Custom, Excise & Service Tax Tribunal
Inox Air Products Ltd vs Commissioner Of Central Excise, Nagpur on 29 April, 2014
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT No. I APPEAL Nos. ST/324/09, 360/10, 649/11, 691/12-Mum (Arising out of Orders-in-Original No. 5/2009/ST/C dated 23.9.2009, No. 01/ST/2010/C dated 23.3.2010, No. 08/ST/2011-12/C dated 20.9.2011 and No. 35/ST/2012/C dated 27.7.2012 all passed by Commissioner of Central Excise, Nagpur) For approval and signature: Honble Mr. S.S. Kang, Vice President Honble Mr. P.K. Jain, Member (Technical) ======================================================
1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the :
CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : Seen of the Order?
4. Whether Order is to be circulated to the Departmental : Yes authorities?
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Inox Air Products Ltd. Appellant
Vs.
Commissioner of Central Excise, Nagpur Respondent
Appearance:
Shri L. Badrinarayanan, Advocate, for appellant
Shri V.K. Agarwal, Additional Commissioner (AR), for respondent
CORAM:
Honble Mr. S.S. Kang, Vice President
Honble Mr. P.K. Jain, Member (Technical)
Date of Hearing: 2.4.2014
Date of Decision: 29.4.2014
ORDER NO
Per: P.K. Jain
The appellant is engaged in setting up of air separation plant at the customers premises which is used for manufacturing oxygen which, in turn, is ultimately used by the appellants customer in manufacturing their final products. The air separation plant is owned by the appellant and is leased to their customers. By a separate agreement, the appellant undertakes the operation and maintenance of the air separation plant at the customers place. Consideration for leasing is mutually agreed upon. Similarly, consideration for operation and maintenance of the air separation plant is also mutually agreed upon by and between the appellant and their customers. We are concerned in the present case with the agreement for operation and maintenance of the plant. The dispute in the present case relates to the quantum of service tax liability of the appellant in relation to the operation and maintenance of the plant relating to two of its customers.
2. The dispute in the present case is relating to the valuation of service of operation and maintenance provided by the appellant. As per the contract entered into by and between the appellant and the steel companies for operating and maintaining the equipment, the appellant had received fixed amount as service charges. During the operation of the air separation plant, electricity is required. Electricity is supplied by their customer and no separate charges are payable by the appellant to their customer for the electricity so used. The service charges also vary if the electricity consumed is lower or more than the pre-determined units of electricity. The appellant is paying service tax on the actual amount received as service charges.
3. The Revenue wants to add the price of electricity for determining the taxable value for purpose of service tax. The dispute in this case is relating to this factor alone. In all the appeals before us, this is the main issue. Since the issue is common and is also pertaining to the same appellant, all the appeals have been taken up together. In the impugned orders, the adjudicating authority has taken a view that electricity is essential for the operation of the plant and is therefore integral to the service of operation and maintenance provided to their customer. In view of this, the adjudicating authority has held that the value of electricity should be added as an additional consideration in terms of Section 67 of the Finance Act, 1994 read with Rule 3 of the Service Tax (Determination of Value) Rules, 2006.
4. Heard the learned Advocate for the appellant as also the learned AR.
5. At the outset, we note that the appellant is paying service tax under the category of consulting engineer service. Consulting engineer service is defined under Section 65(31) of the Finance Act, as under:-
Consulting engineer means any professionally qualified engineer or any body corporate or any other firm who, either directly or indirectly, renders any advice, consultancy or technical assistance in any manner to a client in one or more disciplines of engineering. Further, Section 105(g) reads as under:-
Taxable service means any service provided or to be provided to a client, by a consulting engineer in relation to advice, consultancy or technical assistance in any manner in one or more disciplines of engineering but not in the discipline of computer hardware engineering or computer software engineering.
6. It is seen that the appellant is paying service tax under the above category. No dispute has been raised by the Revenue while issuing show cause notice regarding the correctness of the said service. A miscellaneous application was filed by the appellant to reclassify the service under the category of management, maintenance or repair service. The said application was dismissed as that was not an issue before the adjudicating authority.
7. Be that as it may, we come for consideration whether the cost of electricity can be added for determining the value of taxable service. We find that the operation of a plant for manufacture of goods is an activity for the production of goods. It is doubtful that such an activity can be covered by the consulting engineer service as it is neither advice, consultancy or technical assistance. Even it is doubtful whether such an activity can be considered as covered within the scope of management, maintenance or repair service. However, these are not the issues before us. Further, in our considered view, electricity is used for operating a plant which results in the production of goods in this case oxygen and not as a part of the service. In view of this position, in our view, electricity is not an input for the service provided by the appellant. The question of adding the value of electricity for computing the taxable value of service of operation of plant will not arise.
8. We also note that the value is to be determined as per Section 67 of the Finance Act. Section 67 of the Finance Act is reproduced below:-
(1) Subject to the provisions of this Chapter, service tax chargeable on any taxable service with reference to its value shall,
(i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him;
(ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money, with the addition of service tax charged, is equivalent to the consideration;
(iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner.
(2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged.
(3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service.
(4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in such manner as may be prescribed.
Explanation-For the purposes of this section,
(a) consideration includes any amount that is payable for the taxable services provided or to be provided;
(b) money includes any currency, cheque, promissory note, letter of credit, draft, pay order, travellers cheque, money order, postal remittance and other similar instruments but does not include currency that is held for its numismatic value;
(c) gross amount charged includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment, and any amount credited or debited, as the case may be, to any account, whether called Suspense account or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise.
9. Further, Rule 3 Service Tax (Determination of Value) Rules, 2006 reads as under:-
Subject to the provisions of section 67, the value of taxable service, where the consideration received is not wholly or partly consisting of money, shall be determined by the service provider in the following manner:
(a) the value of such taxable service shall be equivalent to the gross amount charged by the service provider to provide similar service to any other person in the ordinary course of trade and the gross amount charged is the sole consideration;
(b) where the value cannot be determined in accordance with clause (a), the service provider shall determine the equivalent money value of such consideration which shall, in no case be less than the cost of provision of such taxable service.
10. In the present case, gross amount charged by the service provider for the service provided is as per the agreement. The price of electricity cannot be considered as an additional consideration received by the appellant from their customers. The appellant does not get benefitted by the free supply of the electricity in any way. Further, the electricity is consumed in the manufacture of oxygen. Thus, electricity is an input for the manufacture of oxygen. Oxygen, in turn, is used by the appellants clients in the manufacture of iron and steel products.
11. In view of the above position, we are of the view that electricity cannot be considered as an input for providing the services of operation of air separation plant, it cannot be considered as an additional consideration flowing to the appellant from their client for providing the service of operation of plant and cannot be considered as part of the gross amount charged for the service of operation of the plant.
12. In appeal No. ST/324/09, extended period of limitation is also involved. Since we have decided the merit of the issue in favour of the appellant, it is only academic to go into the said issue, which we decline to do. Both sides have also quoted certain case laws. None of the case laws is directly on the issue and therefore we consider it unnecessary to discuss the same.
13. In view of the above, all the appeals are allowed.
(Pronounced in Court on 29.4.2014) (S.S. Kang) Vice President (P.K. Jain) Member (Technical) tvu 1 8