TaxTMI 
TaxTMI 
2022 (5) TMI 960
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....ervices encompasses the following activities: i. Receipt of LNG cargo/ carriers at the Hazira port; ii. Unloading of LNG from the carriers and its receipt at Terminal's receipt point; iii. Storing the imported LNG in the cryogenic tanks; iv. Re-gasification of the LNG imported by the Customers into RLNG; and v. Delivery of RLNG to the Customers at the delivery point 3. M/s Shell has submitted that keeping in view the nature of transaction, it is imperative to understand the nature of Natural Gas. Natural gas is a naturally occurring hydrocarbon gas mixture consisting primarily of methane. Methane being the primary constituent of natural gas, it gives the gas a highly flammable nature and makes it violently reactive and explosive if it comes in contact with air (oxygen). Accordingly, for long distance transportation of natural gas through sea route, the gas is condensed into a liquid state at close to atmospheric pressure by cooling down the gas to very low temperatures (approx. minus 160 degrees celsius). Condensation of natural gas from gaseous to liquid state reduces the volume of gas by 600 times and thus, helps transport huge volu....
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....ng flow (to HP pumps for re-gasification) is sent through the bottom part of re-condenser. v. LNG HP Pumps: HP pumps installed at the Terminal is a submerged pump including motor in a suction pot filled with LNG directly coupled to the pump. These pumps are required to generate high pressure essential for transportation of liquid natural gas through the vaporizer unit and natural gas (in gaseous form) upto the Customer delivery point. vi. Vaporizer Unit: Vaporization is achieved either by ORV or SCV. Both systems are maintained at full operable conditions for use in re-gasification process to meet the gas nomination quantities from Customers and users. vii. ORV: The ORV is an exchanger which uses sea water as external heat source. LNG flows upwards through vertical panels of the tubes and is vaporized by thermal exchange with a falling film of sea water. viii. SCV: The SCV is composed of a warm water tank where a stainless steel tube bundle is submerged. The water of the tank is directly heated from a submerged combustion burner which uses natural gas for its operation. The LNG is vaporized by passing through the tubes bundle where heated water a....
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....vices such as receipt of LNG Carriers at the Port, unloading of LNG from LNG Carriers and receipt by Terminal Co of such LNG at the Receipt Point, temporary storage of LNG in the LNG Storage Tanks and delivery of RLNG, each as more particularly described in this Agreement. LTCORA Charges shall mean the fee payable by User to Terminal Co pursuant to this Agreement, and shall be calculated in accordance with Clause 14. 14.PAYMENTS AND PAYMENT SECURITY 14.1 Payments by User a) User shall pay Terminal Co the LTCORA Charges, any Deficiency Payment as applicable in accordance with this Clause 14 and Use or Pay Amount as applicable in accordance with Clause 6.3. The LTCORA Charges in respect of any Day shall be the product of the actual quantity of RLNG delivered at the relevant Delivery Point(s) and the LTCORA Tariff in respect of such Day. b) The LTCORA Charges calculation in respect of a Billing Period shall be equal to the aggregate of the LTCORA Charges for each Day during a Billing Period... ...." 6. M/s Shell as consideration collects re-gasification charges from its Customers as per the terms mutually agreed between the part....
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....er the Agreement. The relevant clause of the agreement dealing with SUG is as follows: "6.6 System Use Gas User shall provide to Terminal Co a quantity of system use gas equivalent to zero point six six percent (0.66%) of the actual discharged quantity of LNG by an LNG Carrier (SUG) towards the pre-estimate of process losses during LTCOR Services. Notwithstanding above, for whatsoever reason, User shall not be responsible for any quantity of System Use Gas in excess of zero point six six percent (0.66%) of the actual discharged quantity of LNG by an LNG Carrier." 10. M/s Shell has submitted that it is also pertinent to note that the quantity of gas to be allocated towards the SUG varies from Customer to Customer as the same is negotiated depending on multiple factors such as duration of the agreement, frequency of consignments, daily denomination quantity of the Customer, etc. Further, SUG does not have any impact on the re-gasification tariff charged from the Customers. 11. M/s Shell further submits that it is relevant to note that any efficiency or inefficiency (on account of uncertain events such as unplanned maintenance) leading to higher losses as compa....
