Case nº Ruling Nos. AAR/ST/04-05/2015, in Application Nos. AAR/44/ST/02 & 04/2013 of AAR Cases, July 03, 2015 (case Gspl India Transco Ltd. Vs)

Judge:For Appellant: Shri Sujit Ghosh, Advocate. and For Respondent: Shri Amrish Jain, (AR).
President:V.S. Sirpurkar, Chairman and Shri S.S. Rana, Member
Defense:Cenvat Credit Rules, 2004 - Rules 2(a), 9; Central Excise Act, 1944 - Section 2(h)
Resolution Date:July 03, 2015
Issuing Organization:AAR Cases



  1. M/s. GSPL India Transco Limited (F. No. AAR/44/ST/02/13) and M/s GSPL India Gasnet Limited (F. No. AAR/44/ST/04/13) (hereinafter referred to as applicant) are a subsidiary of Gujarat State Petronet Limited (GSPL), which is a Government Company under the Companies Act, 1956. As the facts and question, on which Advance Ruling sought, is same in respect of above referred applicants, both applications are taken up for common ruling.

  2. Both these cases had a checkered journey so far. Applicants filed applications before this Authority on 13-12-2011. However, the applications were rejected vide order dated 30-3-2012 as not maintainable. Thereafter, the applicants filed writ petition against aforesaid order of this Authority before the Hon''ble Gujarat High Court, who vide order dated 29-8-2012 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 1-7-2012. 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 1-3-2013 were filed, i.e. present applications. This Authority vide Order dated 16-1-2015 restored the applications, which were dismissed earlier for non-prosecution on 21-4-2014.

  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 construction ("EPC") model for laying of gas transmission pipelines. The proposed activity, as described by the applicant, is as under;

  4. The activity of laying of pipelines begins with identification of route of the pipeline from the source to destination. The identification of the route involves a feasibility analysis to ensure that an acceptable route for the pipeline exits that provides the least impact to the environment and public infrastructure already in place. Once the route for the pipeline is identified, the next step is to acquire Right of Use and Right of Way on the said route. In this regard, the applicant would obtain the Right of Use (ROU) in respect of the land along with the identified route either under the Gujarat Water & Gas Pipelines (Acquisition of Right of User in Land) Act, 2000 or the Petroleum and Minerals Pipeline (Acquisition of Right of User Inland) Act, 1962. The first one is a Gujarat State Legislation and the second one is a Central legislation and both are exactly pari materia. The requisite rights of way are obtained through privately negotiated contracts. For the purposes of laying pipeline, the applicant would be required to procure steel pipes and valves and further would have to get the pipes and valves installed and commissioned along the identified routes so as to connect the source to the destination. In this regard, applicant would grant various turnkey contracts ("EPC Contracts") involving supply of pipes and valves as well as installation and commissioning of the said pipes and valves to bring into existence a pipeline connecting the source to the destination. The scope of work of the EPC Contractors would relate to construction of the complete pipelines by carrying out inter alia the following specific work scopes:

    a) Supply of Plant and Equipment (including pipes and valves)

    b) Installation and construction services, onshore services and offshore services.

    c) Supply of mandatory spare within and outside India

    d) A civil works package for constructing the pipelines sub-stations

  5. Under the EPC Contracts, the applicant will procure the pipes and valves from the EPC Contractors, under a "Bill to ship to" arrangement whereby, the pipes and valves purchased by EPC contractors from the manufacturers would be directly shipped by such manufacturers to the applicant''s project site (with applicant as consignee) under the 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 output service.

  6. Applicant further submits that the EPC Contracts awarded by the applicant to the various EPC Contractors would involve both supply of goods like pipes and valves and rendering of construction / erection, installation and commissioning services, and further the price agreed between the applicant and the EPC Contractor(s) will be a composite price, such composite price will be divided into two key components, viz. price for supply of goods and price for rendering of services. The EPC Contractors would charge separately for the supply of goods like pipes and valves from the applicant. In fact, separate invoices would be raised by the EPC Contractors for the sale of pipes and valves and provision of construction / erection, installation and commissioning services for the laying of the pipelines. In respect of provision of services for erection and commissioning of pipelines, the EPC Contractors would qualify their services as "works contract services" and discharge service tax accordingly.

  7. Applicant submits that without the pipes, there would be no pipeline and consequently, provision of the taxable output service of transport of goods through pipeline would be impossible, thereby establishing an inextricable link between the pipes and the output services. That, the pipes fundamentally have a functional utility qua the output services of the applicant as it is the aggregate of these conduit via which the goods are transported and there exists an integral nexus between the process involved in provision of the output services and the use of the pipes; that without the pipes, provision of the output services of the applicant of transport of goods through pipelines would not only be commercially inexpedient, but also theoretically and practically impossible; that without the pipes, pipeline services would not ever be possible; that the applicant submits that the eligibility of an assessee to avail Cenvat credit of capital goods and admissibility of Cenvat credit on capital goods can be determined only in accordance with the Credit Rules. Applicant further submits that even the restriction on availment of CENVAT credit under the Valuation Rules, would not adversely impact the credit eligibility of the applicant vis-a-vis the capital goods in question. Applicant submits that in respect of provision of services for erection and commissioning of pipelines, the EPC...

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