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

2016 (8) TMI 91 - CESTAT MUMBAI

Extended period of limitation - Cenvat Credit availed on input services and capital goods between March 2008 and March 2009 i.e. prior to the commissioning of the pipeline - Appellant is rendering Transportation of Gas through pipeline services - Held that:- From the record it clearly comes out that the privity of contract in the instant case was between the Appellant and the service provider and that these service providers were under no obligation whatsoever to the pipeline laying contractors .....

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of all the relevant facts under cover of its letter dated 28.7.2006 before availing credit. In this letter the Appellant had clearly informed the jurisdictional Assistant Commissioner about the business Model that it was to follow and of its intention to avail credit on the input, input services and capital goods that it was to use for rendering its output service. The Appellant had also informed the Revenue of the fact that the pipeline which is being laid would be embedded to the earth. - .....

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M.V. Ravindran The undisputed fact of the case is that the Appellant is rendering Transportation of Gas through pipeline services, for which it has laid cross country pipelines from Kakinada in Andhra Pradesh to Bharuch in Gujarat, spanning around 1285 kms, over which right of way has been granted to it by the respective State Governments. 2. The said pipe line was commissioned in March 2009. The dispute in hand relates to the Cenvat Credit availed on input services and capital goods between Mar .....

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ed by the Appellant for laying the pipeline, which was used for rendering its output service. ii) Services rendered by service providers who were appointed by the Appellant, for rendering interalia the following services; a) design and engineering the pipeline, b) GTA services, c) Rent-a-cab services, d) CHA services, e) Business Auxiliary services, etc. These service providers are for ease of reference being referred to hereinafter as other than pipeline laying contractors . 4. The credit on ca .....

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services rendered by the other service providers, i.e. other than the pipeline laying contractors as also in respect of capital goods is concerned the only ground on which the notice sought to deny credit was that the same were required by the pipeline laying contractors for rendering their services and could not be said to be input services and capital goods for the Appellant. 6. The Respondent has, in the order impugned before us upheld the denial of the input service credit of the tax paid by .....

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ervices to be rendered and in the absence of the same credit could not be readily admissible. Insofar as the credit on other input services and capital goods is concerned, the respondent has denied the same only on the ground that appellant was under an obligation to provide the input services and the pipes, valves, compressor, etc (capital goods) for the purpose of laying the pipeline, consequently credit on the same was not admissible in the hands of the appellant and would be an input/input s .....

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ly envisaged and provided that credit of input services used for setting up, modernization, renovation or repair of a factory, premises of a provider of output service or an office relating to such factory or premises would be admissible. The issue regarding admissibility of credit on input services used for construction, used for setting up of a factory or warehouse had specifically considered and held to be admissible by the Hon ble Punjab and Haryana High Court in the case of CCE vs Bellsonic .....

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Industries vs CCE 2015 (317) ELT 731 CESTAT ii) Insofar as the decision in the case of Bharti Airtel that has been relied upon by the Respondent is concerned, it was submitted that the said decision was concerned only with the admissibility or otherwise of cenvat credit of various steel items as inputs/capital goods and there was no dispute therein with regard to credit on input services. iii) Insofar as the credit of the tax paid by the service providers other than the pipeline laying contract .....

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the jurisdictional Assistant Commissioner about the business operation it was to conduct as also its intention to avail cenvat credit on various inputs/input services and capital goods that were to be used for providing the output services. In that letter the Appellant had specifically pointed out that the pipes that would be laid would be embedded to the earth and had sought permission to avail credit. The Assistant Commissioner had after taking due note of the Appellant s submissions, informe .....

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is neither capital goods nor input services and consequently credit was not admissible. Further for credit on input services to be held as admissible there has to be a direct nexus between the input service and the output service. Only in the case of a manufacturer would credit be admissible even if services have been indirectly used and not in the case of a service provider. Insofar as, limitation is concerned the Appellants letter dated 28.7.2006 had not disclosed the fact that it would be ap .....

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ion of a immoveable property ii) Denial of Credit in respect of the other service provider and in respect of capital goods on the ground that the same were not used by the Appellant for rendering its output service but were instead used by the pipe line laying contractors. 10. Insofar as the denial of the credit of tax paid by the pipe line laying contractors is concerned, the ground assigned by the Respondent for denying credit is clearly fallacious and contrary to the definition of input servi .....

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r an office relating to such 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. A perusal of the definition of input servi .....

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een used for laying a pipeline, which by itself was used for providing the output service of transportation of gas through pipeline. There cannot be a more direct immediate nexus, between availing the input services and rendition of output service. It is beyond our comprehension as to how the Appellant could have rendered its output service without availing of the services of the pipeline laying contractors. The said services in our view are clearly eligible to credit by virtue of the main limb .....