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....UG agreed with the Customer under the Re-gasification Agreement as the same is nothing but a process loss and cannot be dubbed as a consideration for the re-gasification activity. 16. M/s Shell proposes to issue an invoice only with respect to the consideration received for the re-gasification services, i.e. the re-gasification charges computed on the basis of RLNG delivered and not charge any GST on the SUG since the same does not qualify as consideration for the purpose of the GST Laws. 17. M/s Shell submits that the SUG decided as per the agreement with the Customer is not includible in the value of supply of re-gasification services as the same is in nature of losses and does not, in any manner qualify as consideration for the purpose of the Central Goods and Service Tax Act, 2017 (CGST Act)/ Gujarat Goods and Service Tax Act, 2017 (GGST) (since the provisions of the CGST Act and the GGST Act are identical, the provisions of CGST Act are referred herein for ease of reference and the same may be read along for the purposes of GGST Act wherever applicable), for re-gasification services provided by M/s Shell to the Customers. Consequently, no GST is payable on the SUG stipul....
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.... or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply; and (b) after the supply has been effected, if,- (i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and (ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been reversed by the recipient of the supply..... .. (4) Where the value of the supply of goods or services or both cannot be determined under sub-section (1), the same shall be determined in such manner as may be prescribed...." 18.1 That as per S. 15, the value of supply shall be the transaction value, which is the price paid for the supply inter alia where price is the sole consideration. In other cases, i.e. in cases where price is not the sole consideration, then, the value shall be determined as per the valuation provisions contained in Chapter IV (Rules 27-35) of the Central Good and Service Tax Rules, 2017 ("CGST Rules"). 18.2 As per Rule 27 of the CGST Rules, where the consideration is not wholly....
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....15, by M/s Ravi Energie Private Limited (part of Ravi Energie Group of Companies which is a ISO 9001 certified company and is registered with International Federation of Inspection Agency and other reputed international organizations). The conclusions drawn in the report are based on exhaustive testing of the measurement devices and inspection of the facilities at M/s Shell's Terminal. Further, agreements for provision of LNG re-gasification in the international markets have also been relied upon to arrive at the industry practice and standards. The findings of the report are as follows: i. System use gas is understood to mean losses of the gas in the system. This could be due to flaring of the gas, leakages, maintenance, accidents, purging requirement, measuring errors at inlet and outlet of the terminal and other reasons. The losses could be due to either of or combination of these factors [Definitions and abbreviations - page 4 of the report] ii. Measurement uncertainties can occur while measuring volume and calorific value of LNG unloaded at the terminal and volume of send out LNG and its calorific value measurements [Point 7.2 on page 9 of the report] ....
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....ies following maintenance, but also the level of accuracy of the measurement v. Based on a benchmark of over 20 LNG terminals, retainage (SUG) percentage range from 0.2% to 2% of the discharged or sent-out quantities. A copy of the report issued by Poten and Partners (Australia) Pty Limited is enclosed herewith as Exhibit-D. 22. M/s Shell submits that it can be discerned that allocation of gas towards loss is an internationally recognised concept for limiting the risk associated with process loss. That the gas allocated towards loss is not towards any specific service provided by the service provider. That the same does not partake the character of consideration in the hands of the service provider, at any time whatsoever. 23. M/s Shell has submitted that it is relevant to note the fact that SUG is an internationally recognised concept was also relied upon in the case of Petronet (supra) and was accepted by the Ld. Tribunal. Thus, the SUG stipulated in the Agreement between the parties in the present case does not qualify as consideration for the re-gasification services provided by M/s Shell to its Customers. A. Process loss has been excluded from the value of....
