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TMI Blog2014 (1) TMI 1096X X X X Extracts X X X X X X X X Extracts X X X X ..... to the EPC contractor. Being a free supply material, if the value of the same is not included in the pipeline system by the output service provider, question of availment of credit also does not arise. The definition of input service also does not help the appellants to get the credit of duty paid on pipes. The definition requires the input services to be ‘‘used for” providing an output service and it cannot be said that the inclusion clause helps them to take credit of service tax paid by the EPC contractor we are not able to find any provision which allows them to take credit of duty paid on pipes and also service tax paid on construction of pipeline system. A conscious decision was made by the appellant and the EPC contractor to avail the benefit of Notification No. 12/2003 especially in the case of appellants, they had also taken a legal opinion. Once a choice is made the consequence of the choice also inevitably follows and has to be suffered. - Decided against the aassessee. Bar of limitation - Held that:- taking a view that assessee did not furnish additional information to the department and filing returns in the proforma prescribed giving the information required to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Section 65(105)(zzz) of Finance Act, 1994. They have adopted Engineering Procurement and Commissioning (EPC) model for laying of oil and gas transmission pipelines. For this purpose, they granted several turnkey EPC contracts to various EPC contractors involving fabrication, assembly with equipments and devices, installation and commissioning of a pipeline system for the movement of oil and gas. The EPC contractors procured pipes, other materials and equipment and used the same in laying the pipeline system. 1.2 The contract between GSPL and the contractors was on a lump sum price basis; yet, the latter issued two invoices, one for sale of the materials (including pipes) and the other for the services rendered by them. They discharged service tax liability under the category of Commercial and Industrial Construction Services or Erection, Commissioning and Installation Services on the services portion. As for the sale of materials used under the contract, they availed of the benefit of Notification No. 12/2003-S.T., dated 20-6-2003. 1.3 As per the aforesaid notification, the value of materials and goods sold in the course of rendering the taxable service is deductible f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed under Sections 76 78 of Finance Act, 1994. We propose to discuss issues in the same order hereunder : 3. Whether GSPL is entitled to CENVAT credit of excise duty paid on pipes and other materials? 3.1 It was submitted by the learned counsel for the appellant that pipes were sold by the EPC contractors to the appellant who took the same into their account and thereafter, issued it to EPC contractors for use in laying the pipelines. The pipeline was used for transporting the oil and gas. It was also submitted that with the support of documents issued by the manufacturers who supplied pipes, in the invoice, consignee was shown as GSPL even though the invoice was in the name of EPC contractor. The learned counsel relied upon the clarification issued by the Board under MODVAT Scheme wherein a view was taken that the credit can be taken even when the assessee was shown as consignee. It was submitted that what is required is that the pipe should have been used in the pipeline and CENVAT duty should have been paid on the same. It was also submitted that in the case of service providers, it is not necessary that inputs or capital goods should have been used within the premises ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credit passed on to GSPL by contractors : 12.0 Situation II - Where contractors availed of the provisions of 12/2003 (a) Cum tax price to GSPL (100 + 12% of 49) 105.9 (b) Assuming GSPL was eligible to Cenvat benefit, S. Tax credit passed on to GSPL by contractors : 5.9 (c) In the instant case, in addition, GSPL took credit of Cenvat paid on materials : 6.4 In situation II, which reflects the facts of the present case, (i) GSPL paid to the EPC contractors the full contract value of 100 as in Situation I. (ii) The total S. Tax paid by the contractors was only 5.9 GSPL bore this burden and took credit of the same. In addition, they took credit of an amount of 6.4. Thus, they took credit of 12.3, while the D. Tax paid was only 5.9. GSPL got an undue benefit of 6.4 (iii) On the contrary, in Situation I, the total S. Tax burden would have been 12, matching the total credit availed of 12. EPC contractors would have used credit of duty paid on materials i.e. 6.4 (iv) In Situation II, in comparison with Situation I, Revenue got less S. Tax revenue by 6.1 (12 minus 5.9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CENVAT credit availability would be more than the service tax liability. 3.8 Therefore, the above discussion of Situation-II would show that as per the Government is concerned, it does not make a difference whether CENVAT credit is taken by EPC contractors or GSPL as far as pipes are concerned. Needless to say, while discussing the illustration, the assumption is that GSPL is eligible to avail benefit of service tax paid by EPC contractors which has not been accepted by the Revenue. 