AI Drafter 
TaxTMI 
TaxTMI 
2019 (1) TMI 558
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....0 E/21159/17 MYS-EXCUS-000-APP-001 & 002-17-18 / 18.4.2017 Aug 12 - Mar 14 81,57,600/ 10,00,000 E/21160/17 MYS-EXCUS-000-APP-001 & 002-17-18 / 18.4.2017 Apr 14 - Mar 15 48,99,180/ 20,00,000 E/21242/17 MYS-EXCUS-000-APP-15-17-18 / 02.05.2017 Apr 15-Mar 16 49,50,000/ 20,00,000 Briefly stated the facts of the case are that M/s MSPL, the Appellants, have entered into an Agreement on 11.08.2005 with SAIL-VISP for installation of Air Separation Unit of 50 TPD capacity on "Build-Own-Operate" (BOO) basis for manufacture and supply of Oxygen, Nitrogen and Argon gases. SAIL leased vacant land measuring approximately 100M x 75M within their factory to the Appellants to install the Plant and other ancillary equipment for manufacture of Oxygen, Nitrogen and Argon gases. In addition to the Air Separation Unit and other ancillary equipment for manufacture of gases, the Appellants were contractually required to provide certain fixed facilities within the factory of SAIL-VISP for their exclusive use. The Price of gases manufactured and supplied were determined in accordance with Article 12 of the Agreement, on which the Appellants have paid excise duty. In add....
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.....). The installation of these fixed facilities was confirmed by the Superintendent of Central Excise, Bhadravathi Range, vide letter O C No 359/2008 dated 25.7.2008, addressed Commissioner of Central Excise - (Page 140) - and joint statement of the Officers of SAIL - VISP recorded on 8.6.2008 - Page 143 to 144). 3.1. Ld. Counsel further submitted that as per Article 13 of the Agreement, the Buyer shall pay Fixed Facility Charges of Rs. 47.5 Lakhs per month from 1st month to 60th month and Rs. 33 Lakhs from the 61st month till termination of the agreement. As per Para 1.21 of the Agreement dated 11.8.2005, "Fixed Facility Charges" means the monthly charges to be paid by BUYER to SELLER in accordance with this Agreement for the supply of Gases to Buyer." The fixed charges are irrespective of supply of gases. As per Article 15.3 of the Agreement 15.3 - "In case of lower demand, BUYER shall continue to pay monthly Fixed Facility Charge and the Price of the gases supplied on actual consumption basis subject to minimum off take of 50% of the capacity of one Unit for Oxygen (50 TPD Plant consisting of three Units of 600 Cum per hour synchronised to a single output line) and....
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....t the Fixed Facilities were partly inside the MSPL premises and substantially in the premises of SAIL-VISP. The Fixed Facilities, as required by SAIL-VISP and as specified in the Agreement dated 11.8.2005, were installed, operated and maintained at own cost by MSPL gases for exclusive use by SAIL-VISP; since the gas manufacturing plant and associated equipment was installed within the factory of SAIL-VISP the debate whether the Fixed Facilities were within the premises of MSPL or SAIL - VISP becomes irrelevant because the entire premises constitute a "factory" of SAIL-VISP. 3.3. He submitted that the Ld Commissioner finds (Para 41.5) referring to Article 15.6 that the Price of Gases as per Article 12 and FFC as per Article 13 are only for supply of gas and consist of fixed component in the form of monthly Fixed Facility Charges and variable component on the basis of actual quantity supplied. Both the payments were for supply of gases only and not for any other purposes; Commissioner finds (Para 41.6) that FFC is an additional consideration for the Oxygen gas supplied and differential duty has been demanded accordingly. The Appellants submit that perusal of Article 15.6 of the Ag....