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....re-gasification services rendered by the Appellant. In fact, "allowed loss and consumption" is a stipulation contained in the Agreement between the parties to remit performance of the obligation of regasification in relation to the percentage of the LNG agreed upon as "allowed loss and consumption"...." 26. The above decision was subsequently followed in the case of Petronet LNG Ltd. v. Pr. Commr. of ST, Delhi-I, 2021-VIL-118-CESTAT-DEL-ST. 27. That applying the ratio of the Tribunal's decision in the case of Petronet (supra), it can be clearly seen that SUG does not qualify as consideration for service and thus, the SUG agreed between M/s Shell and its Customers in the present case will not qualify as consideration for the purpose of the CGST Act. 28. M/s Shell has submitted that the Tribunal's decision in the case of Petronet (supra) is a favourable ruling under the pre-GST Laws holding that SUG does not qualify as consideration for re-gasification services. That GST Laws and Service Tax Laws are in pari-materia and the concept of SUG is also same under both the tax regimes and accordingly, considerable weightage should be given to the aforesaid decision while p....
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....pon even in the present case. Accordingly, SUG cannot be considered as consideration for the regasification service provided by M/s Shell to its Customers. The principle of judicial consistency must be followed by judicial and quasi-judicial authorities 34. M/s Shell submits it is a settled law that consistency is to be maintained in all the judicial proceedings. In this regard, reliance is placed on the decision of the Apex Court in the case of Commissioner of Income Tax vs. Excel Industries Ltd. 2014 (309) ELT 386 (S.C.). 35. In State of A.P. v. A.P. Jaiswal, (2001) 1 SCC 748 a three-Judge Bench of this Court observed that consistency is the cornerstone of the administration of justice. It is consistency which creates confidence in the system and this consistency can never be achieved without respect to the rule of finality. With a view to achieve consistency in judicial pronouncements, the courts have evolved the rule of precedents, principle of stare decisis, etc. 36. M/s Shell further submits that since GST is still in its nascent stage, judgments rendered in the previous regime should be referred and relied upon for interpreting the GST Law provisions since the co....
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.... Monetary or non-monetary Received in respect of, in response to, or for the inducement of, the supply Made by the recipient or by any other person Consideration should have nexus with supply 42. M/s Shell submits that one of the pre-conditions for any payment to be considered as "consideration" is that the same should be made for in respect of, in response to, or for the inducement of supply. That scope of definition of consideration extends only in relation to the supply of goods or services or both. In other words, only that payment that has nexus with the supply shall qualify as consideration under the GST laws. 42.1 M/s Shell submit that in E-Square Leisure Pvt. Ltd. 2019 (24) GSTL 125 (A.A.R. - GST), the Maharashtra Advance Ruling Authority explained the scope of the term "consideration" as follows: "The definition of consideration is inclusive and the consideration may be in cash or kind. The payment received will not be treated as consideration, if there is no direct link between the payment and supply. From the close scrutiny of above definition it is clear that there should be a close nexus between the payment and supply and thus any payment/ex....
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....ion received by the service provider constitutes the consideration for an identifiable service supplied to the recipient. 42.7 M/s Shell also relies upon the decision of the Apex Court in the case of Union of India vs. Intercontinental Consultants and Technocrats Pvt. Ltd. 2018 (10) GSTL 401 (S.C.) wherein the Apex Court held that the value of taxable service shall be the gross amount charged by the service provider for such service and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro quo for rendering such a service. 42.8 M/s Shell submits that it is a settled law that in order to qualify as a consideration for supply, the said consideration should have a nexus with the said supply of goods or service or both. 43. M/s Shell submits that the SUG does not qualify as consideration for the re-gasification services provided by M/s Shell to its Customers since the same is not in respect of, in response to, or for the inducement of supply. In other words, the SUG has no nexus with the services provided inasmuch as the SUG is stipulated in the contract between the parties to limit the risk associated with process loss and is not....
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....s follows: i. Inherent losses in operations related to natural gas (given its natural form and properties) including transportation of the same, This is also generally acknowledged and accepted by the customs authorities which is evident from the fact that customs duty payable on the import of LNG into India is assessed on the actual quantity of LNG unloaded from the vessel as against the quantity appearing in the bill of lading. The difference between two quantities (actual vs bill of lading) is on account of inherent losses associated with LNG which is duly taken into account while assessment of customs duty on actual quantity unloaded. This practice has also been upheld by the Hon'ble Supreme Court in the case of Mangalore Refineries and Petrochemicals Limited vs Commissioner of Customs, Mangalore [TS-724-SC2015], wherein it was held that customs duty should be assessed on the actual quantity unloaded on the shores of India and not the bill of lading quantity and due regard has to be given to the loss of goods during transportation. ii. During unloading of the LNG from LNG carrier, Terminal tank pressure increases due to vaporization of unloaded LNG. Pressure i....
