TMI Blog2020 (10) TMI 1313X X X X Extracts X X X X X X X X Extracts X X X X ..... truction activity do not fall into the scope of works contract. However, works contract and construction activity is eligible for Input Tax Credit if done in respect of plant and machinery. The essential character of immovable property , relevant to the present context is that it is attached to the earth, or permanently fastened to anything attached to the earth, or forming part of the land and not agreed to be severed before supply or under a contract of supply. The project of laying pipe lines covers a large area, tailored specifically to fit the dimensions and orientation of the needs of the project. Dismantling and shifting the said pipeline project appears neither to be prudent nor a viable option. Thus, besides pipelines being laid outside the factory premises outside the scope of plant and machinery it also fulfills the conditions of being an immovable property. Input tax credit on taxes paid on annual operation and maintenance services for the pipeline laid outside the factory premises - HELD THAT:- The appellant have also furnished a copy of certificate of licence to run a factory issued by the Government of Chhattisgarh to bring home their point of contention t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods and services used for laying of cross-country pipeline nearby river till the boundary wall of the Factory can be taken by the Appellant? II. Whether input tax credit can be availed on Operation and Maintenance Services ('O M Services') obtained by the Appellant for the maintenance of the facility? 2. Facts of the case:- I. NMDC Limited ( NMDC/the Appellant ) is a state-controlled mineral producer of the Government of India. It is owned by the Government of India and is under the administrative control of the Ministry of Steel. II. It is India's largest iron ore producer and exporter producing about 30 million tons of iron ore from 3 fully mechanized mines in Chhattisgarh and Karnataka. It also operates the only mechanized diamond mine in the country at Panna in Madhya Pradesh. III. Since inception it is involved in the exploration of wide range of minerals including iron ore, copper, rock phosphate, lime stone, dolomite, gypsum, bentonite, magnesite, diamond, tin, tungsten, graphite, beach sands etc. IV. Operating Mines of NMDC includes the following - Bailadila Iron Ore Mine, Kirandul Complex, Distt. South Bastar, Dantewada (Chh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the Appellate Authority. 3. Contention of the Appellant: 1. The Appellant has awarded contract for laying of Cross Country Pipeline System, including operation and maintenance for five years for NMDC to a consortium led by M/s Megha Engineering and Infrastructure Limited ( the contractor ). 2. That, the Pipelines are ideally suited to transport the liquid and gases from distant locations to the factory at a very low energy consumption. Pipelines are the most convenient, efficient and economical mode of transporting liquids like petroleum, petroleum products, natural gas, water, milk, etc. Even solids can also be transported through pipelines after converting them into slurry. The Appellant uses pipelines to transport water from the nearest water source to its factory. 3. That, the project was initiated in the pre-GST regime, under which pipes were exempt from Excise duty. However, plant and equipment. to the extent it qualifies as 'capital goods. were eligible even if the same were installed outside the factory as the definition of 'capital goods' under CENVAT Credit Rules, 2004, specifically included capital goods used outside the factory for pumpi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... blasting mines to produce limestone for use in manufacture of cement/clinkers in factory situated at some distance away from mines - Cenvat credit on explosives could not be denied on the ground that they were not used as inputs within factory - Scheme of Cenvat Rules, 2000 did not prohibit this. b. In the case of Jaypee Rewa Cement Vs Commissioner of Central Excise, M.P. [2001 (133) E.L.T. 3 (S.C)] at para 10 it was held that Reading of Rule 57A clearly shows that the notification is to specify the goods used in or in relation to the manufacture of the final product whether directly or indirectly. In the present case, inputs which are used in relation to the manufacture even directly would be regarded as an input for the purpose of Rule 57A. Sub-rule (1) of Rule 57A does not, in any way, specify that the inputs have to be utilised within the factory premises. The explanation contained in Rule 57A is merely meant to enlarge the meaning of the word input and does not in any way restrict the use of the input within the factory premises nor does the said Rule 57A require the inputs to be brought into the factory premises at any point of time. 12. That, based ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jected. 17. Above principal was also relied upon in the case of Central Excise and Service Tax, Ahmedabad-III 2014-TIOL-2217-CESTAT-AHM. It was held that credit on pipes used or laying of pipelines for bringing water to the factory and services used for laying and maintenance of pipeline is admissible in view of the decisions of Supreme Court and High Court. 18. That, based on above, it can be concluded that pipeline usage for the manufacturing process is an important element for determination of eligibility of credit. It is therefore, intended to be used in the course of furtherance of business of Appellant's mining activity. 19. Further contended that pipelines laid outside the factory for transporting water from outside the factory into factory for manufacture of final product is to be considered as used within the factory. Activities for manufacturing of final products in the factory is for furtherance of business of Appellant's mining activity. 