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....cified facilities within the factory of SAIL-VISP are separate transactions independent of each other. The sale price of Oxygen determined as per Article 12 of the Agreement is the sole consideration or transaction value of the gas sold on which duty has been paid. The FFC received from SAIL-VISP as per Article 13 is in the nature of rentals for the installation, operation and maintenance of the specified facilities provided by the Appellants for exclusive use by SAIL in terms of the Agreement as brought out above. The FFC is admittedly payable by SAIL-VISP irrespective of whether the Gas was supplied or not and irrespective of the quantity of gas supplied. Therefore, the Fixed Facility charges have no nexus with the sale price of Oxygen and hence the same is not liable to be treated as additional consideration for the sale of gas and included in the value of gas sold. The Appellants enclosed a STATEMENT showing supply and price of gases as per Article 12 on which duty has been paid, FFC received and value of gases by inclusion of the FFC as contended in the impugned order, from August 2006 to March 2017. 4.2. The Counsel submitted that the assessable value of Oxygen, as per SCN....
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....e Vacuum Insulated Storage Tanks (VIST). In such cases, the assessee, at their own cost and expense, erected and installed Vacuum Insulated Storage Tanks at the factories of the buyers concerned. The assesse had also installed measuring meters in case of supplies made to TELCO and TISCO. The assesse charged Fixed Charges/Facility Charges on monthly basis from the customers to whom the said facilities were provided. The facility charges are payable irrespective of whether any gases or liquids were purchased by the customers during the month concerned and irrespective of the quantum of purchases. For facility charges, the assessee raised bill on monthly basis to customers concerned irrespective of as to whether the said customer purchased any goods during the month concerned. The Hon'ble Tribunal observed (in Para 3) the assessee was maintaining the VIST and pipelines and for that the assessee was charging Fixed Facility Charges. The Tribunal held that the facility charges have nothing to do with and was not in any way related to manufacture or sale of gases by the assessee. The facility charges were not dependent upon sale or supply of the goods during the month concerned. These wer....
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....er the amounts collected under different heads viz., packing charges, wear and tear charges, Facility Charges, service charges, delivery and collection charges, rental charges, repair and testing charges are liable to be included in the value of the goods sold in terms of Section 4 of the CEA, 1944. The decision of the Tribunal in the case of BOC India (Supra) was also one of the Appeals under challenge before the Apex Court. The Apex Court in Para 20 has concurred with the earlier decision of the Supreme Court in the case of Bombay Tyre International Ltd. In Para 21, it is held that Section 4 (3) (d) defines "transaction value" by specifically including all value additions made to the manufactured article prior to its clearance as permissible additions to the price charged for the purpose of the levy. The relevant portion in Para 22 is extracted below:- 22. This would bring us to a consideration of the decision of this Court in Acer India Ltd. (supra). The details need not detain us. Soft wares, which were duty free items and could be transacted as software, came to be combined with the computer hardware which was a dutiable item for purposes of clearance. The Revenue sou....
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.... the above judgment of Supreme Court lays down that (i). when there are two items, one dutiable and the other duty free, addition of the value of the non-dutiable item in the value of dutiable item is not permissible; (ii). So long a reasonable nexus is discernible between the measure and the nature of the levy both Section 3 and Section 4 would operate in their respective fields; (iii). The principles laid down in the case of Bombay Tyre International Ltd is concurred with; (iv). the transaction value as defined in section 4 (3) (d) with effect from 1.7.2000 statutorily engrafts the additions to the normal price under old Section 4 as held permissible in Bombay Tyre International Ltd. There is no discernible difference in the statutory concept of "transaction value" and the judicially evolved meaning of "normal price'. (v). the judgments rendered in the context of old Section 4 would therefore, be valid even after amendment of Section 4 from 1.7.2000. 5.4. The Appellants submit that the activity of manufacture of gas and making available certain facilities for use by SAIL-VISP are separate and independent transactions. The FFC payable for installation, operation and maintenance....
