2021 (3) TMI 1049 - AT - Service Tax

Scope of SCN - Levy of Service Tax - value of pre-fixed quantum of LNG identified towards allowed loss and consumption - inclusion of such free of cost supplies of LNG by the customers should have formed part of the consideration received by the Appellant - HELD THAT - The show cause notice in the present appeal is dated April 8 2016 and has been issued for the period July 2014 to March 2015 in continuation of the show cause notice dated October 10 2014 that was issued for the period June 2009 to June 2014. The order arising out of this show cause notice dated October 10 2014 had been assailed by the appellant. The Agreements referred to in this show cause notice are the same Agreements which were referred to in the earlier show cause notice and the same allegations have been made against the appellant. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Appellant challenging service tax demand by Commissioner
- Whether "allowed loss and consumption" should be considered as part of taxable value for service tax

Analysis:
1. The appeal was filed by the Appellant against the order passed by the Commissioner confirming the demand of service tax amounting to &8377; 4,55,89,647/- for the period July 2014 to March 2015, along with interest and penalty. The issue in question was whether the value of LNG identified as "allowed loss and consumption" should be included in the taxable value for payment of service tax.

2. The Appellant argued that the "allowed loss and consumption" clause in the Agreements is a recognized practice due to inherent losses during the regasification process. The Appellant contended that this clause is not a consideration for the regasification service but a remittance of performance as agreed upon between the parties. The Appellant emphasized that the service tax liability was discharged on the regasification charges, excluding the quantity of LNG consumed based on the agreed percentage.

3. The Tribunal analyzed the definition of "consideration" under Explanation (a) to sub-section (4) of section 67 of the Act and Section 2(d) of the Contract Act. It was established that the amount agreed upon between the parties as payable for services provided qualifies as consideration. The Tribunal held that the "allowed loss and consumption" does not represent consideration for the regasification services but is a stipulation in the Agreement to remit performance of the obligation of regasification.

4. Referring to a Supreme Court decision in Commissioner of Service Tax vs. Bhayana Builders, the Tribunal highlighted that service tax is payable on the gross amount charged by the service provider to the service recipient. The Tribunal concluded that the "free of cost" LNG supplied by customers cannot be included in the taxable value of services, as it does not constitute consideration for the service provided.

5. Additionally, the Tribunal cited an Australian Taxation Office ruling emphasizing that conditions like "allowed loss and consumption" in a contract do not necessarily form part of the consideration. The ruling illustrated that certain provisions in a contract may not provide economic value or constitute consideration for the services rendered. Based on these legal principles and precedents, the Tribunal held that the Commissioner was not justified in confirming the demand of service tax on the value of LNG identified as "allowed loss and consumption."

6. Consequently, the Tribunal set aside the order passed by the Commissioner, confirming the demand of service tax upon the Appellant with interest and penalty. The Tribunal ruled in favor of the Appellant, stating that the "free of cost" supplies of LNG by customers should not form part of the consideration received by the Appellant for the purpose of levy of service tax.