2015 (6) TMI 307 - AT - Service Tax

Appellant granted full waiver of service tax on pipeline inputs, pre-deposit requirement suspended pending appeal

The Tribunal concluded that the appellant was eligible for a complete waiver of service tax on inputs, input services, and capital goods used in laying ... CENVAT credit on services rendered by pipeline laying contractors - CENVAT credit on input services directly received by the provider of output service - CENVAT credit on duty paid on capital goods used for creation of pipeline - Waiver of pre deposit and stay of recovery of service tax, interest and penalty pending appeal - Immovable property character of constructed pipeline and its effect on availment of creditCENVAT credit on services rendered by pipeline laying contractors - Immovable property character of constructed pipeline and its effect on availment of credit - Cenvat credit for service tax paid by pipeline laying contractors (Works Contract/Erection services) is prima facie admissible to the appellant. - HELD THAT: - The Third Member, concurring with the Judicial Member, found that the services rendered by the pipeline laying contractors were directed to bring into existence the pipeline system which is the backbone for the appellant's taxable output service of transportation of gas through pipelines. Reliance on earlier decisions where contractors' work created immovable property did not preclude credit here because the factual matrix shows the contractors rendered services directly for and to the appellant on job work basis, and the Tribunal's jurisprudence (including Sai Samhita line) supports eligibility of credit where inputs/services are used for providing the appellant's output service. On this prima facie view, credit of service tax paid by contractors cannot be denied. [Paras 7, 8]Appellant entitled, prima facie, to Cenvat credit of service tax paid by pipeline laying contractors; denial of such credit not sustained for pre deposit purposes.CENVAT credit on input services directly received by the provider of output service - Cenvat credit on other input services (engineering consultancy, rent a cab, CHA, BAS for coating pipes, supply of tangible goods) directly availed by the appellant prior to commissioning is prima facie admissible. - HELD THAT: - The Tribunal observed that services directly contracted by the appellant and used for bringing the pipeline into existence (and thereby for providing its output service) fall within the definition of input service and are eligible for credit. The record shows these services were availed by the appellant itself for commissioning the pipeline; therefore, prima facie, credit cannot be denied. [Paras 6, 7]Cenvat credit on input services directly availed by the appellant is prima facie admissible.CENVAT credit on duty paid on capital goods used for creation of pipeline - Cenvat credit of central excise duty paid on capital goods (valves, compressor pumps, pipes) procured by the appellant and used for construction of the pipeline is prima facie admissible. - HELD THAT: - The Third Member noted these items were procured directly by the appellant, fall within the definition of capital goods, and were used for bringing the pipeline into existence which enabled the appellant's output service. On that prima facie view and on the authority cited, denial of credit on such capital goods is not justified for the purpose of pre deposit. [Paras 7, 8]Appellant prima facie entitled to Cenvat credit on duty paid for the capital goods procured and used for the pipeline.Waiver of pre deposit and stay of recovery of service tax, interest and penalty pending appeal - Complete waiver of pre deposit of the impugned service tax, interest and penalties and stay of recovery during pendency of the appeal was granted. - HELD THAT: - Having concluded that the appellant has made out a prima facie case for admissibility of Cenvat credit on contractor services, directly availed input services and capital goods, the Tribunal (majority) directed waiver of the pre deposit requirement and ordered stay of recovery until final disposal of the appeal. The Third Member concurred with the Judicial Member's view that a prima facie case had been made out and directed placement for appropriate order. [Paras 7, 9]Waiver of pre deposit granted and recovery stayed during pendency of the appeal.Final Conclusion: The Tribunal (majority) held that the appellant has made out a prima facie case for Cenvat credit on (i) service tax paid by pipeline laying contractors, (ii) input services directly availed by the appellant, and (iii) duty on capital goods procured by the appellant; accordingly the requirement of pre deposit was waived and recovery of service tax, interest and penalty stayed pending final disposal of the appeal for the tax period April 2008 to March 2012. Issues Involved:1. Eligibility for complete waiver of service tax on inputs, input services, and capital goods used in laying down the pipeline for gas transportation.2. Stay of recovery of service tax, interest, and penalty during the pendency of the appeal.Issue-wise Detailed Analysis:1. Eligibility for Complete Waiver of Service Tax:The primary issue was whether the appellant made out a case for a complete waiver of service tax on inputs, input services, and capital goods used in laying down the pipeline for gas transportation. The appellant argued that they availed Cenvat Credit on services rendered by pipeline laying contractors, other input services for commissioning the pipelines, and duty paid on capital goods like valves, compressors, and pipes. The appellant contended that these services and goods were essential for rendering their output service of transporting gas through pipelines.The appellant relied on the Tribunal's judgment in the case of GSPL, arguing that the services rendered by pipeline laying contractors directly to the appellant should be eligible for Cenvat Credit. The appellant further argued that the denial of Cenvat Credit was based on an incorrect interpretation that the pipeline, being immovable property, disqualified the credit.The opposing counsel for the Revenue argued that the pipes used for laying the pipeline became immovable property and thus were not eligible for Cenvat Credit. They also contended that the services rendered by the pipeline laying contractors were related to immovable goods and hence not eligible for providing output services.Upon review, it was found that the services rendered by the pipeline laying contractors were essential for the appellant's output service of transporting gas through pipelines. The Tribunal noted that the services and goods used for laying the pipeline were integral to the appellant's service provision and thus eligible for Cenvat Credit. The Tribunal referenced the High Court's decision in CCE Vs. Sai Samhita Storages (P) Ltd., supporting the eligibility of such credits.2. Stay of Recovery of Service Tax, Interest, and Penalty:The second issue was whether the recovery of service tax, interest, and penalty should be stayed during the pendency of the appeal. The Member (Judicial) opined that the appellant had made out a prima facie case for a complete waiver of pre-deposit of the amounts involved. The Member (Technical), however, held that the appellant should deposit Rs. 25 Crores within two months, with the recovery of the balance amount stayed until the appeal's disposal.The Tribunal considered the submissions and records, noting that the appellant had a prima facie case for a complete waiver. The Tribunal found that the services and goods used for laying the pipeline were crucial for the appellant's output service and thus eligible for Cenvat Credit. Consequently, the Tribunal granted a waiver of the requirement of pre-deposit of service tax, interest, and penalty, and stayed the recovery thereof during the pendency of the appeal.Conclusion:The Tribunal resolved the difference of opinion by concluding that the appellant made out a case for a complete waiver of service tax on inputs, input services, and capital goods used in laying down the pipeline for gas transportation. The Tribunal granted a waiver of the requirement of pre-deposit of service tax, interest, and penalty, and stayed the recovery thereof during the pendency of the appeal. The appeal was directed to be listed for final hearing due to the significant amount involved.