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....pre-re-gasification processes i.e. losses during receipt of LNG from the carriers till storing of imported LNG in cryogenic tanks. Accordingly, applying the ratio of Hon'ble Supreme Court's decision in case of Mangalore Refineries (supra), value attributable to SUG should not be included in the value of re-gasification services for the purpose of computation of GST since, it is not in lieu of the re-gasification activity per se. v. The measurement of LNG is a highly volatile process as the same is dependent on multiple variables. Hence, the measurement of LNG at multiple stages during the process of unloading from LNG carriers and storage in cryogenic tanks may not be completely accurate and certain. The meters installed at various metering locations, used for measurement of LNG are prone to inaccuracies due to technical limitations in the measurement of LNG. It is relevant to note that even though the meter installed at the Terminal are state of the art and based on the most efficient and accurate technology present in the re-gasification industry, even the latest technology has not been successful in providing 100 percent accurate results. As a result, there are....
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....rvices. That, at the cost of repetition, M/s Shell has submitted that SUG only represents the inevitable process loss during various stages of regasification activity. Reliance in this regard is placed upon the Larger Bench decision of CST v. Repco Home Finance 2020-TIOL-1039-CESTAT-MAD-LB Ltd. wherein this principle of law was reiterated that consideration should be at the desire of promisor, otherwise it fails to be a consideration. 52. In view of the above, the SUG cannot be considered as consideration under the CGST Act. 53. M/s Shell submits that as per the settled jurisprudence under the Contract Act, consideration must act as an inducement for the promisor to enter into the contract and abide by the promise made to the promisee. In other words, it must act as a stimulus for the promisor to enter into the promise and abide by the same. This has also been included in the GST laws since as per the CGST Act, consideration includes any payment in money or otherwise whether by the recipient or any other person for inducement of supply. 54. M/s Shell submit that they and the Customers have negotiated and mutually agreed a fixed per unit charge to be paid for the services o....
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....ess Days from the date of receipt of the invoice. .... 14.1 Payments by User User shall pay Terminal Co the LTCORA Charges, any Deficiency Payment as applicable in accordance with this Clause 14 and Use or Pay Amount as applicable in accordance with Clause 6.3. The LTCORA Charges in respect of any Day shall be the product of the actual quantity of RLNG delivered at the relevant Delivery Point(s) and the LTCORA Tariff in respect of such Day..." 57. In this regard, M/s Shell placed reliance on the decision of the Apex Court in the case of Moriroku UT India (P) Ltd vs State Of U.P [2008 (224) ELT 365 (SC)], wherein the Hon'ble Supreme Court has affirmed the aforesaid principle that tax can be levied only on the contractual consideration. 58. M/s Shell submit that it is settled that for something to qualify as consideration, the parties to the contract must intend to treat the same as consideration mutually and the Department has to give effect to the term of the contract between the parties. Reliance in this regard is placed on a decision of a three-judge bench of the Hon'ble Supreme Court in the case of Commissioner of Income Tax v. Motor & General St....
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....en the Customers and M/s Shell does not qualify as consideration and thus, the same is not liable to be included on the value of taxable supply in the present case. SUG does not have any effect on the consideration of service 63. M/s Shell submits that it is also pertinent to note that the SUG does not have any impact on the value charged for re-gasification services and as such cannot be treated as additional consideration. Reliance in this regard is placed on Godavari Power and Ispat Ltd. v. CCE Raipur 2017 (6) G.S.T.L. 48 (T) wherein the Appellant was paying service tax on crushing charges for crushing of iron ores. In the process, iron ore fines emerged which was sold by the Appellant. The Department wanted to treat the value of iron ore fines as additional consideration for crushing services. In this regard, it was held that value of iron ore fines is not additional consideration as the contingency of emergence of iron ore fines having some value, is not determinable at the time of fixing of crushing charges. Relevant part of the decision is extracted below: "The ground loss also is pre-fixed. Now, at the time of issue of work order neither party is aware of the ex....
