| SERVICE TAX
2020-TIOL-143-SC-ST-LB
CST Vs Adani Gas Ltd
ST - Charges collected by respondent for supply of SKID equipment to its customers is taxable under "Supply of tangible goods service" : SC LB
Facts:
+ The respondent is in the business of distributing natural gas - Compressed Natural Gas and Piped Natural Gas to industrial, commercial, and domestic consumers - In order to facilitate the distribution of PNG to industrial, commercial and domestic consumers through pipes, the respondent installs an equipment described as 'SKID' at their customers' sites - The SKID equipment consists of isolation valves, filters, regulators and electronic meters - The equipment regulates the supply of PNG being distributed and records the quantity of PNG consumed by the customer, which is then used for billing purposes - The respondent enters into an agreement – the Gas Sales Agreement [GSA] - with consumers to whom gas is supplied by it.
+ The respondent is providing the taxable service falling under the category of "transport of goods through pipeline" , as defined in Section 65(105)(zzz) of the Finance Act, 1994. During the course of an audit by the officers of Central Excise, Ahmedabad-I during January 2009, it was noticed that the respondent had received income under the head of "gas connection charges" from its industrial, commercial, and domestic customers.
+ From the GSA and the invoices, it was found that charges were collected for the "supply of pipes, measuring equipment etc." while providing new gas connections to customers. The ownership of the equipment is not with the customer but is retained by the respondent. The customer does not have control or any legal rights over the equipment. Value Added Tax was also not paid on these charges collected from the customers.
+ A SCN was issued to the respondent on 13 October 2009 stating that the transactions undertaken by them are covered under the category of "supply of tangible goods service" , under Section 65(105)(zzzzj) of Finance Act, 1994 which was introduced by Notification No.18/2008-S.T. dated 10 May 2008, with effect from 16 May 2008.
+ The first notice indicated that the respondent had received gas connection charges amounting to Rs. 23,37,51,903/- on which service tax and cess amounting to Rs. 2,83,46,411/- had not been deposited.
+ The Adjudicating Authority confirmed the demand. The order also noted that the entirety of the gas connection charges collected at the time of installing the connection are not refunded at the time of discontinuation or termination. The Adjudicating Authority allowed the respondent to claim the benefit of cum-tax value and reduced the demand for service tax from Rs. 2,83,46,411/- to Rs. 2,52,73,526/-. Penalties were imposed under Sections 77 and 78 of the Finance Act 1994.
+ The Tribunal held that the metering equipment is installed for measuring the amount of gas supplied to the customer for the purpose of billing; hence the use of the equipment is by the respondent and not by the customer.
+ This decision has been challenged by the revenue/appellant in the appeals before the Supreme Court.
Held:
+ The introduction of Section 65(105)(zzzzj) in the Finance Act, 1994, was with the intention of taxing such activities that enable the customer's use of the service provider's goods without transfer of the right of possession and effective control. This provision creates an element of taxation over a service, as opposed to a 'deemed sale' under Article 366(29-A)(d).
+ For the purpose of clarification, the Department of Revenue issued a Circular, D.O.F. No. 334/1/2008-TRU , dated 29 February, 2008. The said circular clarified the applicability of Section 65(105)(zzzzj) vis-à-vis Article 366(29-A)(d).
+ The above circular clarified that Section 65(105)(zzzzj) is applicable only to those transactions where there is a supply of tangible goods for use, without the transfer of possession or effective control to the recipient.
+ The taxable service is defined as a service which is provided or which is to be provided by any person to another "in relation to supply of tangible goods" . The provision indicates that the goods may include machinery, equipment or appliances. The crucial ingredient of the definition is that the supply of tangible goods is for the use of another, without transferring the right of possession and effective control "of such machinery, equipment and appliances" .
+ There is an element of service which is the foundation for the levy of the tax.
+ The agreement provides for the supply of gas at the Delivery Point through gas pipelines constructed from the distribution main to the measurement equipment. Further, both the seller and the buyer have provided warranties for maintaining the 'measurement equipment' in good working condition, in their respective capacities. The measurement equipment, as has been re-iterated by the respondent in the course of their arguments, is installed for the measurement and recording of the volume and pressure of the gas delivered at the Delivery Point and for the safe operation of the buyer's facilities.
+ It is clear from the provisions of the agreement, and it has been admitted by both the parties, that there is no transfer of ownership or possession of the pipelines or the measurement equipment (SKID equipment equipment) by the respondent to its customers.
+ The pipelines are also part of the "Seller's Facilities" under the agreement and are constructed and maintained by the respondent at the cost of the customer. Thus, the ingredient of not transferring the ownership, possession or effective control of the goods under Section 65(105)(zzzzj) is satisfied.
