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TMI Blog2015 (7) TMI 826X X X X Extracts X X X X X X X X Extracts X X X X ..... before the Hon'ble Gujarat High Court, who vide order dated 29.08.2012 allowed the writ petition and instructed this Authority to hear the applicant on merits. In the interim, Service Tax laws in India were replaced by a comprehensive Service Tax regime with effect from 01.07.2012. Due to these changes, the applicants filed corrigendum to the original applications on 12.11.2012. However, on the instructions of this Authority, fresh applications dated 01.03.2013 were filed, i.e. present applications. This Authority vide Order dated 16.01.2015 restored the applications, which were dismissed earlier for non-prosecution on 21.04.2014. 3. Applicant will be engaged in rendering taxable service in the nature of transport of gas through pipelines, classified under the erstwhile taxable category of "Transport of goods through pipeline or other conduit service", under section 65 (105) (zzz) of the Finance Act, 1994, as it existed prior to July 1,2012. Applicant proposes to avail the benefit of Cenvat credit in respect of the 'capital goods' and utilizing the same for discharging its output service tax liability. Applicant proposes to adopt engineering, procurement and construct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cover of appropriate statutory documents/invoice. Further, it would be specifically provided in terms of the EPC Contracts that the ownership of such pipes and valves would pass to the applicant from the EPC Contractor(s) ex works at the manufacturer's factory (after the necessary inspection, verification and quality clearances at the manufacturer's factory). Thus the pipes and valves for the pipeline would be owned and received by the applicant at the site as pipes and valves itself i.e. chattel qua chattel. The manufacturer would dispatch the pipes and valves to the applicant under a manufacturer's invoice as mandated under Rule 11 of the Central Excise Rules, 2002. Upon receipt of the pipes and valves at the project site, the applicant would issue the same to the EPC Contractors free of cost (on bailment) for laying the pipeline along the identified route. The receipt of the pipes and valves and the issuance thereof to the EPC Contractors would be evidenced by appropriate documentation. The applicant would use the pipes and valves so received under the EPC Contracts for transport of gas through pipelines thereby using the pipes and valves for rendering taxable outp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nes, the EPC Contractors would qualify their services as "works contract services" [as defined under Section 65B (54) of the Act, post July 1, 2012] and discharge Service Tax accordingly to one of the options given under Rule 2A of Service Tax (Determination of value) Rules, 2006. 8. As per the Explanation 2 to Rule 2A of Service Tax (Determination of Value) Rules, 2006, applicant submits that restriction on credit availment is on the provider of taxable service viz., the EPC Contractors and no restriction on availment of credit has been prescribed for service recipients like the applicant; that accordingly, he would be eligible for credit under this option. Further, applicant submits that they are not availing any exemption on condition of non availability of "credit of duty paid on any input or capital goods or of service tax paid on input service", therefore, there is no warrant to invoke the above Explanation to Rule 3(7) of Cenvat Credit Rules, to deny credit of capital goods to the applicant; that thus, the provisions of Valuation Rules as above cannot be used to restrict credit availment by the applicant. 9. Applicant submits that he would fulfill all the statutory require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Board of Excise & Customs (CBEC) Order no. 58/2002-CX dated 15.01.2002 issued under Section 37 B of the Central Excise Act, 1944. Revenue further contended that Cenvat Credit of duty paid on pipes used in constructed pipeline system would not be admissible to them in terms of Rule 2 of Cenvat Credit Rules, 2004, which define "input" and "capital goods". As pipes etc. gets transformed into pipeline systems, which in-turn gets embedded to earth, they become immoveable property and therefore, can-not be goods. Revenue relied upon the judgment of Hon'ble High Court of Bombay in the case of Bharti Airtel Ltd. vs. Commissioner of Central Excise 2014 (35) STR 865 (Bom). It is observed that the question before the Hon'ble High Court was whether the appellant i.e. cellular telephone company, would be eligible to avail Cenvat credit of excise duty paid on tower and parts, pre-fabricated building and printers which are fastened and are fixed to the earth Hon'ble High Court observed that the towers are immovable property and non excisable and hence, can neither be regarded as capital goods so as to fall within the definition of "Capital Goods" appearing in Rule 2 (a) of the Cenva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res and civil works become pipeline system, which no longer be termed as capital goods. At the most they can be termed as capital assets. Applicant submits that whether or not an item qualifies as a "Capital good" for the purpose of Cenvat Credit Rules has to be determined at the time of receipt of such goods and any change in the goods subsequent to the receipt, would not be relevant. Applicant in support of their contention relied on the Larger Bench order in Spenta International Ltd. Vs Commissioner of Central Excise, Thane 2007 (216) ELT 133 (Tri L.B), wherein it was held that credit eligibility is to be determined with reference to the date of receipt of capital goods. In the instant case, pipes etc (capital goods) are used by EPC contractors for providing construction / erection, installation and commissioning services. Therefore, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract. As EPC contractors are to avail benefit of Rule 2A ibid, they shall not take Cenvat Credit of duty paid on pipe and valves