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....on of the Oxygen plant comprising of Air Separation Unit and other ancillary equipment for manufacture of Oxygen, Nitrogen and Argon gases. This is clear from Articles 1.36, Article 4, Article 9.6(iii) and Article 10.0. The Appellants submit that the Oxygen Plant is installed within the factory of SAIL-VISP. The Appellants submit that they manufacture Oxygen in the said plant and supply the same to SAIL-VISP. It is submitted that the Oxygen (and later Argon) supplied is in turn used by SAIL-VISP within the same factory in the manufacture of steel, a dutiable final product. Oxygen Plant of the Appellants situated inside the "factory" of SAIL - VISP can be considered as being within the "factory" of SAIL even though they have obtained separate Central Excise Registration under the Central Excise Act, 1944. In the case of Dhampur Sugar Mills Ltd Vs CCE - 2001 (129) E.L.T. 73 (Tri -Del) and affirmed by the Supreme Court in 2007 (216) E.L.T. A23 (S.C) it was held that "number of registrations, in our view, will not decide the number of factories unless and until they are situated in different premises. It is very clear from the definition of the term "factory" that all the three units w....
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.... separate registrations, the entire raw material is being converted in to final products in a continuous, inter connected and integrated process conforming to the definition of a single factory under Section 2 (f) of the Central Excise Act, 1944 and therefore, no substantial question of law arises. The Appellants also submit that the Hon'ble Supreme Court in the case of Vikram Cement Vs. CCE - 2006 (197) E.L.T 145 (SC) held that if the mines are captive mines so that they constitute one integrated unit together with the concerned cement factory, the Modvat/Cenvat credit on capital goods would be available. The Supreme Court relied on this judgment in the case of Madras Cements Ltd. Vs CCE, Chennai - 2010 (257) ELT 321 (SC) to hold that if the Mines are captive mines so as to constitute one integrated unit with concerned cement factory, Cenvat/Modvat credit available on the capital goods. The Appellants submit that in view of the fact that the Oxygen gas manufactured in the factory is supplied for captive consumption to SAIL - VISP in the same factory, the gases are eligible for exemption under Notification No 67/95-CE dated 16.03.1995 and no duty is payable on captive consumption o....
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....998 (97) ELT 3 (SC) (ii) CCE, Ahmedabad Vs Solid and Correct Engineering Works 2010 (252) ELT 481 (SC) (iii) CBEC Order No 53/2/98 - CX dated 2.4.1998 The above judgment and the CBEC Order clearly specify that the plant and machinery fixed to the earth for safety and operational purposes are not immovable property. The finding of the Commissioner in this regard is clearly erroneous. On similar facts, the Hon Tribunal in the case of Air Liquide North India Pvt Ltd Vs CCE, Jaipur - 2017-TIOL-2433-CESTAT-DEL has held that setting up and maintaining gas storage tanks, pipelines, gauges and other accessories in the premises of the buyer of gases is an infrastructural support activity and "supply of tangible goods" has relevance to the transactions. The Appellants submit that the rejection of the voluntary request for payment of Service Tax on the FFC on renting of the facilities is clearly erroneous. 8. The Appellants submit that the Oxygen/Argon gas manufactured by them is an input to SAIL - VISP. The entire duty paid would be available as CENVAT Credit to SAIL-VISP. It is submitted that SAIL discharges duty on a much higher value added product like Steel. It is also on rec....
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....9.1. The Appellants have submitted a copy of Agreement dated 11.8.2005 with SAIL - VISP to the Office of the ACCE, Hassan at the time of obtaining the Central Excise Registration in March 2006. Shri R Sridhar, Deputy Manager in his statement recorded on 1.11.2007 has ascertained and confirmed this fact. Without the said Agreement on record and verification of the manufacturing premises by the jurisdictional Officers the registration of the premises for installation of the Oxygen Plant within the factory of SAIL - VISP would not have been granted. The Appellants have been submitting monthly ER 1 Returns for payment of duty from August 2006 onwards. The Jurisdictional Superintendent has his office within the vicinity of the factory of SAIL - VISP. The reference by the Commissioner to the Joint Statement of the Officers from SAIL - VISP recorded on 6.8.2008 is evidently after issue of SCN dated 14.2.2008 and submission of the reply dated 14.4.2008. The statement has also been mis-quoted in the findings. The said Statement was in the form of verification of certain details and submissions made by the assesse in the reply to the SCN. Therefore, the finding of the Commissioner in Para 42....
