By TIOL News Service

MUMBAI, MAY 05, 2017: DURING the course of audit, officers observed that the appellant was exporting gases in liquid form and also supplying manufactured gases in liquid form to domestic market.

For this purpose, appellant requires specialized containers that can withstand minus 270 degrees temperature. These containers are procured on lease from a foreign firm for a consideration under an agreement. These containers are used for bringing the gas from foreign country and the empty containers are ferried back. The indigenous movement is carried out in the country and even these containers are imported on lease basis also for a consideration.

SCNs were issued demanding service tax on reverse charge basis under the category of "supply of tangible goods for use” (STGU) on an allegation that empty containers were received from foreign supplier and appellant paid rental.

The appellant contended that activity of paying rent would not be covered under STGU services and that the repacking of helium gas from the containers to small containers is amounting to 'manufacture' and hence the cost paid by the appellant is towards the manufacturing cost.

The first appellate authority concurred with the views of the adjudicating authority and upheld the order with modification to the extent that the demand of service tax needs to be re-determined in accordance with the Rule 3 of Taxation of Services (Provided from Outside India and Received in India) Rule, 2006.

The appellant is before the CESTAT and submits that there is no service provided by the foreign supplier to appellant; that appellant is purchasing helium gas and the helium gas has to be supplied in a special container hence the container is the packing of the product in question hence it is not supply of service as held by the Tribunal in the case of Inox Air Products Ltd. - 2014-TIOL-2556-CESTAT-MUM ; that appellant is a manufacturer of industrial gases, the appellant has undertaken the process of compression, liquefaction of the helium gas and transferring it to specially designed containers at a specific temperature for storage, handling - refilling the gas in smaller or larger specially designed containers / cylinders - marking / labeling the cylinders for onward sale to consumers and adaptation of these for making the final product marketable to ultimate consumers, thus there is an activity of manufacturing and the question of service is being rendered does not arise, as the foreign supplier sells the gas to the appellant and the appellant undertakes all these process on the very same gas which is received.

It is further submitted that the service of STGU is not attracted as the said containers in which helium gas comes are handed over to the appellant and they are under physical control and supervision of the appellant till the helium gas is unloaded which is used for further repacking; that there is a transfer of right to use the goods which is deemed sale as per Article 366 (29A) of the Constitution of India read with Section 2(24) of the Maharashtra Value Added Tax Act, 2002, hence no service tax can be demanded on the said transaction. Reliance is placed on the decisions in Kinetic Communications Ltd. - 2017-TIOL-762-CESTAT-Mum, Meru Cab Co. Ltd. - 2015-TIOL-2408-CESTAT-MUM. Moreover, the entire exercise is revenue neutral, emphasized the appellant. Jet Airways (I) Ltd. - 2016-TIOL-2072-CESTAT-MUM refers.]

The Bench considered the submissions and observed thus -

++ Firstly, we find strong force in the contention raised by learned Counsel that the containers which are transporting helium gas from the supplier situated abroad to the appellant herein are in the effective control and possession of the appellant till the helium gas is unloaded in equally specialized containers and the empty containers are re-exported to the foreign supplier.

++ Secondly, it is an unacceptable proposal that once the appellant has discharged the central excise duty on the very same gas which is transferred into smaller packs and considering the same as the activity of manufacturing, the question of rendering of service by the supplier under the category of STGU rentals, goes into the cost of manufacturing, on which duty is discharged.

++ Thirdly, the question of revenue neutrality would arise in this case as if appellant discharges the service tax under STGU under reverse charge mechanism, is undisputedly consuming the said services for supply of raw materials / inputs which are for manufacturing of repacked gas and cleared by discharging central excise duty; accordingly tax paid under service tax would be available as credit to the appellant hence no necessity arises for any tax avoidance.

The impugned order was set aside and the appeal was allowed.

In passing: The stay order was reported as 2013-TIOL-1378-CESTAT-MUM .

(See 2017-TIOL-1517-CESTAT-MUM)