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2019 (1) TMI 558 - AT - Central ExciseValuation - nexus of Fixed Facility Charges with the value of the gases supplied by the appellants to M/s SAIL - inclusion of Fixed Facility Charges in the Assessable Value of the Gases supplied by the appellants - Supply of Tangible Goods service - benefit of Notification No 67/95 - appellant s main argument is on the ground that the Fixed Facility Charges are for the installations the appellants have made in the premises of SAIL-VISP and that as per the agreement, it is clear that Fixed Facility Charges are independent of the supply of Gases and in terms of the agreement, the price of Gases supplied is fixed separately. Held that - In the instant case, the entire unit of the appellants is installed in the premises of SAIL-VSIL. The Pipelines and facilities are in continuous nature in the appellant s unit as well as the customers premises. On going through the agreement, it is seen that the clause 15.6 stipulates that the monthly payment for supply of gas shall be made in the form of reimbursement of the Fixed Facility Charge as per Article-13 and price for Gases supply as specified in Article-12. Clauses at 1.21; 1.35 and 15.6 of the Agreement make it amply clear that the consideration paid, including the Fixed facility charges, is towards the supply of gases. The agreement does not make it very categorical as to whether the Fixed Facility Charges are in respect of Pipelines, Flow Meters, Valves, etc. installed in the premises of SAIL-VISP and maintained by the appellants. Therefore, there is some element of doubt which exists as to whether the Fixed Facility Charges are also for the installations which are primarily in the premises of the appellants and for production of Gases. In case if a portion of the Fixed Facility Charges pertained to the production facilities installed in the premises of the appellants, it has to be understood to have some nexus with the production of Gases. No prudent customer would pay such charges for the production of the material in the appellant s factory and to purchase the same at the market price. It is pertinent to note that the Ld. counsel for the appellants has submitted that the Fixed Facilities were partly inside the MSPL premises and substantially in the premises of SAIL-VISP. Further, as per clause 1.35, the Fixed facility charges being paid are for the production facility which is defined to be up to the battery limits. In that case, a portion of Fixed Facility Charges is for the production facility and therefore, the same is to be absorbed in the cost of production being incurred by the appellant. It is evident that if any of the Fixed Facility Charges are attributable to have a nexus with the production facility the charges thereof need to be apportioned towards the cost of the Gases on the lines of established methods of costing - the Authorities have not apportioned the charges separately to Oxygen and Argon Gases in the months in which both of them were supplied. While upholding in principle that Fixed Facility Charges attributable to production facilities within the factory of the appellants and having nexus with the costing of Gases supplied to M/s. SAIL-VISP are includable in the assessable value of the gases, we find that the entire issue of costing has to be gone into afresh. The Fixed Facility Charges have to be apportioned properly between the production facilities in the appellant s factory as well as in the customers premises. Thereafter, if any such charges are attributable to the production of Gases supplied to the customers, the charges may be included in the value of the Gases supplied by the appellants. In the scenario of Supply of Tangible goods, the production/manufacture or service rendered by using the said goods will happen at the receiver s end who is entitled to use the said goods. The supplier of the Tangible goods will have no ownership of the produce/ activity emanating from such goods. In the instant case the appellant retains total control over the production facility and the produce thereof. Benefit of Notification No. 67/95 - Captive consumption of goods - Held that - The Ld. AR submitted that this is a fresh ground being taken now in appeal before CESTAT and has not been agitated before the adjudicating authority. The said notification would be inapplicable as the assessee being an independent manufacturer has not produced any interim inputs which go into a taxable final product cleared by themselves to avail exemption. Matter is remanded for afresh consideration and proper apportionment of the Fixed Facility Charges to the cost of the gases supplied by the appellants - Appeal allowed by way of remand.
Issues Involved:
1. Nexus of Fixed Facility Charges (FFC) with the value of gases supplied. 2. Inclusion of Fixed Facility Charges in the assessable value of gases. 3. Classification of the appellant's activity as "Supply of Tangible Goods" service. 4. Applicability of Notification No. 67/95-CE for captive consumption. 5. Invocation of the larger period of limitation. 6. Justification for imposition of equal penalty under Section 11 AC of the CEA, 1944. Detailed Analysis: 1. Nexus of Fixed Facility Charges (FFC) with the Value of Gases Supplied: The appellants argued that FFC paid by SAIL-VISP was for installations like pipelines, storage tanks, and flow meters, which were independent of the supply of gases. They contended that FFC was payable even when no gases were supplied, indicating no direct nexus with the value of gases. The Department, however, proposed distributing the FFC over the quantity of gases supplied each month, leading to highly variable and sometimes absurd values for the gases. 2. Inclusion of Fixed Facility Charges in the Assessable Value of Gases: The Tribunal noted that the agreement between the parties did not clearly distinguish whether FFC was for installations within the appellant’s premises or the customer’s premises. The Tribunal upheld that if any part of the FFC was attributable to the production facilities, it had to be included in the assessable value of the gases. The Tribunal remanded the matter to the adjudicating authorities to apportion the FFC properly between production and supply facilities and include the relevant portion in the assessable value of the gases. 3. Classification of the Appellant's Activity as "Supply of Tangible Goods" Service: The appellants claimed that their activity of providing facilities to SAIL-VISP should be classified as "Supply of Tangible Goods" service and liable for service tax. The Tribunal agreed with the Commissioner’s finding that the appellants retained control over the production facilities and the produce, which did not align with the definition of "Supply of Tangible Goods" service. Therefore, this argument was rejected. 4. Applicability of Notification No. 67/95-CE for Captive Consumption: The appellants argued that their unit and SAIL-VISP should be treated as a single factory, making the gases eligible for exemption under Notification No. 67/95-CE. The Tribunal found this argument to be a fresh ground not raised before the adjudicating authority. The Tribunal noted that the appellants and SAIL-VISP were independent entities, and the exemption could not be applied as the appellants did not produce interim inputs used in a final taxable product cleared by themselves. 5. Invocation of the Larger Period of Limitation: The Tribunal found that the extended period of limitation could not be invoked for the SCN issued on 14.02.2008, as the appellants had submitted the agreement to the jurisdictional authorities and had been filing ER-1 returns. Therefore, the demand for this SCN was restricted to the normal period. 6. Justification for Imposition of Equal Penalty under Section 11 AC of the CEA, 1944: The Tribunal did not specifically address the imposition of penalties under Section 11 AC, but by remanding the matter for a fresh determination of the assessable value, it implicitly set aside the penalties imposed in the impugned orders. Conclusion: All impugned orders were set aside, and the appeals were allowed by way of remand for a fresh determination of the assessable value, with proper apportionment of the FFC. The demand in respect of the SCN issued on 14.02.2008 was restricted to the normal period.
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