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....periods as evident from the records. 11. Further, since the entire duty paid by the assesse is available as CENVAT Credit to SAIL-VISP and reimbursed by VISP as per the agreement, the entire situation is Revenue Neutral and there cannot be contravention of the provisions of CEA, 1944 or Rules with intention to evade payment of duty. There was no deliberate suppression of facts or contravention of the CEA, 1944 with intent to evade payment of duty. Therefore, the larger period of limitation cannot be invoked. For the same reasons the ingredients of Section 11 AC are not satisfied and hence the equal penalty imposed there under cannot be sustained. 12. The Ld. AR has submitted that in the agreement between M/s MSPL and M/s SAIL dated 11.08.2005 the clause 1.21 regarding facility charges reads as follows" means the monthly charges to be paid by the buyer to seller in accordance with this agreement for the supply of gases to the buyer" Further as per clause 1.35 the facility or production facility" means the Air separation units(ASU), stores, interconnecting pipelines up to the battery limits and ancillary equipment installed by the SELLER for supply of oxygen , Nitrogen and Argo....
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....ds service and has stated that the same would be chargeable to Service Tax for the period post 16.5.2008. This argument has been rightly rejected by the adjudicating authority as the ownership of the goods are with the appellant and the same have not been sent out of the registered premises of the appellant for use by the Buyer. The equipment having been installed, with due availment of CENVAT Credit towards the same as brought out in the previous paras is part of the production facility of the appellant and has not been given out for use by the buyer. In the scenario of Supply of Tangible goods, the production/manufacture or service rendered by using the said goods will happen at the receiver's end who is entitled to use the said goods. The supplier of the Tangible goods will have no ownership of the produce/ activity emanating from such goods. In the instant case the appellant retains total control over the production facility and the produce thereof. This is obvious from Clauses 4.11 and 5.5 of the aforesaid agreement and the appellant undertaking to pay the Central Excise duty on the produce generated during manufacture using the said goods. 12.2. Further in the case law of ....
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....ligibility to credit. 12.4. Also the said production facility also envisages a sale of surplus quantity to outside buyers also as per clause 9.3.3 of the agreement and hence the same will not fall within the ambit of the above said case laws. 13. The adjudicating authority has given enough basis at para 42 of the order for invoking the extended period for non-supply of the Fixed facility charges agreement to the department and the non-declaration of the Fixed Facility charges INVOICES or the amount in the ER-1 Returns. The commissioner has raised the following issues and has discussed and has given findings on each of them. (i). Whether the 'Fixed Facility Charges' paid by SAIL towards installation, operation and maintenance of the pipe lines, storage tanks for gaseous and liquid forms of gases, pumps and vaporising systems, flow meters, Flow Indicators, Flow Computers for measurement, Gas purity analysers, etc, for supply of Oxygen, Nitrogen and Argon gases within the factory of SAIL-VISP for exclusive use by SAIL-VISP has any nexus with the manufacture, sale/supply and value of Oxygen gas cleared by the Appellants for consumption by SAIL and are liable to be included in ....
