2015 (7) TMI 826 - AAR - Service Tax

CENVAT Credit - Capital goods being immovable property - Revenue contended that the applicants would receive constructed pipeline system which is embedded to the earth and therefore cannot be termed as goods for availing Cenvat credit of duty, as they are neither moveable nor marketable - Next issue raised by the Revenue is that the EPC Contractors who received the duty paid pipes and valves (capital goods) for laying the pipeline, were only eligible to take Cenvat Credit on capital goods under Rule 3 of Cenvat Credit Rules, 2004 and not the applicants. - Duty paying documents. Held that - in present case, capital goods (pipes and valves) are to be used for providing output service and it is not relevant whether these goods provide such service by being embedded to the earth. Therefore, we agree with the applicant that the relevant date to determine whether an item qualifies to be capital good is the time of its receipt and not subsequent date. Ownership - since the applicant would receive the pipes and valves as owners and then issue them on bailment to the EPC contractor for a specific purpose of providing services to bring into existence a pipeline. Therefore, the contention of Revenue that when pipes and valves are transferred from manufacturer to the applicant, applicant would get possession of pipes and valves from the manufacturer but same is not for consideration and thus, there would be no sale in terms of Section 2 (h) of Central Excise Act, 1944, - is factually incorrect. Duty paying document - EPC contractor, who pays for the goods to the manufacturer, may direct said goods to be delivered at applicant s site, without it coming to the premises of EPC contractor and he (EPC contractor) need not be a registered dealer with the Central Excise. However, applicant cannot take Cenvat Credit of Central Excise duty paid on pipes and valves on the basis of invoice issued by intermediary dealer , until and unless, this intermediary dealer is a registered dealer . Therefore, the contention that the applicant is eligible to Cenvat credit of Central Excise duty paid by the manufacturer on pipes and valves on the basis of documents issued by intermediary dealer , would be as per Central Excise Rules read with Cenvat Credit Rules, only when said intermediary dealer is a registered dealer . Appellants are eligible to avail Cenvat Credit of excise duty that would be paid on the pipes and valves procured from the manufacturer against the applicant s output service tax liability for services in the nature of transport of gas through pipeline, provided, invoice for said Cenvat Credit of Central Excise duly on pipes & valves, is issued by registered dealer .

Issues Involved:
1. Whether the question raised by the applicant has already been decided by the Appellate Tribunal or any Court.
2. Whether the constructed pipeline system can be termed as "goods" for availing Cenvat credit.
3. Whether the applicant can take Cenvat Credit of Central Excise duty paid on pipes and valves received by EPC contractors.
4. Whether the documents under which the applicant proposes to avail Cenvat credit are proper under Rule 9 of Cenvat Credit Rules, 2004.

Detailed Analysis:

1. Prior Decision by Appellate Tribunal or Court:
The Revenue contended that the question raised by the applicant had already been decided by the Appellate Tribunal in the case of Gujarat State Petronet Ltd. vs. CCE, Ahmedabad. However, the Gujarat High Court allowed the writ petition and instructed the Authority to hear the applicant on merits. The High Court concluded that the decision of the Authority for Advance Rulings (AAR) would not result in conflicting decisions as it would be binding only on the applicants and tax authorities. Therefore, the contention of Revenue was not correct.

2. Constructed Pipeline System as "Goods":
The Revenue argued that the constructed pipeline system, being embedded in the earth, cannot be termed as "goods" for availing Cenvat credit as they are neither movable nor marketable. They relied on the judgment in Bharti Airtel Ltd. vs. Commissioner of Central Excise. However, the Authority observed that pipes and valves are specifically mentioned under Rule 2(a) of the Cenvat Credit Rules as "capital goods" and are used for providing output service. Therefore, despite being immovable, they qualify as capital goods. The CBEC Order dated 15.01.2002 was not applicable as it pertained to the manufacture of plant and machinery, not the provision of output service.

3. Eligibility of Applicant to Take Cenvat Credit:
The Revenue argued that only EPC contractors, who receive the duty-paid pipes and valves, are eligible to take Cenvat Credit, not the applicants. However, the Authority noted that as per Rule 3 of Cenvat Credit Rules, 2004, the provider of output service (the applicant) is permitted to take credit of duty paid on any input or capital goods received. The applicant fulfilled the conditions mentioned in Rule 3, making them eligible to take Cenvat Credit of Central Excise duty paid on pipes and valves. The Authority also noted that this procedure was revenue-neutral, which was not opposed by the Revenue.

4. Proper Documents for Availing Cenvat Credit:
The Revenue contended that the documents under which the applicant proposes to avail Cenvat credit are not proper under Rule 9 of Cenvat Credit Rules, 2004. They argued that the EPC contractors are not registered dealers, and the transfer of property in pipes involves multiple stages, complicating the validity of the documents. The applicant submitted that they would procure the pipes and valves directly shipped to their project site under the cover of appropriate statutory documents/invoice showing the applicant as consignee. The Authority observed that the transfer of property happens from the manufacturer to the EPC contractors, but possession is directly transferred to the applicant. The recent amendment to Rule 11 of Central Excise Rules mandates that the document for credit availment should be the invoice raised by the "registered dealer" (EPC contractor). Therefore, the applicant can only take Cenvat Credit if the intermediary dealer (EPC contractor) is a "registered dealer."

Conclusion:
The applicants, M/s GSPL India Transco Limited and M/s GSPL India Gasnet Limited, are eligible to avail Cenvat Credit of excise duty paid on the pipes and valves procured from the manufacturer against their output service tax liability for services in the nature of transport of gas through pipeline, provided the invoice for said Cenvat Credit is issued by a "registered dealer."

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