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Bharat Oman Refineries Limited Vs. CCG & ST and Customs, Bhopal - (Customs, Excise and Service Tax Appellate Tribunal) (20 Jun 2018)

Under CENVAT scheme, CENVAT credit is passed on by using invoice documents, which are to be transferred to buyer of goods only



In facts of present case, the Appellant is a refinery for the manufacture of petroleum products. During the period in dispute, Crude Oil Refinery project in District Sagar, M.P. was being set up and as part of setting up, the Appellant awarded a lumpsum contract to Driplex Water Engineering Limited (Contractor), the contractor for setting up RO-DM Water Plant at the premises of the Appellant. The dispute also involved the works contract awarded to Bridge & Roof Co. Limited for supply of fired heat for M.H. block (contractor). The contractor discharged service tax under the category of "Works Contract Service" as defined under Section 65(105)(zzzza) of the Finance Act, 1994. The contractor paid the service tax under the Works Contract Composition Scheme and the appellant availed cenvat credit of the service tax so paid. In terms of the Works Contract Composition Scheme, the contractor was not allowed to avail cenvat credit on inputs used by him in providing the service.

The Department during the course of verification of the accounts of the Appellant, noticed that, the Appellant had availed cenvat credit on certain inputs as well as various capital goods. In respect of these inputs and capital goods, the buyer was shown as the contractor but the consignee was shown as Bharat Oman Refineries Limited (BORL) (Appellant). The Department was of the view that, such cenvat credit on inputs and capital goods was not admissible to the Appellant as such credits would not have been admissible to the contractor, who has opted to pay the service tax in terms of the Works Contract Composition Scheme. Consequently, show cause notices were issued and vide the impugned order the cenvat credit on inputs and capital goods were denied and the adjudicating authority also imposed penalties. Aggrieved by the decisions, the present appeals have been filed by the Appellant.

As per the documents on record, it is apparent that goods on which the Appellant has availed cenvat credit have been used by Driplex Water for providing the works contract service. It was Driplex Water who has issued purchase order and procured the goods from manufacturer/dealer. Thus, it was Driplex Water only who could avail the cenvat credit of the duty paid on inputs/capital goods used by them in providing the works contract service to the appellant in view of the definition of works contract service under clause (zzzza) of Section 65(105) of the Finance Act, 1994. The inputs/capital goods used by Driplex Water in the present case cannot be distinguished to be out of the scope of being the work contract service. Thus, the cenvat credit of duty paid on inputs used in providing of the said work contract service was admissible to Driplex Water and not to the recipient thereof i.e. the Appellant. It is a fact on record that, Driplex Water has availed the benefit of composition scheme under Rule 3(2) by paying the service tax @ 4% of the gross amount including the value of the inputs used in providing the service and as such is barred from availing the facility of cenvat credit on the inputs in furtherance of the provider of the said rule.

When the Cenvat credit is not available to the contractor, the said cenvat credit cannot be passed on to the Appellant namely Bharat Oman Refineries Ltd. The CESTAT in the case of Gauri Plasticulture Pvt. Ltd. has held that, what cannot be done directly is not to be allowed to be done indirectly. In this case, when CENVAT credit on the input goods is not to be allowed to the contactor, who is service provider, the same cannot be passed on directly to the Appellant, Bharat Oman Refineries Ltd. The contract has paid service tax under the Composite Scheme, where they have paid service tax at the reduced rate of 4% instead of payment of standard rate of service tax @ 10%, when contractors in both the appeals have exercised this option, they cannot directly or indirectly pass on the CENVAT credit of any input goods to the recipient of their services.

Under the CENVAT scheme, the CENVAT credit is passed on by using the invoice documents, which are to be transferred to the buyer of the goods only. Here, buyer of the goods is the contractor and not the Appellant, Bharat Oman Refineries Ltd. The fact that invoice mentions the Appellants as consignee and the goods were delivered directly at Appellants premises is also not relevant.

Regarding the plea of show cause notice being barred by limitation, Present Tribunal is of the considered view that, Appellants themselves entered into the contract. They were very much aware of terms and conditions thereof and even the legal implications thereof. Ignorance of law about work contracts and respective consequences also the respective liabilities cannot be a ground to extend any benefit to the Appellants. This is apparent that, the fact of availing the benefit of comparison scheme by the contractors was very much in knowledge of the appellants. Again the ignorance to the legal consequences thereof cannot be the excuse. The order under challenge is held to have no infirmity and is accordingly ordered to be sustained.


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