2019 (4) TMI 1969 - AT - Central Excise

Tribunal grants CENVAT credit for pipeline services, nullifies penalties

The Tribunal allowed the appeal by M/s Mahanagar Gas Ltd, affirming the eligibility of CENVAT credit for services used in laying pipelines for CNG ... CENVAT Credit - input services - privity of contract - procurement of services used in laying of ‘pipelines’ intended for distribution of ‘compressed natural gas (CNG) and piped natural gas (PNG) - HELD THAT:- The issue is decided in the case of RELIANCE GAS TRANSPORTATION INFRASTRUCTURE LTD. VERSUS COMMISSIONER OF SERVICE TAX, MUMBAI II [2016 (8) TMI 91 - CESTAT MUMBAI] where it was 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. Furthermore, the eligibility for credit having been upheld for the subsequent period, it is not open to the respondent herein to take a contrary stand - appeal allowed - decided in favor of appellant. Issues Involved:1. Eligibility for CENVAT credit on service tax paid for services used in laying pipelines for distribution of CNG and PNG.2. Definition and scope of 'input service' under CENVAT Credit Rules, 2004.3. Applicability of penalties under Section 11AC of the Central Excise Act, 1944.Issue-wise Detailed Analysis:1. Eligibility for CENVAT Credit:The appellant, M/s Mahanagar Gas Ltd, challenged the ineligibility to credit of Rs. 99,74,816 availed between 2005-06 and 2009-10 on tax paid for procurement of services used in laying pipelines intended for distribution of CNG and PNG. The appellant argued that these services qualify as 'input services' under the CENVAT Credit Rules, 2004, and thus, they are entitled to CENVAT credit. The Tribunal referred to its previous decisions, including Reliance Gas Transportation Infrastructure Ltd v. Commissioner of Service Tax, Mumbai-II and Maharashtra Seamless Ltd v. Commissioner of Central Excise, Raigad, which supported the eligibility of credit on input services used for pipelines. The Tribunal found that the services used for laying pipelines are directly related to the manufacture and distribution of CNG, which is a taxable output, and thus, eligible for credit.2. Definition and Scope of 'Input Service':The Tribunal examined the definition of 'input service' under Rule 2(l) of the CENVAT Credit Rules, 2004, which includes any service used by a manufacturer, directly or indirectly, in or in relation to the manufacture of final products and clearance of final products up to the place of removal. The Tribunal cited the inclusive nature of the definition, covering services used in relation to setting up, modernization, renovation, or repairs of a factory or premises. The Tribunal concluded that the services used for laying pipelines fall within this definition, as they are essential for the distribution of CNG, a taxable output.3. Applicability of Penalties:Regarding the imposition of penalties under Section 11AC of the Central Excise Act, 1944, the Tribunal noted that the issue was interpretational, and there was no evidence of fraud, suppression, or malafide intention. The Tribunal referred to the appellant's compliance with Rule 6 of the CENVAT Credit Rules, which allows credit on the CNG portion only. Consequently, the Tribunal set aside the penalties, emphasizing the absence of any deliberate concealment or misrepresentation by the appellant.Conclusion:The Tribunal allowed the appeal, setting aside the impugned order and affirming the eligibility of CENVAT credit for the services used in laying pipelines for CNG distribution. The Tribunal also nullified the penalties imposed, recognizing the interpretational nature of the issue and the appellant's bona fide conduct. The decision underscores the broad interpretation of 'input service' under the CENVAT Credit Rules, 2004, and reinforces the principle that services essential for the manufacture and distribution of taxable outputs are eligible for credit.