+ The purchaser of gas has an interest in ensuring the accuracy of billing and regulation of supply. The respondent is interested in ensuring that it receives payment for the quantity of gas which is contracted to be supplied to the purchaser.
+ In order to maintain the sanctity of the equipment, the agreement casts the exclusive responsibility to install and maintain it on the respondent as the seller. The terms of the GSA would indicate that the quantity of gas supplied is to be measured at the Delivery Point. For this purpose, the measurement equipment is supplied, installed, owned and maintained by the seller at the cost of the buyer. The working of the measurement equipment is verified periodically by the parties to the agreement. If the buyer doubts its accuracy, this has to be communicated in writing to the seller, who alone is entitled to test, re-calibrate, remove or modify it. Similarly, if the seller has any doubt about the proper working of the measurement equipment it is entitled to check the meter in the presence of the representatives of the buyer. If according to the seller, the existing measurement equipment is not working satisfactorily it would be replaced at the cost of the buyer. These provisions indicate that the supply, installation and maintenance of the measurement equipment is exclusively carried out by the seller. The buyer has contractual remedies against the seller in terms of the GSA. These remedies to the buyer as a purchaser of gas are distinct from the issue as to whether the equipment for which gas connection charges are recovered is used by the buyer.
+ The obligation to supply, install and maintain the equipment is cast upon the seller as an incident of control and possession being with the seller. Section 65(105)(zzzzj) applies precisely in a situation where the use of the goods by a person is not accompanied by control and possession. 'Use' in the context of SKID equipment postulates the utilization of the equipment for the purpose of fulfilling the purpose of the contract. Section 65(105)(zzzzj) does not require exclusivity of use. The SKID equipment is an intrinsic element of the service which is provided by the respondent, acting pursuant to the GSA, as a supplier of natural gas to its buyers.
+ Thus, the supply of the pipelines and the measurement equipment (SKID equipment) by the respondent, was of use to the customers and is taxable under Section 65(105)(zzzzj) of the Finance Act 1994.
+ The data indicates that, contrary to the assertion of the respondent that the amount collected as gas connection charges is refunded at the time of discontinuation of the connection, the percentage which has been refunded to the industrial customers has varied from case to case ranging from 25 per cent to 100 per cent.
+ The Annual report provides that the respondent has treated an amount of Rs. 5000/- per domestic consumer as refundable interest-free security deposit amounting to Rs. 883.34 lacs.
+ In assessing the rival contentions, the Adjudicating Authority held (which findings are concurred with by the Supreme Court) that:
"…I find that the attempt of the said notice to align the Finance Act, 1994, with the Petroleum and Natural Gas Regulatory Board Regulations 2008, to determine the taxability of a taxable event is not acceptable and goes in vain. Taxability of a service is governed under Section 65(105) of the Finance Act, 1994 and is not determined under any other Act or Regulations, unless and until the same is specifically provided in the definition given under Section 65(105) of the Finance Act, 1994. The taxability of a service is also not determined by the manner in which the Books of Accounts are maintained…."
+ We are of the view that the Adjudicating Authority was correct in concluding that the buyer of gas is as interested as the seller in ensuring and verifying the correct quantity of the gas supplied through the instrumentality of the measurement equipment and the pipelines. Additionally, the role of regulating pressure and ensuring the safety of supply of gas performed by the measurement equipment is an essential aspect for the 'use' of the consumer. The SKID equipment fulfils the description in Section 65(105)(zzzzj) of a taxable service - service in relation "tangible goods" where the recipient of the service has use (without possession or effective control) of the goods.
+ Tribunal was in error in interfering with the findings and order of the Adjudicating Authority. The judgment of the Tribunal shall accordingly stand set aside. The order of the Adjudicating Authority is restored.