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put services used for setting up was not admissible as the premises that were set up, were an immoveable property. We do not find any merit in the contention of the Revenue that credit would be admissible only in respect of such factory/premises that are not immoveable. This artificial division and distinction which the Revenue seeks to introduce in the definition of input service is clearly baseless and contrary to the plain language used in the definition of input service. To us it appears com .....

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ave factory/premises which are not immoveable, most factories and premises will be immoveable. In our view any service used in relation to setting up a premises of output service provider is eligible for credit and the concept of movability or immovability, is irrelevant for determining eligibility to input service credit. 13. The aforesaid view of ours also finds support in the judgement of the Hon ble Punjab and Haryana High Court in the case of Bellsonica Auto Components India Pvt Ltd 2015 (4 .....

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ease to construct the factory. The factory was constructed to manufacture the final product. The land and the factory were required directly and in any event indirectly in or in relation to the manufacture of the final product and for the clearance thereof up to the place of removal. But for the factory the final product could not have been manufactured and the factory needed to be constructed on land. The land and the factory are used by the manufacturer in any event indirectly in or in relatio .....

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the services were not used for the setting up of the factory. The doubt in this regard is set at rest by the second part of Section 2(l)(ii) which includes within the ambit of the words input service the setting up of a factory and the premises of the provider of the output service. The inclusive definition, therefore, puts the matter, at least so far as the payment for services rendered by the civil contractor for setting up the factory is concerned, beyond doubt. As the plain language of Secti .....

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PC contractors in respect of the services for laying of the pipeline was admissible in the hands of the service recipient. The relevant observations of the Tribunal in this regard are extracted herein below: As regards the service rendered by the EPC contractors the grounds canvassed is that what has emerged is an immoveable property which is neither a service nor goods. In this case, it has to be noted that the EPC contractor has not paid service tax on the pipeline system but on the services p .....

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peline, we are not adverting to the other authorities that had been cited by the Appellant in its favour. 16. Before concluding, it will be not out of place to mention here that the decision of the Hon ble Bombay High Court in the case of Bharti Airtel, which was relied upon by the Ld. Authorised Representative appearing for the revenue, does not in any manner further the case of the Revenue and is completely inapplicable to the facts of the present case. The Hon ble High Court in Bharti Airtel .....

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the scope and ambit of the definition of input services which has been dealt by two other co-ordinate benches of the Hon ble High Court in the case of Ultra Tech Cement vs CCE 2010 (20) STR 57 Bom and Coca Cola India Pvt Ltd vs CCE 2009 (15) STR 657, wherein it has been specifically held that the definition of input services is wider than the definition of inputs. 17. The other decision which the Ld. Counsel of the Revenue relied upon was that the Larger Bench of the Tribunal in the case of Tow .....

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t of input service credit which has been denied in the impugned order is in respect of the tax paid by the other service providers, who were engaged by the Appellant to render various services, other than that of laying of the pipe line. The Respondent has also denied credit on capital goods such as pipes, valves, compressors, etc. Both these credits have been denied by the Respondent on the sole premise that the same were not input services and capital goods for the Appellant but were in the na .....

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ged by it (Rent-a-cab); for clearances of the pipes and other material imported by it (CHA); as also for coating of the pipes that were to be laid, (BAS). All these service providers wereengaged, contracted and paid for by the Appellant. It is the Appellant who has availed the services from the different service providers for ultimate rendition of its output services, being transportation of goods through pipeline. 19. The mere fact that some of these services could as well have been contracted .....

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maintenance contract may provide that in case of a break down the part to be replaced be provided by the service recipient it can as well provide as in the case of in a comprehensive contract, that it is the service providers responsibility to source and replace that part that is to be replaced. In the former example,if the the part being replaced is of a specified machinery falling under chapter 85, 84, 90, the part so procured would be eligible for credit in the hands of the service recipient .....

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vider and that these service providers were under no obligation whatsoever to the pipeline laying contractors nor were the pipeline laying contractors under any obligation to pay for the said services or to compensate or otherwise for the deficiency in the services of the said service providers. This being the case the finding that services availed of from the other service providers as also the capital goods were used by the pipeline laying contractors is clearly untenable. 20. We find that the .....

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.............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 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.5.3, we have specifically stated that the service tax paid by th .....

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ipeline system which is used 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............................. 21. The Ld Authorised Representative appearing for the revenue did not seriously dispute that the ratio laid down by the Tribunal in the case of GSPL would apply insofar as credit availed of the tax paid by the other service providers as also in respect of the capital goods. The L .....

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the Respondent is beyond the scope of the allegation levelled in the notice as also the findings of the Respondent and merit rejection on this count alone, we also find that the same is otherwise also completely untenable. 23. Insofar as the inapplicability of the Judgement of the Hon ble High Court in the case of Bharti Airtel to the credit on input services is concerned, the same has already been dealt by us in the preceding part of the order. We accordingly hold that the contention of the Ld .....

