 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 .....

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. 27. Applicant has submitted that ownership of pipes and valves would pass to the applicant from EPC contractors 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 .....

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the document for credit availment should be the invoice raised by the "intermediary dealer" i.e. 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 provid .....

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ax 7. an invoice, a bill or challan issued by a provider of input service 8. an invoice, bill or challan 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 deale .....

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