2016 (8) TMI 91 - AT - Service Tax

Extended period of limitation - Cenvat Credit availed on input services and capital goods between March 2008 and March 2009 i.e. prior to the commissioning of the pipeline - Appellant is rendering Transportation of Gas through pipeline services - Held that - From the record it clearly comes out that the privity of contract in the instant case was between the Appellant and the service provider and that these service providers were under no obligation whatsoever to the pipeline laying contractors nor were the pipeline laying contractors under any obligation to pay for the said services or to compensate or otherwise for the deficiency in the services of the said service providers. This being the case the finding that services availed of from the other service providers as also the capital goods were used by the pipeline laying contractors is clearly untenable. The demand raised against the Appellant is hopelessly barred by limitation inasmuch as the Appellant had made a clean breast of all the relevant facts under cover of its letter dated 28.7.2006 before availing credit. In this letter the Appellant had clearly informed the jurisdictional Assistant Commissioner about the business Model that it was to follow and of its intention to avail credit on the input, input services and capital goods that it was to use for rendering its output service. The Appellant had also informed the Revenue of the fact that the pipeline which is being laid would be embedded to the earth. Given the aforesaid facts we are of the view that there has absolutely no suppression whatsoever on the part of the Appellant so as to warrant invocation of the extended period of limitation. - Demand set aside - Decided in favor of assessee.

Issues Involved:
1. Denial of Cenvat Credit on services rendered by pipeline laying contractors.
2. Denial of Cenvat Credit on services rendered by other service providers.
3. Denial of Cenvat Credit on capital goods.
4. Applicability of the Bharti Airtel judgment.
5. Limitation period for raising the demand.

Issue-wise Detailed Analysis:

1. Denial of Cenvat Credit on services rendered by pipeline laying contractors:
The Tribunal found the denial of credit on the ground that services resulted in the creation of immovable property to be fallacious. The definition of "input service" includes services used for setting up the premises of a provider of output service. The Tribunal held that the services used for laying the pipeline were directly connected to the output service of transportation of gas, thus eligible for credit. The Tribunal cited the Punjab and Haryana High Court's judgment in CCE vs Bellsonica Auto Components India Pvt Ltd, which upheld the admissibility of credit on input services used for setting up a factory.

2. Denial of Cenvat Credit on services rendered by other service providers:
The Tribunal rejected the Respondent's argument that these services were inputs for the pipeline laying contractors and not for the appellant. The Tribunal noted that the appellant contracted and paid for these services, which were essential for the output service of transporting gas through the pipeline. The Tribunal referred to its earlier decision in GSPL, which held that credit cannot be denied to a service recipient based on hypothetical scenarios where services could have been availed by contractors.

3. Denial of Cenvat Credit on capital goods:
The Tribunal ruled that the specified capital goods like pipes, valves, and compressors used for rendering the output service were eligible for credit. The Tribunal distinguished the facts from the Bharti Airtel case, noting that in Bharti Airtel, the items were not specified capital goods. The Tribunal emphasized that the mere fact that capital goods become immovable for effective utilization does not disqualify them from credit eligibility. The Tribunal cited the decision in CCE vs JSW Ispat Steel Ltd, which supported the view that capital goods credit remains valid even if the goods are assembled into an immovable plant.

4. Applicability of the Bharti Airtel judgment:
The Tribunal found the Bharti Airtel judgment inapplicable to the present case. The Bharti Airtel decision dealt with the eligibility of cenvat credit on steel items used for fabricating telecom towers, not input services. The Tribunal noted that the Bharti Airtel judgment did not address the scope of "input services" as defined in the Cenvat Credit Rules.

5. Limitation period for raising the demand:
The Tribunal held that the demand was barred by limitation. The appellant had disclosed all relevant facts in a letter dated 28.7.2006, including the intention to avail credit and the nature of the pipeline being laid. The jurisdictional Assistant Commissioner had acknowledged the appellant's eligibility to avail credit. The Tribunal found no suppression of facts by the appellant, noting that the revenue had initially agreed to the appellant's entitlement and no objections were raised in subsequent audits.

Conclusion:
The Tribunal allowed the appeal, setting aside the impugned order. It held that the appellant was entitled to Cenvat Credit on the disputed input services and capital goods. The demand was also found to be barred by limitation due to the appellant's prior disclosures and the revenue's initial agreement to the appellant's eligibility for credit.

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