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....July 2011. There were several months when there was no supply of Oxygen and/or Argon. Demand of excise duty was made on the entire amount of Fixed Facility Charges without showing any correlation with the quantity and value of Oxygen and/or Argon gases supplied and without apportionment of the Fixed Facility Charges on the quantity and value of Oxygen and Argon gases actually supplied. It is also shown vividly that inclusion of the Fixed Facility Charges in the value of Oxygen leads to absurdly high and disproportionate values, as tabulated and demonstrated. As shown, Fixed Facility Charges payable are not an additional consideration for the Oxygen and Argon gases supplied and hence not excisable. 14.3. The AR disputed the submission that the installation, operation and maintenance of the storage tanks, pipelines up to consumption points, vaporizers, pumps, flow meters, flow regulators, etc. without transferring the right of possession and effective control is an independent transaction of service provided to SAIL - VISP and liable to levy of service tax under "Supply of Tangible Goods" as defined in Section 65 (105) (zzzzj) of the Finance Act, 1994 attracting levy of service ta....
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....and Argon gases actually supplied. 14.5. The AR has contended that the claim for exemption under Notification 67/1995 CE dated 16.3.1995 is not permissible since the Appellants have neither manufactured capital goods nor inputs and used the same within their own factory. The AR contended that the premises of MSPL within the factory of SAIL and the factory of SAIL are independent factories. The Appellants submit that the premises where MSPL has set up the gas manufacturing plant on 100 M x 75 M land taken on rent from SAIL is admittedly within the factory of SAIL - VISP. The Site Plan was also shown. The assesse has claimed exemption on the gases manufactured and supplied through pipelines for captive use by SAIL - VISP under Notification 67/1995 CE dated 16.3.1995. In the instant case, the premises where the Appellants have manufactured the gases in their premises and supplied to SAIL-VISP for use as "inputs" in or in relation to manufacture of dutiable steel as final product constitute a single "factory". The premises of the MSPL Gas plant within the factory premises of SAIL - VISP constitute a single "factory" irrespective of the separate Central Excise Registrations by both t....
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....oods' tenable? (iv). the alternate argument of the appellants that as the gases are produced and consumed in the factory of SAIL, the benefit of Notification No 67/95, in respect of Capital Goods, is acceptable? 15.1. To evaluate the Question at No. (i) above, it is important to go through the agreement between M/s. SAIL and the Appellants. Relevant articles of the agreement are as below: 1.21. "Fixed facility charges" means the monthly charges to be paid by the BUYER to SELLER in accordance with this agreement for supply of gases to BUYER. 1.36. "SELLERS WORKS" means bounded premises held by SELLER located inside SAIL- VISL Plant including Ancillary equipment to be installed thereon. Article 4 4.1. For supply of Oxygen, Nitrogen and Argon gas continuously to SAIL on payment of cash price and fixed facility charges, the SELLER shall install the plant inside BUYERS works within a stipulated period of 52 weeks from the date of agreement by the SELLER under this agreement and subject to schedule mentioned in Article 11.4 here below. Article 7: 7.2. As and from the date of successful commissioning and thereafter continuously d....
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....l be provided, installed and maintained by SELLER. The calibration records of these instruments shall be shown to BUYER on demand, documentary evidence of purity of Gases and pressure shall be furnished by SELLER to BUYER whenever required. 9.4.3. The flow meter/flow computer, Gases purity analyser and pressure measuring instruments shall be installed at the joint meeting room near Battery limit. The meter house shall have provision for double-lock system to avoid any controversy. 9.4.4. All this equipment shall be calibrated at an interval of six months by the SELLER. Periodic joint calibration shall be carried out at, mutually agreed upon date. SELLER shall provide all the testing/calibrating equipment/standard gas during the joint calibration to the meters, SELLER shall also provide the calibration certificates of each calibrating equipment duly certified from reputed organization with tractability of the calibration Certificate to national Physical Laboratory (NPL)/National Test House. In addition to above the calibration shall be carried out at the request of either the BUYER or the SELLER. If the calibration is done at BUYER'S request and the meteri....
