2023 (6) TMI 849 - AT - Service Tax

Appellant not liable for service tax on Fixed Facility Charges for storage tanks. Excise duty not applicable.

M/s. Inox Air Products Ltd. Versus Commissioner of GST & Central Excise, Puducherry

The Tribunal held that the appellant was not liable to pay service tax on the Fixed Facility Charges (FFC) collected for providing storage tanks. ... Supply of tangible goods service - Fixed Facility Charges collected by the appellant for supply of tanks for storing the liquid gases - period of dispute is from 16.05.2008 to March 2009 - HELD THAT:- The appellant entertained doubts as to whether FFC has to be included in assessable value for discharging excise duty and also whether credit can be availed of such duty. Though letters were issued to department seeking clarifications, there was no response. The appellant then filed W.P before Hon’ble High Court of Bombay in INOX AIR PRODUCTS LTD. VERSUS UNION OF INDIA [2014 (9) TMI 529 - BOMBAY HIGH COURT], the Hon’ble High Court directed the Board to issue clarification. Pursuant to this, the Board vide circular dt. 10.11.2014 has clarified that FFC charges has to be included in the assessable value for discharging cenvat credit. It can be seen that ownership of the tanks remains with the appellant and the possession and effective control of the tanks is with the customers during full term of the agreement. The definition of “supply of tangible goods” as per section 65 (zzzzj) defines as “any service provided or to be provided to any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances”. In the peculiar nature of the products, the appellant has to supply tanks before supply of liquid gases to the customers. Thus the assessee is required to include the value of FFC and MOTP in the transaction value of the gases for discharging the Central Excise duty. There are no reason to hold that FFC charges are in the nature of consideration received by appellant for providing supply of tangible goods. Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Fixed Facility Charges (FFC) collected for installation and provision of Vacuum Insulated Storage Tanks at customers' premises constitute consideration for a service taxable as 'supply of tangible goods' (service tax) under the definition of supply of tangible goods. 2. Whether payment of Central Excise duty and VAT on FFC (and Board clarification treating FFC as part of assessable value for excise) precludes a separate demand for service tax on the same FFC. 3. Whether the Board circular and the High Court's interpretation of that circular are binding on the Department such that the service tax demand (and any denial of Cenvat credit inconsistent with the circular) must yield. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Characterisation of FFC: service for 'supply of tangible goods'? Legal framework: The relevant statutory definition treats as taxable service any service in relation to supply of tangible goods including machinery, equipment and appliances for use, where there is no transfer of right of possession and effective control of such machinery, equipment or appliances (supply of tangible goods service). Precedent Treatment: The Tribunal considered a closely analogous decision of the jurisdictional High Court which interpreted the Board clarification and factual matrix in favour of the assessee. The Tribunal also referred to another Tribunal decision addressing the same issue in substance. Interpretation and reasoning: The Court examined the commercial arrangement: appellant retained ownership, control, maintenance and insurance of tanks; tanks were installed at customers' premises; customers provided space and had effective control/possession during the contract term but were contractually restricted to use tanks only for products purchased from appellant. The arrangement arose because the manufactured liquid gases require on-site storage; tanks are essential to enable supply. The Board clarification directed that FFC and MTOP be included in assessable value of gas for excise purposes. Given the unique nature of the product and the mandatory requirement to provide storage tanks to supply the gas, the Tribunal concluded that FFC functions as part of the price of the goods supplied rather than as an independent consideration for a taxable service of providing tangible goods (where ownership is not transferred and there is no transfer of right of possession and effective control). The Department's characterization as 'supply of tangible goods service' was therefore not sustained on the facts and statutory definition. Ratio vs. Obiter: Ratio - where goods necessarily require provision of on-site storage provided by the supplier who retains ownership and charges FFC incorporated into the price of the goods, such charges are part of the transaction value of the goods rather than consideration for a separate supply of tangible goods service. Obiter - relying on the policy context of why tanks are necessary for liquid gases; ancillary observations on restrictions of use and maintenance obligations. Conclusion: FFC are not consideration for a separate taxable service of 'supply of tangible goods' in the factual matrix; the demand for service tax on FFC cannot be sustained. Issue 2 - Effect of excise duty and VAT payment and Board clarification on liability to service tax Legal framework: Central Excise law requires inclusion of all elements of consideration in assessable value for duty; VAT may apply where transfer of right to use/deemed sale occurs. Administrative instructions (Board circular) interpret inclusion of FFC/MTOP in assessable value and address Cenvat credit admissibility. Precedent Treatment: The Board circular (issued after writ direction) expressly advised that FFC/MTOP be included in assessable value and provided for Cenvat credit treatment. The jurisdictional High Court held the Department bound by that clarification in the assessees' factual context. Interpretation and reasoning: The appellant had been discharging Central Excise duty and VAT on FFC in accordance with the Board clarification. The Tribunal treated the circular as binding on the Department and noted that where the same charge has been treated as part of the price of goods for excise and taxed accordingly, it is not tenable to recharacterize the same collection as separate taxable service under service tax for the same period. The factual necessity of tanks to permit supply of the gases and the incorporation of FFC into assessable value for excise reinforced the view that the charge is part of the goods transaction. Ratio vs. Obiter: Ratio - administrative clarification that FFC is part of assessable value for excise and consequent payment of excise duty on those charges precludes levy of service tax on the same charges in the same factual circumstances. Obiter - general observations on double taxation and equitable treatment. Conclusion: Having discharged excise duty and VAT on FFC pursuant to the Board clarification, the appellant could not be subjected to an additional service tax demand on the same FFC for the disputed period; the demand therefore fails. Issue 3 - Binding nature of Board circular and High Court decision; denial of Cenvat credit Legal framework: Administrative circulars and Board clarifications interpreting inclusion of elements in assessable value and Cenvat credit admissibility inform revenue practice; courts may declare such clarifications binding where challenged and where consistent with statutory scheme. Precedent Treatment: The appellant obtained a High Court ruling that the Department is bound by the clarification in its facts; a subsequent Board circular specifically addressing the appellant's circumstances was relied upon by the Tribunal and earlier decisions. Interpretation and reasoning: The Tribunal treated the Board circular as authoritative guidance binding on the Department for the period in question. Where the Board has clarified that FFC must be added to the assessable value and that buyers are eligible for Cenvat credit subject to Cenvat Credit Rules, the Department cannot thereafter treat FFC as a different taxable service or deny credit inconsistent with that clarification. The Tribunal noted that attempts to deny credit or recharacterize the charge were contrary to the circular and to the High Court's ruling binding on the revenue in the jurisdiction. Ratio vs. Obiter: Ratio - the Board circular and the High Court's ruling bindingly determine the taxable character of FFC and entitlement to Cenvat credit in the factual matrix; they prevent the Department from sustaining a contrary service tax demand or denying credit on the same facts. Obiter - commentary on interplay between administrative circulars, judicial review and revenue enforcement. Conclusion: The Board clarification (and the High Court judgment holding the Department bound thereby) controls the issue; any contrary demand or denial of credit cannot be sustained. Disposition/Outcome The Tribunal set aside the impugned order raising service tax, interest and penalties on FFC for the period in dispute and allowed the appeal with consequential relief, concluding that FFC were part of the assessable value of the goods (taxed under excise/VAT as per Board clarification) and not liable to separate service tax as 'supply of tangible goods' in the facts before the Tribunal.