Tribunal rules in favour of Inox Air Products in service tax dispute over storage tank charges
Fixed facility charges included in excise duty cannot be taxed again under service tax says CESTAT
In a significant ruling that underscores the binding nature of departmental circulars and clarifies the tax treatment of charges related to industrial gas storage, the Chennai bench of the Customs, Excise and Service Tax Appellate Tribunal has held that service tax is not leviable on Fixed Facility Charges when Central Excise duty has already been discharged on the same. The decision comes as a major relief to M/s Inox Air Products Private Ltd. which had contested a service tax demand raised by the department for the financial year 2012–2013.
Background of the Case
The dispute arose following an Order-in-Appeal dated 21.12.2015, which confirmed a demand for service tax on FFC collected by Inox Air Products. These charges were collected for providing Vacuum Insulated Storage Tanks at customers’ premises, meant for the storage of liquid gases. The Revenue classified this transaction under the taxable category of ‘Supply of Tangible Goods Service’, contending that effective possession and control of the tanks were not transferred to the customers, thereby attracting service tax under this head.
Appellant’s Arguments
The appellant, M/s Inox Air Products, strongly opposed the tax demand. Key points of their defence included:
- The physical possession and operational control of the VISTs rested with the customers.
- The FFC formed part of the assessable value for payment of Central Excise duty, which had already been duly discharged.
- The imposition of a separate service tax on the same consideration would amount to double taxation, which is impermissible in law.
- Reliance was placed on a Board Circular dated 10.11.2014, which clarified that FFC should be included in the excisable value, thereby ruling out any need for separate service tax.
Department’s Stand
The department, represented by its Authorized Representative, supported the findings of the lower adjudicating authority. It argued that:
- Since the tanks remained under the ownership and control of the appellant, and there was no transfer of effective possession, the transaction amounted to a taxable service.
- As such, the FFC was liable for service tax, notwithstanding any excise duty paid.
CESTAT’s Observations and Ruling
The CESTAT bench, comprising Judicial Member Mr. P. Dinesha and Technical Member, Mr. Vasa Seshagiri Rao, gave a detailed analysis of the legal position. The Tribunal found substantial merit in the appellant’s arguments and made the following observations:
- The Board Circular dated 10.11.2014 is binding on the department, and it clearly states that FFC is to be included in the assessable value for excise duty.
- Since excise duty had already been paid on the same FFC, it cannot simultaneously be treated as consideration for a separate service, i.e., Supply of Tangible Goods Service.
- The tribunal also noted that this issue had already been settled in favour of the appellant in a previous appeal for an earlier period.
Accordingly, the Tribunal set aside the Order-in-Appeal and allowed the appeal, thereby providing consequential relief to the appellant.
Legal Significance of the Ruling
This ruling reinforces several important principles of indirect taxation:
- The non-applicability of double taxation on the same transaction under separate tax heads.
- The binding nature of CBEC/CBIC Circulars on departmental authorities.
- The importance of assessing the substance of transactions, especially where physical control and possession are key determinants.
The decision of the CESTAT Chennai bench in the case of M/s Inox Air Products Pvt Ltd. brings much-needed clarity to businesses dealing in industrial equipment and storage facilities. It sets a clear precedent that where excise duty has been discharged, the same consideration cannot be subjected to service tax under another classification. This judgment not only upholds legal consistency but also safeguards taxpayers from the adverse impact of overlapping tax demands, in alignment with the principles of natural justice and fiscal discipline.