By TIOL News Service

NEW DELHI, JULY 10, 2015: APPLICANTS, M/s GSPL India Transco Limited and M/s GSPL India Gasnet Limited are a subsidiary of Gujarat State Petronet Limited (GSPL), which is a Government Company under Companies Act, 1956. Both these cases had a checkered journey so far. Applicants filed applications before this Authority on 13.12.2011 which were rejected vide order dated 30.03.2012 as not maintainable. Thereafter, applicants filed writ petition against aforesaid order of this Authority before Gujarat High Court, who vide order dated 29.08.2012 allowed writ petition and instructed this Authority to hear applicant on merits. In the interim, Service Tax laws in India were replaced by a comprehensive Service Tax regime with effect from 01.07.2012. Due to these changes, applicants filed corrigendum to original applications on 12.11.2012. However, on instructions of this Authority, fresh applications dated 01.03.2013 were filed, i.e. present applications. This Authority vide Order dated 16.01.2015 restored the applications, which were dismissed earlier for non-prosecution on 21.04.2014.

Applicant proposes to avail benefit of Cenvat credit in respect of Service Tax that would be charged by its contractors for installation and commissioning related services on the input side for bringing into existence a pipeline and utilizing the same for discharging its output service tax liability.

For purpose of laying pipeline, applicant would be required to procure steel pipes and valves and further would have to get pipes and valves installed and commissioned along identified routes so as to connect the source to destination. In this regard, applicant would either grant various turnkey contracts (EPC Contracts) involving supply of pipes as well as installation and commissioning of said pipes to bring into existence a pipeline connecting the source to destination or would procure the pipes themselves and separately obtain the services of construction contractors for installation and commissioning of said pipes to bring into existence a pipeline. EPC Contractors, under no circumstances, have complete responsibility of bringing into existence the pipeline. Inter-State pipelines like the one envisaged under proposed business are massive projects for which applicant would need to appoint myriad contractors for various scopes of work. Further, apart from construction related services from EPC Contractors/other construction contractors, applicant would also obtain other services like third party inspection and testing, consulting engineering etc which would be required to bring into existence a pipeline.

Applicant submits that the service by EPC Contractors/construction service providers would essentially consist of putting together the individual pipes issued free of cost by applicant by welding / using nuts and bolts / other means and bringing into existence a pipeline along the identified route. Such pipes, once connected to each other, are referred to as 'pipelines' in trade parlance, as well as in dictionaries. In respect of provision of services for erection and commissioning of pipelines, EPC Contractors would qualify their services as "works contract services" as defined under Section 65B (54) of Finance Act, post July 1, 2012 and discharge Service Tax accordingly.

Applicant has sought following ruling from the Authority:

"Whether the Applicant is eligible to avail CENVAT Credit of the service tax that would be paid by the EPC Contractor/other construction contractors and other service providers (except for service tax paid vis a vis construction services for the civil works package for building the pipeline substations) against the Applicant's output service tax liability under the taxable output service in the nature of transport of gas through pipelines."

Revenue has contended that services used for erection and commissioning of such plant, do not take part directly in providing output taxable service of transportation of gas and also same cannot be considered to be integrally connected in providing output service in view of restrictive definition of "input service". While, applicant submits that in order to put the pipes to effective use, pipes are required to be connected, installed and embedded inside the earth so as to constitute a pipeline system, so that they can render service of transport of gas through pipeline; that input service from EPC contractors and others to bring into existence the pipeline will be "used for providing output service" for transport of gas through pipeline.

Pipeline is used for output service of transport of gas through pipeline. It is not possible to think of a situation regarding transport of gas without pipelines except with help of Tankers, which would be highly uneconomical. Agreed with applicant that factum of pipeline system being immoveable property is irrelevant in the back-drop of Rule 2 (l) ibid. Applicant has given a detailed description of process followed in laying pipelines, which includes site preparation, pipe transportation, pipe stringing, pipe welding, trenching, external coating, lowering in, back filling and land restoration. There is no doubt that subject goods i.e. pipes and valves, are capital goods but the input service to be rendered by applicant is not for support of pipes and valves i.e. "capital goods" but for laying of pipeline for transport of gas.

AAR ruled that:

Applicant is eligible to avail Cenvat Credit of the Service Tax that would be paid by the EPC Contractor/other construction contractors and other service providers (except for Service Tax paid vis a vis construction services for the civil works package for building the pipeline substations) against the applicant's output service tax liability under the taxable output service in the nature of transport of gas through pipelines.

In passing : Also see Reliance Gas Transportation Infrastructure Ltd. 2015-TIOL-1068-CESTAT-MUM.

(See 2015-TIOL-02-ARA-ST)