20. The Appellant contended that the expression used for the purpose of exclusion is Pipeline laid outside the factory premise . Therefore, one can infer that pipeline laid anywhere other than outside factor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Bela Plant Vs Commissioner of C. Excise, Bhopal 2005 (180) E.L.T. 31 (Tri, - Del) in Para 4 held that, Pipeline used for drawing water from reservoir situated 5-6 kms away from factory for manufacture of finished goods within factory is eligible for Modvat credit - Rule 57A of erstwhile Central Excise Rules, 1944 - Rule 4 of Cenvat Credit Rules, 2004 Applying the ratio of above judgements to Appellant's case, it can be inferred that pipeline laid outside the factory (being part of pipeline inside the factory) is part of manufacture of final product. Distance is immaterial to determine whether pipeline is inside or outside the factory when one end of the pipeline is within the factory and the same being used for drawing water and transporting to the factory. Therefore, the portion of pipeline lying outside the factory is also to be considered as part of pipeline inside the factory and hence cannot be considered as pipeline laid outside the factory. 28. That, in the case of Commissioner Vs GSPL India Transco Ltd [2016 (43) S.T.R.123 (Guj.)], Hon'ble High Court held that: The Appellate Authority in its impugned order had held that transport of gas was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort of capital goods. 15. Appellant has given a detailed description of process followed in laying pipelines, which includes site preparation, pipe transportation, pipe stringing, pipe welding, trenching, external coating, lowering in, back filling and land restoration. It is observed that both the above referred services to be excluded from the scope of input service are to be used for support of capital goods. There is no doubt that the subject goods i.e. pipes and valves, are capital goods but the input service to be rendered by the Appellant is not for support of pipes and valves i.e. capital goods but for laying of pipeline for transport of gas. As input service received by the Appellant from EPC contractors and others is not for laying of foundation or making of structure for support of capital goods, same does not fall under the exclusion clause, as above. Based on above it can be concluded laying of pipeline for transport of water to factory is eligible for input tax credit under Section 17 of CGST Act, 2017. 30. That, the restriction under section 17 (5) of the CGST Act, 2017 should be construed only to apply to pipelines laid outside the factory premises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not eligible. 37. That, the AAR failed to appreciate that even in terms of Sect 17 (5) (c)/(d), the restriction of credit on goods and service is only with respect to original construction when capitalized in the books. Other than construction, all other ancillary activities like security, maintenance, repairs, insurance of the immovable property, there is no credit restriction. 38. That, the AAR erred in not appreciating the fact that the Appellant sought ruling on credit eligibility of input service (maintenance of pipeline) whereas the AAR has applied the explanation containing the restriction applicable for goods (pipeline) and held that credit on maintenance services is not eligible. 39. The Appellant further draws attention to Sec 17 (5) wherein while denying the credit on motor vehicles u/s 17 (5) (a), the provisions also specifically mention in 17 (5) (a)/(b), the services of operating the motor vehicle are also denied for input tax credit as under: (a) motor vehicles for transportation of persons having approved seating capacity of not more than thirteen persons (including the driver), except when they are used for making the following taxable supplies, name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plementing the CGST Act and Chhattisgarh GST Act, 2017 [hereinafter referred to as the CGST Act and CGGST Act ] are similar and unless a specific mention is made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provisions under the CGGST Act, 2017. The issues involved in the instant appeal filed are discussed hereunder:- The appellant sought advance ruling to the points as under, before the Authority of Advance Ruling, Chhattisgarh:- i. Whether input tax credit of GST paid on goods and services used for laying of cross-country pipeline nearby river till the boundary wall of the Factory can be taken by the Applicant? ii. Whether input tax credit can be availed on Operation and Maintenance Services (O M Services') obtained by the Applicant for the maintenance of the facility? 5.1 The present appeal has been filed under Section 100 (1) of the Central Goods and Services Tax Act, 2017 and the CGGST Act, 2017 by the Appellant M/s. NMDC Ltd, having their registered office at Khanij Bhavan, 10-3-311/A, Castle Hills, Masab Tank, Hyderabad, Telengana and works/ administrative office at ADMN Building Hilltop Road, Near C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s were exempt from Excise duty and that plant and equipment, to the extent it qualifies as 'capital goods' were eligible even if the same were installed outside the factory as the definition of 'capital goods' under CENVAT Credit Rules, 2004, specifically included capital goods used outside the factory for pumping of water for captive use in the factory. 5.3 NMDC Limited, the Appellant as part of the above plan, NMDC is setting up Intake Well Pump House and Cross Country Pipeline System at 3.0 MTPA Integrated Steel Plant at Nagarnar, Chhattisgarh. As discussed NISP has been awarded contract for setting up of Intake well and Pump House and for laying of Cross Country Pipeline System, including operation and maintenance for five years for NISP to a consortium lead by M/s Megha Engineering and Infrastructure Limited. The scope of work is categorized into 3 categories which are as under: i. Construction of intake well and pump house along with supply of associated motors and electrical equipment's ii. Construction of pipeline, erection, installation and commissioning iii. Operation and Maintenance Service for five years 5.4 Section 16(1) of CG ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t shall not be available in respect of the following, namely:- (c) Works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service; (d) Goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business. Explanation .- For the purposes of this Chapter and Chapter VI, the expression plant and machinery means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes- (i) land, building or any other civil structures; (ii) Telecommunication towers; and (iii) Pipelines laid outside the factory premises. 