2015 (7) TMI 825 - AAR - Service Tax

Denial of CENVAT Credit - input services - installation and commissioning related services on the input side for bringing into existence a pipeline - Revenue has contended that the services used for erection and commissioning of such plant, do not take part directly in providing output taxable service of transportation of gas and also same cannot be considered to be integrally connected in providing output service in view of restrictive definition of input service Held that - Applicant 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 applicant 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 applicant from EPC contractors and others is not for laying of foundation or making of structure for support of capital goods, same does not fail under the exclusion clause. Applicant is eligible to avail Cenvat Credit of the Service Tax that would be paid by the EPC Contractor/other construction contractors and other service providers (except for Service Tax paid vis a vis construction services for the civil works package for building the pipeline substations) against the applicant s output service tax liability under the taxable output service in the nature of transport of gas through pipelines. - Decided in favour of assessee.

Summary

Issues Involved:
1. Eligibility of Cenvat Credit for Service Tax paid by EPC Contractors and other service providers.
2. Applicability of previous Tribunal and High Court decisions.
3. Definition and scope of "input service" under Cenvat Credit Rules, 2004.
4. Exclusion clauses under Rule 2(l) of Cenvat Credit Rules, 2004.

Issue-wise Detailed Analysis:

1. Eligibility of Cenvat Credit for Service Tax paid by EPC Contractors and other service providers:
The applicant sought to avail Cenvat credit for Service Tax paid by its contractors for installation and commissioning services related to laying pipelines. The applicant argued that these services are essential for bringing the pipeline into existence, which is necessary for providing the output service of gas transportation. The ruling concluded that the applicant is eligible for Cenvat credit on these services, except for the construction services related to building pipeline substations.

2. Applicability of previous Tribunal and High Court decisions:
The Revenue argued that the issue had already been decided by the Appellate Tribunal in the case of Gujarat State Petronet Ltd. vs. CCE, Ahmedabad. However, the High Court had instructed the Authority for Advance Rulings to decide the matter on merits, stating that the decision would only be binding on the applicants and tax authorities involved. Therefore, the contention of the Revenue was not upheld, and the matter was taken up by the Authority.

3. Definition and scope of "input service" under Cenvat Credit Rules, 2004:
The Revenue relied on the judgment in Mundra Port & SEZ Ltd. vs. CCE Rajkot, arguing that services used for erection and commissioning do not directly participate in providing the output service of gas transportation. The applicant countered that the pipeline system is essential for the output service, and the services used to create it should be considered "input services." The ruling agreed with the applicant, stating that the pipeline is integral to providing the output service of gas transportation and that the fact that the pipeline is immovable property is irrelevant under Rule 2(l).

4. Exclusion clauses under Rule 2(l) of Cenvat Credit Rules, 2004:
The Revenue argued that the services for laying the pipeline fall under the exclusion clause A(b) of Rule 2(l), which excludes services used for laying the foundation or making structures for the support of capital goods. The ruling clarified that the exclusion clause pertains to services used for supporting capital goods, not for creating the pipeline itself. The services used for laying the pipeline are not for supporting capital goods but for the pipeline's construction, which is necessary for gas transportation. Therefore, the exclusion clause does not apply in this case.

Conclusion:
The ruling held that the applicant is eligible to avail Cenvat Credit for the Service Tax paid by EPC Contractors and other service providers, except for the Service Tax paid for construction services related to building pipeline substations. The decision was based on the interpretation that the services used for laying the pipeline are essential for providing the output service of gas transportation and do not fall under the exclusion clauses of the Cenvat Credit Rules, 2004.