2013 (12) TMI 335 - AT - Service Tax

Availment of Cenvat credit - Demand of service tax - Service tax paid by the Gas Authority of India Limited on transportation of natural gas to the appellant s premises is not in relation to an output service provided by them - Held that - appellant is engaged in compression of the natural gas, which is amounting to manufacture and is also not in dispute that part of the compressed natural gas is cleared by them on discharge of excise duty. It is also not in dispute that the appellant is distributing the natural gas received from the GAIL to various customers. In our view, if the appellant does not receive natural gas from GAIL, he could not provide any output service nor could he discharge the excise duty on the compression activity undertaken by him - appellant has made out a prima facie case for the waiver of pre-deposit of amounts involved - Stay granted.

Summary

Issues:
Waiver of pre-deposit of service tax amount confirmed by adjudicating authority, eligibility of Cenvat credit, interpretation of judgment in Maruti Suzuki case by the Apex Court, receipt of natural gas from GAIL as a pre-requirement for business activity, service tax liability on transportation services, engagement in compression of natural gas, distribution of natural gas to customers.

Analysis:
The case before the Appellate Tribunal CESTAT Ahmedabad involved a stay petition seeking the waiver of pre-deposit of a significant service tax amount of Rs. 68,08,696/-, along with interest and penalties, as confirmed by the adjudicating authority under various sections of the Finance Act, 1994. The amounts were deemed ineligible for Cenvat credit, and penalties were imposed based on the assertion that the service tax paid by Gas Authority of India Limited (GAIL) for transporting natural gas to the appellant's premises was not related to an output service provided by the appellant.

The appellant, represented by a Senior Advocate, argued that the Revenue's position heavily relied on the judgment of the Apex Court in the Maruti Suzuki case. However, it was pointed out that another co-ordinate Bench of the Apex Court had cast doubts on the Maruti Suzuki judgment, leading to a reference to a Larger Bench. The appellant contended that receiving natural gas from GAIL was essential for their business activities, including compressing the gas, paying excise duty on the compressed gas, and distributing natural gas through pipelines. It was emphasized that the appellant was fulfilling its service tax liability for the transportation services related to gas through pipelines.

The Departmental Representative reiterated the findings of the adjudicating authority, maintaining their stance on the matter. Upon considering the arguments from both sides, the Tribunal found that the appellant was indeed involved in the compression of natural gas, which constituted manufacturing activity. It was acknowledged that a portion of the compressed gas was cleared by the appellant upon payment of excise duty, and the distribution of natural gas to customers was also established. The Tribunal noted that without receiving natural gas from GAIL, the appellant would be unable to provide any output service or discharge excise duty on the compression activity. The Tribunal also recognized the validity of the advocate's contention that reliance on a judgment referred to a Larger Bench provided grounds for the appellant to seek a waiver of the pre-deposit amounts.

Consequently, the Tribunal held that the appellant had established a prima facie case for the waiver of the pre-deposit amounts. The application for the waiver was allowed, and the recovery of the amounts was stayed pending the disposal of the appeal. The decision was dictated and pronounced in the Court by the Tribunal.