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2016 (8) TMI 91 - CESTAT MUMBAI

2016 (8) TMI 91 - CESTAT MUMBAI - 2016 (45) S.T.R. 286 (Tri. - Mumbai), [2016] 96 VST 468 (CESTAT) - 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 .....

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st 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 that it was to use for rendering its output service. The Appellant had also informe .....

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Jain, Advocate, Shri Vishal Agarwal, Advocate For The Respondent : Shri V.K. Singh, Spl Counsel Per: 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 .....

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services is in dispute: i) Services rendered by the pipeline laying contractors who have been appointed 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 re .....

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the said input services resulted in the creation of an immoveable property. Insofar as credit on the 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 .....

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e respondent has also held that there was no direct nexus between the credit availed and the output services 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, consequen .....

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ion of good through pipeline. Further the definition of input service at the relevant time specifically 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 a .....

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a Developers Pvt Ltd vsCCE 2015-TIOL-2705-CESTAT-AHM d) MCA vs CCE 2015-TIOL-2418-CESTAT-AHM e) Varun 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) I .....

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ore availing credit the Appellant had specifically under cover of its letter dated 28.7.2006 informed 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 .....

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however in the Appellants case the pipeline laid by the contractor was an immoveable property, which 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, limitat .....

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y the pipeline laying contractors on the premise that the said services had been availed of for creation 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 .....

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tting up, modernization, renovation or repairs of a factory, premises of provider of output service or 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 g .....

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tput service for providing an output service. We are concerned here with credit of service that has been 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 .....

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f the provider of output service. What is being contended by the Revenue is that the credit of the input 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 base .....

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hed to earth and immoveable. To our understanding it is only in exceptional situations that one can have 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 .....

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f the Hon ble High Court are extracted herein below for ease of reference: 8. The land was taken on lease 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 .....

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ting up of a factory. Mr. Amrinder Singh rightly contended that it was not the Appellant s case that 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 c .....

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n ble Tribunal has in para 5.3 of its order dated 15.4.2013 held that credit of the tax paid by the EPC 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 b .....

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edit of the tax paid by the service provider in respect of the services rendered for laying of the pipeline, 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 .....

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therein with regard to credit on input services if any. The said judgement does not at all deal with 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 th .....

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ly cannot be relied upon to deny input service credit in the hands of the Appellant. 18. The other set 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 .....

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es and other materials (GTA); for movement of the Appellants personnel as also of the contractor engaged 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 good .....

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evant and needs to be examined for determining the scope of service. To give a simple illustration, a 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 chapte .....

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es 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 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 .....

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ant finding of the Tribunal in this regards are extracted herein below for ease of reference: ....................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 syste .....

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cy, Inspection services, etc, received from other contractors directly and used in execution of the pipeline 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 .....

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se of Bharti Airtel Ltd supra. 22. Though the submission made by the Ld Authorised Representative for 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 b .....

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s. There is also no dispute that there pipes, valves, compressors are all being used for rendition of 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 Cou .....

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n of the assesse therein that credit on the angles, channels which were used for the fabrication of the 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 conte .....

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n respect of such capital goods accrues the minute they are received in the premises of the provider 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 distinguishabl .....

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e, which is not made immovable for its effective utilization. In our view as long as the goods on which 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 reporte .....

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spares and accessories of the goods specified at (i) and (ii); (iv) moulds and dies, jigs and fixtures; (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, appli .....

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sought to be denied. Nowhere in the Cenvat Credit Rules, it is envisaged that the machinery, equipment, 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 inst .....

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f the manufacturing plants, all the machineries can be used as such and directly, the various machineries 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 capita .....

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for a particular period, the assessee is eligible to take Cenvat credit. In the present case, merely 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 exc .....

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inery, equipment or appliance or parts and components thereof fall within the definition of capital goods 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 Ce .....

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it was held that they will not be eligible for the Cenvat credit of excise duty paid under the category 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 c .....

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was held that iron and steel products and cement which have gone into the erection of any immovable 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, equipm .....

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does not further the case of the Revenue and the Appellant is as such clearly entitled to the credit 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 .....

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