SC in the case of Commissioner of Service Tax Versus M/s Adani Gas Ltd.

Case Covered:

Commissioner of Service Tax

Versus

M/s Adani Gas Ltd.

Facts of the Case:

This appeal arises from a judgment and order of the Customs, Excise, & Service Tax Appellate Tribunal, 1 West Zonal Bench at Ahmedabad in Service dated 5 April 2019. The Tribunal has, in the exercise of its appellate jurisdiction, reversed the 30 March 2011 decision of the Commissioner of Service Tax, Ahmedabad2 and set aside the demand for payment of service tax on the charges collected by the respondent for the supply of pipes and measuring equipment to its customers under Section 65(105)(zzzzj) of the Finance Act, 1994. This appeal rests on the interpretation and applicability of the provisions of Section 65(105)(zzzzj) of the Finance Act, 1994.

The respondent is in the business of distributing natural gas – Compressed Natural Gas and Piped Natural Gas – to industrial, commercial, and domestic consumers. Among other purposes, industrial consumers use PNG for manufacturing operations. Domestic and commercial consumers use PNG for cooking, power supply, and air-conditioning. In order to facilitate the distribution of PNG to industrial, commercial, and domestic consumers through pipes, the respondent installs equipment described as ‘SKID’ at their customers’ sites. The SKID equipment consists of isolation valves, filters, regulators, and electronic meters. The equipment regulates the supply of PNG being distributed and records the quantity of PNG consumed by the customer, which is then used for billing purposes. The respondent enters into an agreement – the Gas Sales Agreement5 – with consumers to whom gas is supplied by it.

Observations of the Court:

We find ourselves in agreement with the findings of the Adjudicating Authority. The extent of the refund of gas connection charges collected from industrial, commercial, and domestic consumers by the respondent depends on their usage. From the internal note dated 13 July 2007 and the tabulation of customers provided above, it is evident that the percentage of funds refunded varies from customer to customer, while the remaining amount is retained by the respondent. In any case, as regards the domestic customers, no deposit receipts have been provided and instead, the respondent has relied on the tabulation of the refund of deposit to industrial consumers to support their contention. Thus, the argument of the respondent that these gas connection charges collected from industrial, commercial, and domestic consumers constitute a refundable security deposit is rejected.

The decision of the Court:

Thus construed, we are of the view that the Adjudicating Authority was correct in concluding that the buyer of gas is as interested as the seller in ensuring and verifying the correct quantity of the gas supplied through the instrumentality of the measurement equipment and the pipelines. Additionally, the role of regulating pressure and ensuring the safety of the supply of gas performed by the measurement equipment is an essential aspect of the ‘use’ of the consumer. The SKID equipment fulfills the description in Section 65(105)(zzzzj) of a taxable service: service in relation “tangible goods” where the recipient of the service has use (without possession or effective control) of the goods. 

For the above reasons, we are of the view that the Tribunal was in error in interfering with the findings and order of the Adjudicating Authority. The judgment of the Tribunal shall accordingly stand set aside. The order of the Adjudicating Authority is restored. The appeal is allowed in the above terms.

Pending application(s), if any, stands disposed of.

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