3.9 The next ground taken by the learned special counsel is that from the legal angle also, availment of duty credit on pipes by GSPL is not justified. According to the Explanation to sub-rule (7) of the Rule 3 of the CENVAT Credit Rules, Where the provisions of any other rule or notification provide for grant of whole or part exemption of condition of non-availability of credit of duty paid on any input or capital goods, or service tax paid on input service, the provisions of such other rule or notification shall prevail over the provisions of these rules . Since the service provider in this case, availed the benefit of Notification No. 12/2003, the provision of the notification prevailed over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d considered the definition of input in respect of manufacture as well as output service . The Tribunal took note of the fact that when it comes manufacture, the meaning of input was indicated as goods as specified used in or in relation to manufacture of final products or for any other purpose within the factory of production whereas in respect of output service , the meaning of input is the goods, as specified, used for providing any output service. After noting the distinction and difference between the definition of input for manufacture and for service providers, the Tribunal observed as follows in paragraph 6 :- 6. The main thrust of the appellant s argument is that the definition of input as contained in Rule 2(k)(ii) is all goods used for providing any output service . It stands contended by them that any item which is required for the ultimate providing of the service, should be considered as an input. The expression used for providing should be construed as used for the purpose of providing . The expression for the purpose of business stands interpreted by the Hon ble Supreme Court to be of wide import. As they have contended that jetty is used for provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Mundra Port Special Economic Zone Ltd. (supra) and the present case is that, in that case service of construction of jetty was exempted whereas in the present case, service of laying down a pipeline is not exempted. In Mundra Port case, the service provider could not have taken the credit since the service was exempted and in the present case, the service provider has opted not to take credit though eligible. Therefore, the decision in the case of Mundra Port is applicable to the present situation and it would not be possible to take a view that the pipes have been used for providing service of transportation of oil and gas in view of the words used used for . 3.12 As rightly submitted by the learned Special Counsel, reliance of the appellants on the decisions in the case of Commissioner of C. Ex., Chennai v. Pepsico India Holdings Ltd. [2001 (130) E.L.T. 193 (Tri. - Chennai)] and Jaypee Bela Plant v. Commissioner of C. Ex., Bhopal [2005 (180) E.L.T. 31 (Tri. - Del.)] cannot be applied since in both the cases, what was in consideration was use of goods in or in relation to manufacture of final products and we have already distinguished between the meaning of the input for m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat there was a sale by the contractors to GSPL but in the absence of registration of contractor as dealer, the credit could not have been taken by the appellant. This is a procedural defect and this has not been rectified till date. However, Rule 9(2) of the CENVAT Credit Rules which provides discretionary powers to the Deputy Commissioner/Assistant Commissioner to allow CENVAT credit in respect of defective documents also provides that even if name and address of the first and second stage dealer is not available in the invoice, credit can be extended provided the Assistant Commissioner/Deputy Commissioner is satisfied that the goods for service have actually been received and used. Therefore, even if the dealers were not registered, this was rectifiable defect and GSPL could have applied to the Assistant Commissioner/Deputy Commissioner for rectification. In any case, these are procedural requirements and would arise only if a view is taken that GSPL is eligible for a credit in the first place. But we are unable to agree with the submission of the learned special counsel that on this ground, credit can be denied to GSPL outright. 3.15 The next submission by the learned special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uipment. In the case of plant or equipment, during the construction process, several components/spares/accessories are manufactured and bought out parts are received and all are assembled to bring plant or machinery into existence. In such a situation capital goods used within the factory have been allowed for the purpose of CENVAT credit. No doubt pipes are covered by capital goods. But once again as discussed earlier in respect of inputs, in this case also capital goods are required to be used for providing output service according to the definition of capital goods under Rule 2(a) of CENVAT Credit Rules, 2004. In the case of capital goods for a manufacturer, what is required is use of capital goods in the factory of the manufacturer of final products whereas in the case of capital goods for service providers, they are required to be used for providing output service. Pipes are used for construction of pipeline by the service provider and pipeline system is handed over to the appellant. Construction of pipeline is an activity covered for service tax levy and it can be said that the pipes are used for providing output service by the service provider namely EPC contractor and n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for providing output service by the appellant but they are used for providing output service by the EPC contractors. 