By TIOL News Service

BANGALORE, OCT 11, 2018: THE appellants are engaged in the manufacture and supply of liquid oxygen, liquid nitrogen and gaseous nitrogen, etc. The appellants have air separation plants and pump filling stations across the country for the manufacture and supply of the said products.

The appellants also erect storage tanks at the premises of their customers to facilitate storage of their products. The appellants also construct oxygen nitrogen plants at the customers' premises and lease it out to iron and steel, copper units. They also undertake maintenance and repair of such plants. The appellants have entered into an agreement with Usha Martin Ltd. (UML) and Usha Alloys and Steels Division, a division of Usha Beltron Ltd, over a period of time.

The Revenue contended that the appellants are engaged in banking and other financial services, management, maintenance or repair service, storage and warehousing service.

Demand notices came to be issued and were confirmed with interest and penalties by the lower adjudicating/appellate authorities.

In the matter of the Stay applications filed by the appellant, the CESTAT ordered payment of pre-deposits.

See - 2011-TIOL-299-CESTAT-BANG

Service Tax - Banking & Other Financial Services - Manufacture of special purpose equipment (cryogenic tanks) and leasing thereof to purchasers - Agreement between appellant and clients for purchase of equipments given on lease at the end of tenure - Prima facie  no case for full waiver of pre-deposit - Pre-deposit of Rs. 10 lakhs ordered.

& 2012-TIOL-1487-CESTAT-BANG.

Service Tax - Stay/Pre-deposit of Tax - Banking and Financial Services (BFS) - No prima facie case for the appellant against demand of Service Tax on BFS - Prima facie, the activity undertaken by the appellant as a body corporate can be considered to be an activity undertaken by a non-banking financial institution - the appellant can claim a lenient approach in view of the fact that they voluntarily deposited an amount of over Rs.1.7 Crores including penalties in one of the appeals - Ordered for Pre-deposit of Rs.25 Lakhs (Para 3 & 4).

The appeals were heard recently.

Detailed submissions were made by both sides.

The CESTAT crystallized the issues and inter alia observed as below -

(i) Whether the lease rentals received by the appellants from M/s. UML would fall within the definition of 'Banking and Other Financial Services' or would fall within the meaning of 'Operating Lease'.

+ CBEC vide letter F.No.B-11/1/2001-TRU dt.9.7.2001 clarified that agreements entered before 16.7.2001 will not be liable to service tax provided the property/goods have also been received by the lessee prior to 16.7.2001.

+ There is incontrovertible evidence that the plant was installed in the premises of M/s. UML before 16.7.2001 -

(i) Detention Certificate dated 1.2.2001 issued by Inspector of Central Excise, HQrs. Preventive, Jameshedpur.

(ii) Letter dated 11/13.7.2001 from Superintendent of Central Excise, Jameshedpur to the appellants for releasing the plant and equipment.

+ The complete plant was ready for operation from early July itself but could not be commissioned because the plant was under detention. It was commissioned after the stay was vacated and hence, the agreement effective from 11.7.2001 was signed. However, the actual signature was taken at a later date.

+ Appellant's case is that of a equipment lease rather than financial lease.

+ Therefore, in view of the Board Circular cited above, the appellants cannot be charged to pay service tax under the heading 'Banking and Other Financial Services' for leasing of the plant to M/s. UML.

(ii) Whether the service tax demanded on 'Management, Maintenance or Repair Service' is sustainable in law.

+ Appellants have entered into an agreement dated 30.12.2006 for establishment of VPSA based oxygen plant with M/s. UML. Para 2 of the agreement deals with operation and maintenance of the plant.

+ As per the agreement, for OM service rendered by the appellants, M/s. UML will pay the appellant the amounts specified in Schedule 4 of the agreement.

+ If it were the case of the appellant that the service rendered was to themselves, there was no need whatsoever for M/s. UML to pay the appellants for O&M charges in terms of the agreement.

+ Therefore, we do not find any reason to interfere with the impugned orders as far as demand in respect of 'Management, Maintenance or Repair Services'.

(iii) Whether the service tax demanded on 'Storage and Warehousing Service' is sustainable.

+ As per the agreement, PIPL (appellant) delivers liquid oxygen into the storage installations and would permit the buyer (UML) to use the storage facility subject to clause 10 of the agreement regarding the use of the installation exclusively by M/s. UML. It is evident that the appellants have not rendered any warehousing services.

+ It is not the case where the appellants hold a storage facility in their own premises and customers will come with their goods to the facility to deposit /store the goods for a period of time. No warehousing activities are involved as the appellants have built an oxygen tank in the premises of their customers and have leased the same to the customers.

+ The appellants are not concerned with the receipt, storage and clearance of the goods stored in the tanks. They do not maintain any accounts for that matter in this regard. They have only leased out the tanks for a certain period of time for a consideration. This, in itself will not constitute warehousing and storage operations, therefore, the demands raised against the appellants on this count are not maintainable.

Conclusion: Impugned orders are sustained only to the extent of demand of service tax on 'Management, Maintenance or Repair Services'. Demands on other services are set aside. Penalties are set aside as the issue relates to interpretation of the provisions of service tax.

(See 2018-TIOL-3088-CESTAT-BANG)