under Rule 3 of Cenvat Credit Rules, due to such restriction imposed by virtue of Explanation to Rule 3 (7) (C) of said rules. Now the question comes whether applicant can take the Cenvat Credit of Central Excise duty paid on the pipes and valves, which are purchased by him from EPC Contractor, who in-turn has purchased the same from the manufacturer. Rule 3 of Cenvat Credit Rules, 2004 inter-alia permits provide of output service to take credit of duty of excise paid on any input or capital goods received by the provider of output service. In the instant case, duty paid pipes and valves are to be received by the applicant, who is service provider. Conditions mentioned in Rule 3 ibid are satisfied by the applicant, therefore he is eligible to take Cenvat Credit of Central Excise duty paid pipes and valves received by him as service provider. Further, during arguments before this Authority, we were informed by the applicant that the above procedure i.e. applicant taking Cenvat Credit of Central Excise duty paid on pipes and valves is revenue neutral, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Contractor(s) ex works at the manufacturer's factory (after the necessary inspection, verification and quality clearances at the manufacturer's factory); that pipes and valves for the pipeline would be received by the applicant at the site as pipes and valves itself i.e. chattel qua chattel; that the applicant would issue the same to the EPC Contractors free of cost (on bailment) for laying the pipeline along the identified route; that at no point in time prior to issuance of pipes and valves by the applicant to EPC contractors, the EPC contractors would have possession of pipes and valves. Applicant submits that the manufacturer of pipes and valves would not raise the invoice on the applicant - he would merely dispatch the goods directly to the applicant as per instructions from the EPC contractors under the cover of a manufacturer's invoice (raised on the EPC contractor only); that actual invoicing would happen from manufacturer to EPC contractor to the applicant. Applicant submits that CBEC Circular No. 96/7/95-CX dated 13.02.1995 read with Circular No. 218/52/96-CX dated 04.06.1996 clarifies that movement of goods could take place directly on a Rule 52A invoice fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... turer's invoice and other documents, is widely followed industry practice which is well accepted by the department as well. Applicant further submits that bill-to-ship-to arrangements have always been valid for the purposes of credit availment and they continue to be valid even now. The only thing that has changed vide the recent notification no. 8/2015-Central Excise(N.T) dated 1.3.2015 is that the document used for availment of credit of applicants has changed - it has now been prescribed that the document for credit availment should be the invoice raised by the intermediary dealer (in the present factual matrix- the EPC Contractor) - given that the applicants undertake to follow this new procedure, no restriction exists under any law vis a vis availmenl of credit of excise duty paid on pipes, valves etc by the applicants in the factual matrix of the present Advance? Ruling Applications. 22. Rule 9 of Cenvat Credit Rules, 2004 inter-alia states as under; (1) The CENVAT credit shall be taken by the manufacturer or the provider of output service or input service distributor, as the case may be, on the basis of any of the following documents, namely :- (a) an invoice issued b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of the Central Excise Rules, 2002 or from the depot of the said manufacturer or from premises of consignment agent of the said manufacturer or from any other premises from where the goods are sold by or on behalf of the said manufacturer, under cover of an invoice; or ii. an importer who sells goods imported by him under the cover of an invoice on which CENVAT credit may be taken and such invoice shall include an invoice issued from his depot or the premises of his consignment agent; 25. The question raised by the Revenue is whether the applicant can avail of said Cenvat Credit, paid on pipes and valves [the goods were first purchased by the EPC contractor and then sold to the applicant], when the goods are directly transported to the applicant's site without going to the premises of EPC Contractor. Applicant has relied upon Tribunal judgment in CCE, Coimbatore Vs SSPE Cotton Mills (P) Ltd [1999 (106) ELT 102 (T) and Mahadev Industries Vs. CCE Belgaum [2000(115) ELT 452 (T)] wherein it was held that invoice having both dealers; as well as user of goods name, who purchased it through dealers, but directly supplied to the user, is a valid document. CBEC vide Circul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvisaged in Rule 11 (2) of Central Excise Rules. Rule 11 ibid has been recently amended vide Notification No 8/2015 Central Excise (NT) dated 01.03.2015 Third proviso to Rule 11(2) of Central Excise Rules stale that if goods are directly sent to any person on the directions of the "registered dealer", the invoice shall also contain the details of the "registered dealer" as buyer and person as consignee and person shall take Cenvat Credit on the basis of "registered dealer's" invoice. In further written submissions, the applicant has submitted that the document for credit availment should be the invoice raised by the "intermediary dealer" i.e. EPC contractor and they undertake to follow this new procedure. In short, the contention of the applicant is that they would take Cenvat Credit of Central Excise duty paid on pipes and valves on the basis of invoice raised by the "intermediary dealer" i.e. EPC contractor. It is noticed that as per Rule 9 of Cenvat Credit Rules, 2004, Cenvat Credit can be taken inter-alia by provider of output service (i.e. applicant in this case), on the basis of any of the following document; 1. An invoice issued by (i) a manufacturer (ii) an importer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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