5.8 Aforesaid explanation to section 17 (5) of CGST Act, 2017 categorically excludes pipelines laid outside the factory premises from the scope of plant and machinery, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shrubs. (b) embedded to earth, as in the case of walls or buildings and (c) attached to what is so embedded for permanent beneficial enjoyment of that to which it is attached. Thus the essential character of immovable property , relevant to the present context is that it is attached to the earth, or permanently fastened to anything attached to the earth, or forming part of the land and not agreed to be severed before supply or under a contract of supply. The project of laying pipe lines covers a large area, tailored specifically to fit the dimensions and orientation of the needs of the project. Dismantling and shifting the said pipeline project appears neither to be prudent nor a viable option. Thus, besides pipelines being laid outside the factory premises outside the scope of plant and machinery it also fulfills the conditions of being an immovable property. 5.10 We also find that the AAR in their impugned order appealed against, have also cited reference to Hon'ble Supreme Court judgment in the case of M/s. T.T.G. Industries Ltd. v. Collector of Central Excise, [decided] on 7 May, 2004 (167) E.L.T. 501 (S.C.) in Appeal (civil) 10911 of 1996, wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property. In the case of Duncans Industries Ltd. v. State of U.P. Ors on 3 December, 1999 Hon'ble Supreme Court had to decide whether the 'plant and machinery' is 'goods' or 'immoveable property. Hon'ble Apex Court held that the same is immoveable property observing as under:- The question whether a machinery which is embedded in the earth is movable property or an immovable property, depends upon the facts and circumstances of each case. Primarily, the court will have to take into consideration the intention of the parties when it decided to embed the machinery whether such embedment was intended to be temporary or permanent A careful perusal of the agreement of sale and the conveyance deed along with the attendant circumstances and taking into consideration the nature of machineries involved clearly shows that the machineries which have been embedded in the earth to constitute a fertiliser plant in the instant case, are definitely embedded permanently with a view to utilise the same as a fertiliser plant The description of the machines as seen in the Schedule attached to the deed of conveyance also shows without any doubt that they were set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin factory is eligible for Modvat credit - Rule 57A of erstwhile Central Excise Rules, 1944 - Rule 4 of Cenvat Credit Rules, 2004 , to bring home their point that distance is immaterial to determine whether pipeline is inside or outside the factory when one end of the pipeline is within the factory and the same being used for drawing water and transporting to the factory. The Appellant have also cited reference to the case of Commissioner Vs GSPL India Transco Ltd [2016 (43) S.T.R. J23 (Guj.)], Hon'ble High Court in their defense. It is observed that the cited case laws either pertain to the erstwhile Cenvat / Modvat regime stipulating therein the provisions for availment of credit wherein the chapter heading/ subheading of the items which qualified being termed as capital goods , were specifically covered under the definition viz. items falling under chapter 84, 85 etc. of CETA, 1985. In the case in hand, pipe lines laid outside the factory premises (that too as far as even 50Km away from the factory premises) stands excluded from the scope of plant and machinery as discussed in the preceding para. Thus the said case laws cited by the appellant are distinct and disti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vation and repair of the factory are definitely within the meaning of 'input service' even though construction of a building or civil structure or part thereof has been placed under the exclusion of the said definition of 'input service'. The cited case laws either pertain to the erstwhile Cenvat / Modvat regime stipulating therein the provisions for availment of credit wherein the chapter heading/ subheading of the items which qualified being termed as capital goods , were specifically covered under the definition viz. items falling under chapter 84, 85 etc. of CETA, 1985. In the case in hand, pipe lines laid outside the factory premises (that too as far as even 50Km away from the factory premises) stands excluded from the scope of plant and machinery as discussed in the preceeding para. The case law cited by the appellant relates to cenvat credit on services used for modernization, renovation and repair of plant and machinery, which is definitely not the case here in as much as such pipelines laid outside the factory premises stand excluded from the definition of 'plant and machinery'. Here it is not the case that 'Pipelines laid , outside the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wers and pipelines laid outside the factory premises from the definition of 'plant and machinery' thereby denying the input tax credit. Besides this as discussed above and in view of the details furnished by the Appellant, there hardly remains any ambiguity that the pipelines in question are 'immovable property. Further it is worth mentioning here that the case in hand is not that the 'Pipelines laid outside the factory premises' are being used for providing any output service of transport of liquids/gases. Thus the conclusion arrived at by the AAR that the said project for laying cross country pipelines outside the factory premises of the Appellant can in no way be directly related to the outward supply of goods, is sustainable under law. In terms of Section 2 (83) of CGST Act, 2017 outward supply in relation to a taxable person, means supply of goods or services or both, whether by sale, transfer, barter, exchange, licence, rental, lease or disposal or any other mode, made or agreed to be made by such person in the course or furtherance of business. No nexus whatsoever could be made of the outward supply , with the pipe lines laid outside the factory premis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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