+ The Revenue appeal is allowed. [19, 22, 25, 28, 30, 36, 37, 38, 39]
- Appeal allowed : SUPREME COURT OF INDIA (LARGER BENCH)
2020-TIOL-1301-CESTAT-CHD
Punjab Small Industries & Export Corporation Ltd Vs CCE & ST
ST - The assessee is a public sector undertaking primarily engaged in development and sale of Industrial and residential plots (Sheds) on 99 years lease hold basis to different industrial units as well as individuals - The persons allotted with the plots/ sheds are required to pay an annual lease rent at the rate of Rs.1 per 1000 Sq. Yards in advance for 99 years and the cost of the plot in seven equated installments is also recovered from the allottees of these plots/ sheds - The department views that the assessee have not discharged their service tax liability correctly in accordance with the provisions of FA, 1994 as the lease money collected by assessee in the form of tentative sale proceeds, transfer and extension fee as well as the rent/ lease rent collected by them was not included in taxable value for the purpose of payment of service tax during relevant financial years - All the issues have already been settled in favour of assessee by decision of Tribunal in case of Greater NOIDA Indl. Development Authority 2014-TIOL-1741-CESTAT-DEL - Since the facts of the matter at hand are similar to the decision of coordinate Bench, same is followed - There is no merit in the O-I-O, accordingly, the same is set aside: CESTAT
- Appeal allowed: CHANDIGARH CESTAT
CENTRAL EXCISE
2020-TIOL-1304-CESTAT-DEL
Micro Marble Pvt Ltd Vs CCGST
CX - The issue arises is, whether the cenvat credit taken on capital goods during the period when the goods manufactured by assessee are taxable, lapses subsequently when they had availed SSI exemption - The assessee is engaged in manufacture of Marble Slabs/sheets from marble blocks - They acquired capital goods for their business during period March, 2003 to June 2004 and took cenvat credit - It is evident that what lapses on the date the asssessee avails SSI exemption, is only cenvat credit related to input or input services - This view was fortified by provisions of Rule 6(4) of CCR, which provides that an assessee is entitled to take cenvat credit on capital goods even during the period, they were availing SSI exemption - However, under Clause (IV) in para 2 of the SSI exemption notification, the utilisation of such cenvat credit taken on capital goods during the period of enjoying the SSI exemption is suspended - Thus, the cenvat credit of capital goods does not lapse and was rightly availed by assessee and subsequently, utilised when they stopped availing SSI exemption - Accordingly, appeal is allowed both on merits as well as on limitation: CESTAT
- Appeals allowed: DELHI CESTAT
2020-TIOL-1303-CESTAT-DEL
Kopertek Metals Pvt Ltd Vs CCGST, C & CE
CX - The appellant is engaged in manufacture of 'Copper Ingot' and "Copper Wire" - The Appellant No. 2 and Appellant No.3 were the Directors of the Company - It was alleged that the appellants had indulged in illegal receipt of copper wire rod coils for the purpose of clandestine manufacture and clearance of copper ingots and wires from the unaccounted raw materials - The appellant had receive 9 coils weighing 30512 Kg on 11.02.2015 and 11 coils weighing 33584 Kg on 12.02.2015 from M/s Sesa Sterlite Ltd., Jaipur which were invoiced to be delivered to M/s Malhotra Cables P. ltd., Delhi - The appellants did not enter those copper wire rod coils in their gate register and RG-23A Part-I register - Further, out of these 20 coils, the appellant used two Copper Wire Rod Coils of 8 MM to draw 7861 Kg Copper Wire and had not entered the same in their statutory records, with intention to clear the same without payment of Central Excise duty - On going through the documents on record, it is found that the relevant invoices, as mentioned in O-I-A, being four invoices nos. 3968 to 3971 all dated 11.02.2015, show that the buyer is M/s. Malhotra Cables Pvt. Ltd., New Delhi and the consignee is the appellant - Therefore, the impugned order is vitiated by mistake of facts - Accordingly, impugned order is set aside: CESTAT
- Appeals allowed: DELHI CESTAT
2020-TIOL-1302-CESTAT-CHD
Krishi Rasayan Exports Pvt Ltd Vs CCE & ST
CX - The assessee is manufacturer of pesticides and insecticides of less than 10 gms/10 ml - Their unit is located in the State of Jammu & Kashmir - The said packages were packed in bigger boxes of 15-20 packs and on the packages the assessee is putting MRP printed and paying duty in terms of Section 4A after availing abatement of Central Excise duty - The Revenue entertained a view that the assessee is required to assess the goods under Section 4 and has availed excess refund which is illegal - Therefore, a SCN was issued by invoking extended period of limitation - The matter was adjudicated and the impugned order was passed by confirming the demand under section 11A(1) of CEA, 1944 and by imposing penalty under section 11AC of the Act - The issue has been decided by Tribunal in their own case, wherein it is held that the assessee have made packages for retail sale, they are legally bound to affix MRP of the said goods - In the circumstances, the assessee is required to discharge duty in terms of Section 4A of the Act - Therefore, the assessee has correctly discharged the duty liability under section 4A of the Act - No merit found in the impugned orders and the same are set aside: CESTAT
- Appeals allowed: CHANDIGARH CESTAT
CUSTOMS
2020-TIOL-1438-HC-AHM-CUS
New Pensia Industries Vs UoI
Cus - Petitioner has prayed for quashing of the show cause notice dated 23.03.2020 issued by the Deputy Commissioner (DBK), Customs House, Mundra - challenge to the show cause notice is mainly on the ground that the Deputy Commissioner was not the competent authority for adjudication in view of the Circular 24/2011 dated 31.05.2011 whereby the Government of India, Ministry of Finance, Department of Revenue, Central Board of Excise and Customs has revised powers of the adjudication of the officers of the Customs - inasmuch as since the show cause notice is based upon allegation of misuse of drawback, the adjudicating officer as described in clause (ii) of Para-5 of the Circular would be applicable and as the amount of drawback claimed is much more than Rs.5 lakhs, it would be only the Additional / Joint Commissioner of Customs, who would be competent to issue notice for adjudication and the officer below the rank of adjudicating officer would not be competent to initiate the proceedings.
