2011 (3) TMI 235 - AT - Service Tax

Demand - Cenvat credit - Storage and Warehousing - input services related to output service - Rule 3 of Cenvat Credit Rules, 2004 (CCR) - Since the pipeline cannot be operated unless HPCL s share of line fill quantity is pumped into the pipeline for pushing the batches of BPCL and IOCL for receipt into the Hassan terminal for warehousing, transportation of HPCL quantity forms an integral part of the output service - It was inevitable that HPCL also incurred cost of transportation on its share and Service Tax thereon - The freight charges for the transportation through pipeline and the Service Tax thereon were paid by the respective companies in respect of the petroleum products received by each - If the pipeline is filled to capacity of any particular petroleum product with shares belonging to the three companies in mutually agreed proportion, consignments meant for different oil companies can possibly be exclusively transported keeping the pipeline filled to capacity before and after the transfer - Hence, decided in the favour of the assessee by way of remand

Summary

Issues:
Challenge of demand of credit of Service Tax and penalty imposed by the Commissioner.

Analysis:
The appellant, a petroleum company, challenged the demand of credit of Service Tax availed by it and penalty imposed by the Commissioner. The dispute arose from the appellant taking credit of Service Tax paid for transportation of petroleum products through a pipeline maintained by a Joint Venture with the appellant. The Commissioner disallowed the credit, ordered recovery, demanded interest, and imposed a penalty on the appellant. The appellant contended that the transportation of petroleum products through the pipeline was an integral part of its business of storage and warehousing for other oil companies. They argued that the transportation service used by them constituted an 'input service' for their 'output service' of storage and warehousing. The appellant relied on various legal precedents and interpretations of the term 'for the purpose of business' to support their claim.

The Tribunal examined the case records and submissions made by both parties. It was noted that the pipeline was shared by three oil companies, and each had to maintain its share of line fill quantity. The appellant argued that without transporting its share of petroleum products through the pipeline, it could not provide storage and warehousing services for products belonging to other oil companies. The Tribunal observed discrepancies in the records regarding the simultaneous use of the pipeline by the three companies and the arrangement for transferring consignments. The Tribunal also reviewed a certificate obtained from the Joint Venture, which indicated a minimum quantity required in the pipeline for its functionality.

Ultimately, the Tribunal set aside the impugned order and remanded the dispute to the Commissioner for a fresh decision. The Tribunal directed the Commissioner to provide a detailed explanation of the factual matrix and make a clear decision on the legal dispute. The appeal was allowed by way of remand, indicating that further clarification and analysis were necessary to resolve the issues raised by the appellant regarding the admissibility of the Service Tax credit for transportation services.