By Puloma Dalal, Jayesh Gogri, Mandar Telang, Chartered Accountants
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Whether service receiver can avail CENVAT credit of duties in respect of materials used by the service provider, as the service provider opted for benefit available to him under notifications specifically disentitling him to avail CENVAT Credit? Held, No.
Facts:
Appellant was engaged in rendering taxable service under the category of “Transport of goods through pipelines or other conduit service” u/s. 65(105)(zzz) of the Finance Act, 1994. It has adopted Engineering Procurement and Commissioning (EPC) model for laying of oil and gas transmission pipelines for which it received services of various EPC contractors for fabrication, assembly with equipments and devices, installation and commissioning of a pipeline system. The contract between the appellant and the contractors was on a lump sum basis; yet, two invoices were issued, one for sale of the materials (including pipes) and the other for the services rendered by them. EPC contractors claimed deduction in respect of the value of materials and goods sold in the course of rendering the taxable service and also did not take CENVAT credit of duties charged thereon under Notification 12/2003-ST dated 20-06-2003. However, the appellant availed credit of duty paid on the pipes by the EPC contractors on the basis of duty paying documents issued by the manufacturer wherein, the pipes were in the name of the contractors and appellant was shown as consignee. The appellant used the said credit to discharge its service tax liability on its output service of “transportation of goods through pipelines or other conduit services”. Department denied such CENVAT credit to the appellant.
Held:
Exemption notification has to be interpreted strictly and when the explanation to Rule 3(7) of CENVAT Credit Rules specifically provides that once the benefit of a notification is availed, no credit would be available under Rule 3 in respect of duty paid on the inputs/capital goods in respect of which a service provider or a manufacturer has availed the benefit of Notification No. 12/2003. The restriction applies not only on the service provider but extends to the service recipient, also. Further, pipes were used for construction of pipeline by the EPC contractors and pipeline system is supplied/sold to the appellant. Pipes can be considered as inputs only for provision of service of construction/erection of pipelines and not otherwise. The Tribunal stated that the definition of input/capital goods in case of service provider is stricter than that applicable to the manufacturer. Therefore, pipes were ineligible for credit as inputs/capital goods. The Tribunal also held that the CENVAT credit on construction services pertaining to the period prior to 01-04-2011 is an eligible input service. The Tribunal also held that in case the service recipient has purchased material and given to the service provider and the same is utilised by the service provider for provision of its service and the material is supplied back to the service recipient, the service recipient is entitled to CENVAT credit if all other requirements of the definition of inputs/capital goods are satisfied. The Tribunal further held that in case of materials being bought by the service recipient and given to the service provider, CENVAT credit cannot be denied on the ground that the service recipient is not registered as first/second stage dealer, Rule 9(2) may be invoked which provides discretionary powers to the Assistant/Deputy Commissioner to allow CENVAT credit in respect of defective documents, if satisfied. However, charge of suppression was not upheld noting that non-disclosure of additional information to department cannot amount to suppression of facts.
