By TIOL News Service

BANGALORE, DEC 23, 2015: THE appellant is engaged in the manufacture of MS Pipes in their factory. They are availing the benefit of CENVAT credit of duty paid on MS Plates and other inputs procured by them for use in the manufacture of MS Pipes. The said pipes were being cleared by them on payment of duty of excise by utilizing the credit so availed. However, in some cases of clearance of pipes, the same were exempted from payment of duty of excise on the ground of being used in various Govt Projects and the appellant was reversing 6% of the price of the said exempted pipes in terms of the provisions of Rule 6 of the CENVAT Credit Rules 2004.

The appellant was also providing services of laying down of pipelines for irrigation, lift irrigation schemes, drinking water supply schemes for various State, Central and Govt undertakings as also were executing similar works contracts awarded to them by various commercial undertakings. The appellant opted for payment of Service Tax under Composition Scheme.

Rule 3 of the Works contract (Composition Scheme for payment of Service Tax) Rules 2007 requires an assessee to pay service tax as per the composition scheme enumerated therein subject to the condition that the Service provider shall not avail CENVAT Credit on inputs used for execution of the contract. It is the case of revenue that as the assessee had availed CENVAT Credit on inputs, i.e., Steel Plates used for manufacture of pipes which were used for execution of the Works Contracts, they are not eligible for composition benefit.

After hearing both sides, the CESTAT held inter alia:

+ The Revenue's view that the service activity would start from the stage of procurement of inputs used in the manufacture of pipes cannot be appreciated inasmuch as there was no obligation on the part of the service provider for manufacturing the pipes themselves. If the service provider was at liberty to procure the pipes from another manufacturer who could have availed the credit on the inputs used for the manufacture of pipes, the appellants as a service provider would have been entitled to the composition scheme inasmuch as admittedly they have not availed credit of duty paid on the MS pipes. Merely because the appellant is performing two separate roles, as a manufacturer and also as a service provider under two different registrations, the denial of the credit to the appellant is neither justified nor warranted. The provisions of Rule 3 (2) of the said rules contained a condition to the effect that no credit would be availed by them as "service provider". Admittedly the service provider has not availed any CENVAT credit. There is no stipulation in the said rule to the effect that when the manufacturer of the pipes (even though it happens to be same person) availed the credit of duty paid on the inputs used in the manufacture of such pipes, the composition scheme would not be available. As a manufacturer of the goods, the appellant is entitled to avail the credit.

(See 2015-TIOL-2767-CESTAT-BANG)