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..../s Shell to its Customers. Sub-section 4 of Section 15 of the CGST Act is not applicable in the present case. Consequently, the application of valuations rules provided in the CGST Rules does not arise. 68. M/s Shell submits that in the instant case, the SUG does not qualify as non-monetary consideration and thus, the rules relating to valuation contained in the CGST Rules are not applicable in the instant case. 69. It is submitted that as per Section 2(31) of the CGST Act, consideration can be monetary and non-monetary and in case there is non-monetary consideration involved in a transaction, then, the value of supply is to be determined as per Section 15 read with Rule 27 of the CGST Rules. 70. M/s Shell submits that it is relevant to note that the term non-monetary consideration is not defined in the GST Laws. Non- monetary consideration essentially means consideration in kind. The Australian Tax Authorities in Ruling GSTR 2001/6 held that a payment is not limited to a payment of money and it includes a payment in a non-monetary or in an in kind form, such as: providing goods; granting a right or performing a service (an act); and entering into an obligation, for exampl....
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....ovided by the Central/State Government. 75. M/s Shell submitted that in the instant case, the SUG is not covered under Section 15(2) of the CGST Act and is thus not liable to be included in the value of supply since: i. SUG is not in the nature of taxes, duties, cesses, fees and charges levied under any law. ii. SUG is not an amount that is incurred by the recipient of the supply. SUG is an estimated percentage of potential losses in the re-gasification process including inaccuracies or uncertainties in the measurement of losses as well as natural gas in the system and is not any amount that is incurred by the Customer for M/s Shell. iii. SUG is not an incidental expense charged by M/s Shell to the Customer. SUG is an estimated amount of loss incurred in the entire process of re-gasification and is not a separate expense charged to the Customer. iv. SUG is not in the nature of interest or late fee or penalty for delayed payment of any consideration for any supply. v. SUG is not a subsidy. 76. That SUG is not liable to be included in the value of supply of the re-gasification service provided by M/s Shell to the Customers. 77. M/....
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....l provide to M/s Shell a quantity of System use gas (SUG) equivalent to 0.66% of actual discharged quantity of LNG by a LNG carrier. We note that this quantity of SUG in the contract, is translated in this business practice by way of M/s Shell raising Invoices having, inter alia, an item of description 'SUG' in its invoices. We have examined the invoices raised by M/s Shell on M/s GAIL (India) Pvt. Ltd. and M/s GSPCL, wherein SUG quantity of 0.66% of discharged quantity of LNG at its receipt point was multiplied with re-gasification tariff to arrive at SUG value. 83. The issue before us hinges whether this SUG value invoiced by M/s Shell on its customers is leviable to GST. At the outset, we note that M/s Shell is charging this SUG amount on its customers vide GST Tax invoices. What is before us is whether this GST invoiced amount on its customers is part of transaction value for re-gasification service supply. 84. We note that in GST law, as per Section 17(5)(h) CGST Act, ITC is blocked for goods lost. However, we cannot ascertain, by cross referencing with M/s Shells customers if the goods(SUG) as cited by M/s Shell are lost as process loss; since LNG being non GST item, th....
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.... reference to the said SCN dated 29-9-15 proposing service tax demand of Rs. 46,45,29,236/- This SCN covered the period July 2010 to September 2014. 88. Central Revenue vide letter dated 12-4-22 informed that two more Show cause Notices, SCN dated 11-4-17 and SCN dated 9-1-19 on identical issue of Service Tax liability on SUG value for the period Oct-14 to Sept- 2015 and Oct-2015 to June-2017 respectively was issued on M/s Shell (formerly M/s Hazira LNG Pvt. Ltd.). Thereby, we note that there are two more SCNs issued by Central Revenue to M/s Shell proposing demand of service tax on 'SUG value', one SCN dated 11-4-17 covering the period October 2014 to September 2015 demanding Service Tax of Rs 13,46,38,242/- (Rupees Thirteen Crores Forty Six Lacs Thirty Eight Thousand Two Hundred Forty Two Only.) and another SCN dated 9-1-19 covering the period October 2015 to June 2017 demanding service tax of Rs 15,15,73,213/- (Rupees Fifteen Crores Fifteen Lacs Seventy Three Thousand Two Hundred Thirteen Only.). Central Revenue intimated that M/s Shell further paid service tax amount for tax proposed in both the later two SCNs as per provision of SVLDRS. 89. We note that from the period J....