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the output service. The limited issue, which needs to be examined is whether the judgement of the Hon ble Bombay High Court in the case of Bharti Airtel can be so interpreted to mean that credit in respect of goods, which qualify as capital goods, can be denied only by virtue of the fact that the same have been made immoveable for their utilization purposes. 25. We find that the Hon ble High Court in the case of Bharti Airtel was concerned with the credit on steel items which are not specified .....

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he tower which was to house the base trans receiver station was admissible as an accessory for the base trans receiver station is concerned, the Hon ble High Court has held that Angles, Channels could not be said to be components, spares and accessories of the base trans receiver station, which is a specified capital goods. 26. The decision of the Hon ble High Court has been rendered in the context of the specific facts of that case. It is settled law laid down by the Apex Court that a decision .....

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of output service provider. The same have also clearly been used for rendering the output service, as without the valves, pipes, compressors, etc, the service of transportation of goods through pipeline would not have been rendered. The right to avail credit in respect of the same is clearly indefeasible. 27. We further note that the facts in the case of Bharti Airtel being clearly distinguishable from the facts in the resent case, the ratio laid down therein does not in any manner lead to the c .....

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ch credit are being availed in their receipt to the factory or the premises of the service provider qualifies as capital goods, the mere fact that the same are being subsequently immoveable subsequently for their effective utilisation cannot be a ground for denying credit as capital goods. 28. We find that the coordinate bench of this Tribunal has in the case of CCE vs JSW Ispat Steel Ltd reported in 2015 (327) ELT 549 has specifically dealt with this very issue. The relevant observations are ex .....

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es; (v) refractories and refractory materials; (vi) tubes and pipes and fittings thereof; and (vii) storage tank, used - (1) in the factory of the manufacturer of the final products, but does not include any equipment or appliance used in an office; or (2) for providing output service; Thus, it includes not only goods falling under Chapters 82, 84, 85 and 90, which are machinery, equipment, appliances and also components, spares and accessories of the goods falling under the aforesaid Chapters. .....

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nt, appliances or their components should be used as such in the manufacture of excisable goods. The manufacturing plant facility in a factory would comprise of a number of capital goods and all these things have to be assembled together so that they act in unison to perform the required processes. For example, in a sugar factory there may be a Boiler plant for generation of steam, a crusher installed for crushing of the sugar cane, a distillation plant for undertaking the various chemical proce .....

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ries and equipments have to function in conjunction and in unison with each other and for this purpose, they are assembled into a plant. Merely because all the individual equipment, machinery or components are assembled together, it will be pre-posteriors to suggest that the capital goods credit cannot be allowed on this individual machinery/equipment or appliances. The purpose of allowing capital goods credit is to relieve the burden of cascading effect of taxes. If that purpose is to be achiev .....

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because M/s. Inox Air Products Ltd. has leased out the plant to the Appellant, that does not disentitle the Appellant from availing Cenvat credit of the excise duty paid on capital goods. Similarly, in the case of Gujarat Ambuja Cement Ltd. (supra), Rajarambapu Patil SSK Ltd. (supra) and KCP Ltd. (supra), this Tribunal and the Hon ble High Court of Himachal Pradesh held that Cenvat credit of excise duty paid on parts, components and accessories would be admissible under the Capital Goods Credit .....

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oods under Rule 2(A) of the Cenvat Credit Rules, 2004 and so long as they are used within the factory of production for the manufacture of excisable goods which are chargeable to duty, the benefit of capital goods credit cannot be denied and we hold accordingly. 5.3 As regards the reliance placed by the Revenue on the Vandana Global (supra), the said case did not deal with the admissibility of Cenvat credit on capital goods. The issue before the Larger Bench was whether angles, channels, cement, .....

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ry of capital goods. In the said decision, there was no finding by the Larger Bench stating that capital goods credit is not admissible in respect of machinery, equipments and appliances used within the factory of production which were used in the assembly of the manufacturing plant. Therefore, the facts of the said case are completely different and distinguishable from the facts of the present case and, therefore, the ratio of the said decision is not applicable to the present case. Similarly, .....

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property cannot be considered as capital goods. Thus, the facts involved in the said case are also completely different and distinguishable from those involved in the case before us. Therefore, the ratio of the said decision also has no application. 6. In view of the above, we are of the considered view that the Appellants are rightly entitled for capital goods credit on various machinery, equipment, appliances and parts and components thereof used in the setting up of oxygen plant within the fa .....

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of the capital goods in question. 30. We also note that the demand raised against the Appellant is hopelessly barred by limitation inasmuch as the Appellant had made a clean breast of all the relevant facts under cover of its letter dated 28.7.2006 before availing credit. In this letter the Appellant had clearly informed the jurisdictional Assistant Commissioner about the business Model that it was to follow and of its intention to avail credit on the input, input services and capital goods tha .....

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