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....rges shall be paid on monthly basis against invoice. Fixed Facility Charge shall be paid from the date of start of regular supply of Gases after successful commissioning of the Production Facilities. 15.3. In case of lower demand, BUYER shall continue to pay monthly Fixed Facility Charge and the Price for Gases supplied on actual consumption basis subject to minimum off take of 50% of the capacity of one unit for Oxygen (501 PD Plant consisting of three units f 600 CuM per hour synchronized to a single output line) and Argon. However, if due to any reason, BUYER is not able to consume any Gas, the BUYER shall pay monthly Fixed Facility Charge only. 15.6. The monthly payment for supply of gas shall be made in the form of reimbursement of the Fixed Facility Charge as per Article-13 and price for Gases supply as specified in Article-12. The Fixed Facility Charge as specified in Article-13 shall remain fixed for the entire contract period. Price for Gases supply as specified in Article-12 shall be paid based on the actual gas supplied by SELLER to SAIL-VISL subject to minimum off take of 50% of the capacity of one unit for Oxygen (50TPd Plant consist....
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....is manufacturing Oxygen, Nitrogen and Argon in liquid form and the products are sold and supplied to the customer in the following manner: Supplies through pipelines are made to Tata Iron & Steel Co. (in short TISCO) and Tata Engg. and Locomotive Co. (in short TELCO). The product in liquid form are pumped through the pipeline in gaseous form. The other mode of supply of gases in liquid form are made through Vacuum Insulated Transport Tanks (in short VIST). The supplies are made from appellants' factory to buyers' factories and emptied there in Vacuum Insulated Storage Tank (in short VIST). In such cases, the appellant at this cost and expenses erects and installs VISTs at the factories of the appellants concerned. Such customers buying the goods from the Burma Mines factory are Usha Martin Industries, Chittaranjan Locomotive Works, Eastern Railway, Kanchrapara etc. There are also several buyers who simply buy the goods from the said Burma Mines factory. In such cases, the appellant has not installed any VISTs at the buyers' factories nor has installed any pipelines. Such buyers are Alloy Steel Plant, Deputy Controller of Stores of Eastern Railway, etc. In view of the extre....
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....lue of the Gases supplied. In the instant case, the entire unit of the appellants is installed in the premises of SAIL-VSIL. The Pipelines and facilities are in continuous nature in the appellant's unit as well as the customers' premises. On going through the agreement, it is seen that the clause 15.6 stipulates that "the monthly payment for supply of gas shall be made in the form of reimbursement of the Fixed Facility Charge as per Article-13 and price for Gases supply as specified in Article-12. Clauses at 1.21; 1.35 and 15.6 of the Agreement make it amply clear that the consideration paid, including the Fixed facility charges, is towards the supply of gases. The agreement does not make it very categorical as to whether the Fixed Facility Charges are in respect of Pipelines, Flow Meters, Valves, etc. installed in the premises of SAIL-VISP and maintained by the appellants. Therefore, there is some element of doubt which exists as to whether the Fixed Facility Charges are also for the installations which are primarily in the premises of the appellants and for production of Gases. The verification report by the Superintendent, Central Excise of the concerned range gives only an impr....
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.... 16.4. In view of the above, it is evident that if any of the Fixed Facility Charges are attributable to have a nexus with the production facility the charges thereof need to be apportioned towards the cost of the Gases on the lines of established methods of costing, in view of the Hon'ble Supreme Court's decision in the case of Grasim Industries (supra). We find that the same has been done in a very gross manner leading to the valuation of Oxygen in certain months to an absurd level. Also, we find that the Authorities have not apportioned the charges separately to Oxygen and Argon Gases in the months in which both of them were supplied. 16.5. Therefore, while upholding in principle that Fixed Facility Charges attributable to production facilities within the factory of the appellants and having nexus with the costing of Gases supplied to M/s. SAIL-VISP are includable in the assessable value of the gases, we find that the entire issue of costing has to be gone into afresh. The Fixed Facility Charges have to be apportioned properly between the production facilities in the appellant's factory as well as in the customers' premises. Thereafter, if any such charges are attributable to....