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....ature, etc. Accordingly, any change in one of the components will vary the energy quotient of the same quantity of gas measured earlier. It was submitted that the measurement of LNG is a highly volatile process as the same is dependent on multiple variables and that the measurement of LNG at multiple stages during the process of unloading from LNG carriers and storage in cryogenic tanks may not be completely accurate and certain. The meters installed at various metering locations, used for measurement of LNG are prone to inaccuracies due to technical limitations in the measurement of LNG. We find that measurement uncertainties may not be positive only but also in negative which would then mean that M/s Shell has retained certain portion of gas of its customers. 93. There is a prima facie view, established from submission of M/s Shell that this SUG amount has a nexus with the Re-gasification Service supply. We reiterate that we agree with M/s Shells submission at paragraph 28 that SUG concept in Service tax era and GST era is identical. We noted the three SCNs issued to M/s Shell for service tax taxability on SUG. Exercising the provisions of Section 105 of the CGST Act, We hold ....
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..... We find the gas used, as at I to IV, for operation of the Re-gasification Equipment/ plant/ utility/ other facilities at Terminal. And in case had this gas been purchased by M/s Shell from the market, then for financial accounting it would have expensed it in its Expense accounts and allocation it in cost of provision of re-gasification service and thereby then the said cost component of gas used would be allocated as part of M/s Shell's cost of provision of regasification service. B. Further we find that a portion of quantity of gas is needed during re-gasification process in the following: I. In cases of shutdown/ breakdown/ power failure, RLNG is lost from piping equipment in the process of draining, purging, cool down because of safety reason by venting; II. During unloading gas is used on account of unloading arms purging and warming, so gas is vent out into the atmosphere without flare. III. Further, Gas is required and used both for planned maintenance of the system and also for ' repair and maintenance' of the system. We find that this system use gas, in this para B, is requisite for the specified safety measure and fo....
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.... provide a quantity of system use gas equivalent to 0.66% of discharged LNG quantity by LNG carrier. In practice, Shell delivers RLNG at delivery point to its customers charges re-gasification charges as per re-gasification tariff on the delivered quantity of RLNG from its customers. Further as per cited contract's clause 6.6, its customers have agreed to provide M/s Shell an agreed quantity of gas terming the same as 'System Use Gas'. We find that this gas is used for the said purposes discussed at A, B of this para. 94. In conspectus of facts on record, we hold that this system use gas is- (a) used by M/s Shell as fuel for re-gasification plant (b) retained as its gain (c) used for flaring which is an incidental expensing for the re-gasification procedure and falls within the scope of costs incurred for regasification service. For this, we hold that amount of SUG value charged on its customers vide GST invoices does fall under the cost of provision of service of Re-gasification and thereby an indispensable component of taxable value of re-gasification service supply by M/s Shell. 95. We find this gas charge which is used by M/s Shell is cost on re-gasification services, to ....
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....ressure by venting out as discussed at para 93 (A); gas to be used for flaring; gas to be used in maintenance and gas retained with M/s Shell when there is SUG reflected as gains in the measurement as discussed at Para 93 (C) of this Ruling and this the costing of SUG is borne by its customers. This amount is charged by M/s Shell on its customers vide GST invoices which reflect an item of invoicing as SUG value. The Contract entered by M/s Shell with its customers reads that Terminal Co shall raise an invoice towards GST on value of SUG quantities in respect of the LNG cargo received for re-gasification and User shall make payment to Terminal Co for such invoices. We note that consideration includes any payment in money or otherwise whether by the recipient or any other person for inducement of supply. We cannot brush aside the fact that said SUG is the Gas used/ needed by M/s Shell for ensuring its re-gasification service supply to its customers. 97. We note that M/s Shell discharged the service tax liabilities on the SUG value in terms of the SVLDRS scheme, vide the cited three Show cause notices discussed at para 86 to 89 and that the facts of the case raised in SCNs and the ....