5.3 As regards the service rendered by the EPC contractors the ground canvassed is that what has emerged is an immovable property which is neither a service nor goods. In this case, it has to be noted that EPC contractors have not paid service tax on pipeline system but on the services provided for constructing the system. Definition of input service clearly covers this and it cannot be said that this service is not provided to output service. Moreover the decision of Hon ble Andhra Pradesh High Court in the case of Sai Sahmita Storages (P) Ltd. [2011 (270) E.L.T. 33 (A.P.) = 2011 (23) S.T.R. 341 (A.P.)] also supports the case of appellants. In this case it was held that inputs used for construction of warehouse is admissible as credit. 6. Whether the notices for the period during the year 2005 to 2008 are barred by limitation? 6.1 It was submitted by the learned counsel for the appellant that appellant entertained a bona fide belief that the credit of duty paid on the pipes can be taken by them since the situation is revenue neutral. He would submit that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit of Notification No. 12/2003-S.T., and once notification benefit is availed, provisions of Rule 3 of CENVAT Credit Rules would not be applicable and therefore appellant could not have taken credit. It was also submitted that the scrutiny of returns filed by GSPL show that appellant never declared that they availed credit of duty paid on pipes by their EPC contractors and such pipes were used by their EPC contractors for providing output service of Commercial and Industrial Construction . It was also submitted that when the provisions of Section 11A are seen, it would show that in the case of suppression, there is no need to prove that the assessee had the intent to evade for invoking the extended period. Only in the case of provision relating to contravention of provisions of law, that would be required. 6.3 Before we proceed further, it would be appropriate to discuss the argument relating to provisions of Section 73(1) of the Finance Act, 1994. Section 73(1) reads as under : Provided that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of - (a) Fraud; or (b) Collusion; or (c) Wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deliberate withholding of information as observed by Hon ble Supreme Court in CCE v. Chemphar Drugs Liniments [1989 (40) E.L.T. 276 (S.C.)]. In the absence of a clear submission to show that what were the facts required to be submitted to the department which were in reality not submitted, the allegation of suppression of facts or finding to that effect cannot be sustained. 6.6 This leads us to the question whether extended period could have been invoked. No fraud, collusion or contravention of provisions of Rule with intent to evade duty has been alleged. It would be still appropriate to discuss whether wilful misstatement can be found against the appellants. It can be said that when the appellants availed CENVAT credit on pipes to which they were not eligible, they have made a misstatement. This is because in every return filed, assessee is required to file a declaration below that the information given therein is true. Further as rightly submitted by the Revenue, it is the responsibility of the assesee to assess due tax correctly and pay the same. Assessment includes availment of CENVAT credit and its utilization. Therefore when wrong credit is availed which is not admissibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for bona fide belief that credit is available. In such situation it will be difficult to sustain the charge of wilful misstatement. In any case we have discussed this issue only because it is always possible that if suppression of fact could not have been alleged, wilful misstatement or its existence or otherwise should have been considered. We find that in the facts and circumstances of this case, it is not possible to sustain wilful misstatement especially in view of the discussion about the illustration given by the learned Special Counsel to show dual benefit to appellants in this order. 6.7 The facts and circumstances would show that appellants obtained legal opinion; legal opinion said they can take credit but a different view was possible; they approach the apex body C.B.E. C. for clarification and did not get any reply; there was no suppression of facts since there is no allegation of incomplete or no credit returns; the situation is revenue neutral if a view is taken that appellant is eligible for the benefit of credit of service tax paid by EPC contractors; as per the records and documents it was EPC contractors who sold the pipes to the appellant who in turn issued t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocal officers. There are no instructions or public notice to this effect. However we make it clear that this observation would not mean that an assessee can escape the rigours of law by just writing a letter to the C.B.E. C. if there is no room for finding a bona fide belief in the correctness of the action or for recording a finding of wilful misstatement. When there is fraud, evasion of duty by misstatement or suppression of facts, merely because a letter has been written seeking clarification does not mean extended period cannot be invoked. In the facts and circumstances of this case, we feel that appellants did entertain a bona fide belief and therefore even if it is assumed that there was a misstatement or suppression of facts, the provision of Section 80 which provided for non-imposition of penalty are applicable. Therefore we find that in this case there is no cause for imposition of penalty on the appellants. 7.1 Whether penalty can be imposed under both the Sections 76 78 of the Finance Act, 1994 ? Since we have taken a view that no penalty is imposable this question does not arise. 7.2 Penalty has been imposed under Rule 15 in two cases and Sections 76 78 in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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