Held: It is clear from Para 5 of the said circular 24/2011 that in clause (i) it would be only in case of simple demand of erroneously paid drawback, and where there is a collusion, willful misstatement or suppression, it would be clause (ii) which would be applicable - A perusal of the show cause notice clearly indicates that the petitioner had knowingly classified its goods in a different category in order to avoid duty, and therefore, it would amount to willful misstatement and not a bonafide error - Accordingly, show cause notice ought to have been issued by an authority not below the rank of Additional / Joint Commissioner of Customs as per clause (ii) as the amount of drawback was way beyond Rs.5.00 lakhs - On this short point, this petition succeeds and accordingly it is allowed - The show cause notice dated 23.03.2020 is hereby quashed - It would be open to the respondents to issue fresh show cause notice under the signatures of competent authority as prescribed under the Circular of 2011: High Court [para 6, 7]
- Petition allowed: GUJAARAT HIGH COURT
2020-TIOL-1437-HC-MAD-CUS
Sakthi International Vs Asstt CC
Cus - Writ petitioner had imported certain goods in the year 2016 subject to certain export obligations and which export obligations were to be fulfilled within 18 months - respondent issued notices dated 12.11.2018 informing the petitioner that the export obligation period for the licence in question had already expired - Petitioner was called upon to produce Export Obligation Discharge Certificate (EODC) issued by DGFT or certificate towards the extension of EO period granted by JDGFT along with ANF-4F and supporting documents - It was also made clear that if the export obligation has not been fulfilled, the petitioner will have to pay differential duty with interest immediately - Since the petitioner did not respond to the notices and also the hearing notices, the petitioner was directed to pay the amounts mentioned in the impugned orders and which orders are challenged in these writ petitions.
Held: Petitioner appears to have partially complied with the export obligations undertaken by him - But the impugned order has proceeded on the basis that the petitioner has not at all complied with the export obligation - In other words, the first respondent has assumed that there has been zero compliance of the export obligation - Thus, if the Bench confirms the order as such, there would certainly be miscarriage of justice - Therefore, the Bench is impelled to interfere on the ground of violation of principles of natural justice - The orders impugned in these writ petitions stand quashed and the matters are remitted to the file of the first respondent - Consequently, the attachment or freezing of the petitioner's bank account is also raised - writ petitions allowed with directions: High Court [para 18, 19]
- Matters remanded: MADRAS HIGH COURT
2020-TIOL-1300-CESTAT-MUM
Anchor Electricals Pvt Ltd Vs CC
Cus - Appellant imported 3 sets of Press Machine on DDU (Delivery Duty Unpaid) basis from Japan and cleared the same for home consumption on payment of Customs duty on 08.12.2009 - Enroute, two of the vehicles carrying the consignment met with an accident and part of the consignment got damaged before reaching the factory - damaged goods were re-exported on 29.12.2009 and refund application was filed u/s 26A of the Customs Act on 07.01.2010 for refund of Rs.44,26,759/- being the proportionate duty on the value of re-exported defective goods - refund was rejected on the ground that the goods had got damaged after the out-of-customs charge was given by department - as the said order was upheld by the Commissioner(A), the importer is before the CESTAT.
Held: The International Chamber of Commerce has designed the INCOTERMS prescribing the terms of obligations of seller and buyer under various types of contracts namely, FOB, CIF, DDU, etc. - from the obligations cast on the both the parties in DDU contracts, it is apparent that the overseas supplier is under contractual obligation to deliver the goods, in the condition as per the agreed terms, at the buyer's premises - since the goods were damage Enroute and did not reach the factory of the appellant, such defective goods were exported by the appellant and also accepted by the overseas supplier - since the goods imported by the appellant were not subjected to any process of repair, re-conditioning etc. and the department was satisfied that the defective imported goods were actually re-exported by the appellant and who did not claim any duty drawback, the requirement of section 26A ibid has been duly complied by the appellant for grant of import duty paid at the time of assessment of the the bill of entry - therefore, the observation of the Commissioner(A) that the provisions of s.26A do not deal with the situation on hand is not proper and justified - it is also not the case of the Revenue that the appellant had claimed any abatement of duty on the damaged goods in terms of s.22 of the Act - Section 22 and 26A are independent of each other and repeated reference to s.22 in the impugned order is unwarranted and has no relevance - appellant is entitled for refund of import duty in terms of s.26A ibid - impugned order is, therefore, set aside and appeal is allowed: CESTAT [para 4, 5]
- Appeal allowed: MUMBAI CESTAT |
