By TIOL News Service

MUMBAI, JULY 08, 2015: THE issue involved in this case is regarding availment of CENVAT credit of service tax paid on the services for inspecting vehicles at Regional Transport Office (RTO) at Andheri, Tardeo and Ghatkopar. It is the case of the revenue that the services rendered by the service provider are not connected with the manufacturing activity of the appellant i.e. CNG and hence they are not input services as defined in rule 2(l) of CCR, 2004.

Both the lower authorities have held against the appellant and, therefore, the gas company is before the CESTAT.

It is submitted that statutorily appellant has to fill the Compressed Natural Gas (CNG) in the tanks or cylinders fitted in vehicle subject to condition that these cylinders are tested for hydrostatic test or hydrostatic stretch test as the case may be; that the appellant is responsible for delivering the CNG into the cylinders only if they are approved as per the standards fixed by the Chief Controller of Explosives and in order to comply with such conditions instead of appointing the testing agency at different locations the testing agency is appointed at Regional Transport Office and the testing charges and certification charges are paid by the appellant; as a policy no vehicle is filled with CNG unless the vehicle owner produces a metal label indicating the cylinders have undergone hydrostatic test or hydrostatic stretch test as the case may be; that the services which are received are in respect of the activities relating to business as without such a test sale of CNG cannot take place.

It is further submitted that compression of CNG is a manufacturing activity and every retail outlet which is being used to dispense/vend the CNG is registered with the Central Excise department and Central Excise duty is paid on the gas which is vended; that the cost of testing the cylinder is included in the final cost of CNG which is dispensed by them; therefore, the service of certifying the cylinder is integrally connected with the business activity of manufacturing and marketing of CNG. So also, input service need not be performed within the factory premises.

Support is drawn from the decisions in Solaris Chemtech Ltd. - 2007-TIOL-135-SC-CX, Deloitte Tax Services (I) P. Ltd. - 2008-TIOL-629-CESTAT-BANG, Brakes India Ltd. - 2008-TIOL-1993-CESTAT-MAD, GTC Industries Ltd. - 2008-TIOL-1634-CESTAT-MUM-LB.

The AR submitted that Cenvat credit can be availed only on the services which are rendered to the appellant; in the case on hand the service rendered by the cylinder certifying agency are not rendered to the appellant but to the vehicle owners who have fitted the cylinder in the vehicle. Furthermore, the final product CNG are cleared from the tanks into the retail outlet and subsequent filling of the cylinder is not a manufacturing activity; that inspection of cylinder is taking place outside the manufacturing activity area as it is undisputed that the inspection of the cylinder is undertaken at Regional Transport Office.

The Bench, at the outset, remarked that the issue involved is to be answered in affirmative in favour of the appellant for more than one reason.

After adverting to the definition of input service, it was observed -

++ In the case on hand, it is undisputed that CNG can be filled only in those cylinders which are certified to be fit to carry the CNG and conform to the provisions of the Explosives Act and rules made thereunder. It is also mandated that there is restriction in filling of any cylinder with compressed gas unless fitness of such cylinder is approved by an agency authorised to do so. It is undisputed that the cylinder cannot be filled with CNG unless they are certified to be worthy of filling of gas which in this case is being done by the outside agency appointed by the appellant. It has to be held that unless the cylinders are certified, the appellant cannot fill the gas in the said cylinder, is an activity in connection to their business of sale of CNG.

++ Another objection by the revenue that the certification of the cylinder did not take place in the manufacturing area, will also not carry the case of the revenue any further as the definition of "input service" does not restrict that the said service have to be rendered in the factory premises of the manufacturer. As I have already recorded that the business activity of the appellant could not be carried out unless the said cylinder are certified as worthy of filling gas, the certification, even if it takes place outside the premises, Cenvat credit on service tax paid cannot be denied to the appellant.

++ There cannot be any dispute that the certification of the cylinder is required from the angle of safety as well as the authorities filling the gas in such cylinders as it is common knowledge that compressed gases if filled in cylinders which do not pass mandatory test, are hazards in public place. From this angle, it has to be held that when the cylinder are certified by an agency and service tax is paid on such services Cenvat credit cannot be denied to appellant.

Holding that the orders passed by the Commissioner(A) are not sustainable, the same were set aside and the appeals allowed with consequential relief.

(See 2015-TIOL-1365-CESTAT-MUM)