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2022 (5) TMI 960 - AAR - GSTLevy of GST - Valuation - inclusion of re-gasification charges - LNG imported by Customers - Section15 of the CGST Act? - HELD THAT - In GST law, as per Section 17(5)(h) CGST Act, ITC is blocked for goods lost. However, it cannot be ascertained, by cross referencing with M/s Shells customers if the goods(SUG) as cited by M/s Shell are lost as process loss; since LNG being non GST item, the customers( who are the principal) cannot avail ITC under the GST scheme of law on its LNG in toto, therefore reversal of ITC on process loss concept does not arise at all in this case and thereby the checks and balances framed in GST scheme of law for process loss cannot be verified in this case - Though this is not the matter before us, we do note that as Shells customers are not paying the value portion on the SUG invoices, but paying only the tax amounts, the customers cannot avail ITC on the tax portion reflected in the Shell s SUG invoices as per 2nd Provisio to Section 16(2) CGST Act, its customers have not paid the value portion of SUG invoices. This system use gas is- (a) used by M/s Shell as fuel for re-gasification plant (b) retained as its gain (c) used for flaring which is an incidental expensing for the re-gasification procedure and falls within the scope of costs incurred for regasification service. For this, we hold that amount of SUG value charged on its customers vide GST invoices does fall under the cost of provision of service of Re-gasification and thereby an indispensable component of taxable value of re-gasification service supply by M/s Shell - this gas charge which is used by M/s Shell is cost on re-gasification services, to be precise it is an expenses incurred by M/s Shell for the Re-gasification scope of service to be supplied to its customers and as M/s Shell is not purchasing gas from market but made an agreement with customer for a SUG quantity to be provided to customers for the subject service supply, it is found that this SUG quantity to be provided by its customers is now translated into SUG value by M/s Shell invoices raised on its customers. The literal meaning of the phrase System Use Gas has been justified as the gas has been used by system. Now the scope of re-gasification services covers not just regasification but an entire gamut of activities from unloading LNG from the Ships, its storage, its re-gasification along with safety measures and thereafter the delivery to the customers. It is found that system use gas charges raised on its customers vide GST Tax Invoices are part and parcel of Re-gasification service supply. The scope of re-gasification service supply cannot be dissected to favour only a portion of invoice charged on its customers as taxable by misreading re-gasification service to mean only re-gasification of LNG into RLNG. Thus value of SUG is an indispensable part of taxable value, for Re-gasification service supply by M/s Shell and liable to GST.
Issues Involved:
1. Whether the value attributable to System Use Gas (SUG) stipulated in the Agreement between the Applicant and Customers is subject to the levy of GST and therefore, liable to be included in the consideration for re-gasification services determined as per Section 15 of the CGST Act. Detailed Analysis: Scope of Re-gasification Services: The scope of re-gasification services provided by M/s Shell includes: - Receipt of LNG cargo/carriers at the Hazira port. - Unloading of LNG from the carriers and its receipt at the terminal's receipt point. - Storing the imported LNG in cryogenic tanks. - Re-gasification of the LNG imported by the customers into RLNG. - Delivery of RLNG to the customers at the delivery point. Nature of System Use Gas (SUG): M/s Shell argued that SUG represents process losses during re-gasification and should not be considered as consideration for the re-gasification services under the CGST Act. They cited industry practices and various reports to support that SUG is an internationally recognized concept for limiting risk associated with process loss. Valuation Provisions Under GST: Section 15 of the CGST Act indicates that the value of a supply shall be the transaction value, which is the price actually paid or payable for the supply where the supplier and the recipient are not related and the price is the sole consideration. Rule 27 of the CGST Rules provides methods to determine the value of supply when the consideration is not wholly in money. Arguments and Evidence Presented: 1. Industry Practice and Reports: M/s Shell cited reports from M/s Ravi Energie Private Limited and Poten and Partners (Australia) Pty Limited to highlight that estimating losses (SUG) is a recognized industry practice. 2. Previous Legal Precedents: M/s Shell referenced the Tribunal's decision in the case of Petronet LNG Ltd., where it was held that SUG does not constitute consideration for re-gasification services. 3. Contract Law: M/s Shell argued that consideration must act as an inducement for the promisor to enter into the contract. In this case, SUG was not intended as consideration but as a pre-estimate of process losses. Personal Hearing and Revenue’s Submission: During the personal hearing, M/s Shell reiterated their submissions. It was revealed that in the pre-GST era, a Show Cause Notice was issued proposing to demand Service Tax on SUG, and M/s Shell settled the matter under the SVLDRS scheme by paying the service tax computed amount. Authority’s Findings: 1. Usage of SUG: The Authority noted that SUG is used by M/s Shell for various purposes such as controlling terminal tank pressure, operating submerged combustion vaporizers, and during planned maintenance. This indicates that SUG is not merely a process loss but is used in the re-gasification process. 2. Measurement Uncertainties: M/s Shell admitted that there are always uncertainties and inaccuracies in the measurement of LNG, which can lead to both losses and gains. 3. Nexus with Re-gasification Service: The Authority found that SUG has a direct nexus with the re-gasification service supply, making it an indispensable component of the taxable value of re-gasification services. Ruling: 1. Scope of Re-gasification Services: The scope includes allied, incidental, and ancillary services such as receipt of LNG carriers, unloading, temporary storage, and delivery of RLNG. 2. Inclusion of SUG in Taxable Value: SUG, which is used as fuel, for safety procedures, and maintenance, is a cost for the supplier (M/s Shell) and must be included in the cost of provision of re-gasification services. Therefore, the value of SUG is an indispensable part of the taxable value for re-gasification service supply and is liable to GST. Conclusion: The value attributable to System Use Gas (SUG) stipulated in the Agreement between M/s Shell and its customers is subject to the levy of GST and must be included in the consideration for re-gasification services as determined under Section 15 of the CGST Act.
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