HC rules in favour of GSPCL subsidiaries on CENVAT

The Gujarat High Court has ruled in favour of two subsidiary companies of state-owned Gujarat State Petroleum Corporation Ltd. (GSPCL) in connection with their eligibility to avail CENVAT credit under the CENVAT Credit Rules 2004.

The two companies GSPL India Transco Ltd. and GSPL India Gasnet Ltd., subsidiary companies of Gujarat State Petronet Ltd. which is again subsidiary company of GSPCL had approached the High Court against the order of Authority for Advanced Rulings (Central Excise, Customs and Service Tax), (AAR) which had rejected their separate applications.

In their applications the two companies had sought advance ruling from AAR to know if they were eligible to avail CENVAT Credit of the service tax it proposed to pay to various contractors for the work they do for them.

 

AAR in March had rejected the applications filed by the companies as not maintainable on the ground that an identical issue was pending before the CESTAT (Customs, Excise and Service Tax Appellate Tribunal) in the case of the their holding company on account of which, if the contention of the companies is accepted it would lead to incongruous situation.

A division bench of Justices VM Sahai and NV Anjaria on Wednesday overruled that the decision of AAR in rejecting applications of the two companies.

The HC also directed the AAR to decide the questions raised by the two companies in their application before it with in three months.

"That the AAR has rejected the applications of the petitioners by which advance ruling was sought on the ground that the transaction of the petitioners and the holding Company were identical. It appears that the AAR has lost sight of the fact that if the petitioners would have entered into any transaction, then their application for obtaining advance ruling was not maintainable," the court observed.

"The question pending before the CESTAT and the question raised before AAR were entirely different and if the AAR pronounces advance ruling on the question raised by the petitioners, then it will not result in conflicting or incompatible decisions. Further, the order of the AAR would be binding only on the petitioners and the Tax authorities in view of section 96E of the Finance Act," it further said in the order.

The petitioner companies proposed to provide service that would be taxable under the category of transport of goods through pipeline or other conduit service, under the Finance Act, 1994.

The companies proposed to lay pipelines in various states including Gujarat. For this purposes, the companies wanted to avail CENVAT credit of service tax paid by it to the contractors under the taxable category of ‘commercial and industrial construction services’, and utilizing the same for discharging it’s output service tax liability.

They filed separate petitions in December 2011 under section 96C of the Finance Act before the AAR and sought to obtain advance ruling as to whether they were eligible to avail the CENVAT credit of the service tax that would be paid to contractors against the their output service tax liability. The companies effort however failed.