2024 (8) TMI 396 - AT - Service Tax

Recovery of service tax - Transportation of goods through pipeline/conduit service - Erection, Commissioning Installation Services - recovery of inadmissible Cenvat Credit - time limitation. Recovery of service tax - Advance Received against Transmission Charges from Tea Estate and other consumers - HELD THAT - It is settled proposition of law that such interest bearing deposit cannot be considered as part of service and leviable to service tax. Any interest accrued (or notional) on such sums by way of a security advance, cannot form part of the value of a taxable service rendered. The of the Hon ble Apex Court in the case of MORIROKU UT INDIA (P) LTD. VERSUS STATE OF UP. 2008 (3) TMI 513 - SUPREME COURT is squarely to this legal proposition. Moreover, such amount of interest as accrued on security deposits cannot be considered as part of a taxable service, towards consideration received by the appellant without establishing as to how the said security deposit is includible in the amount of consideration charged for the taxable value. Since it is a returnable deposit with no nexus to the nature of service provided, there is no justification in levying Service Tax on the said deposit amounts. In support of the proposition that a security deposit obtained by the person for purpose of keeping business viability during the period of service in question, without any nexus between deposit and the consideration cannot be constituted as a part of the taxable service. Any interest therefore earned thereon shall not be includible in the gross taxable value for purpose of assessment. The department has woefully failed to establish any nexus with the security deposit to the discharge of the taxable service per se nor has it been borne out of record that such deposit in any way influences the value of the service rendered. It thus cannot form part of the taxable service and demand on this account for the aforesaid amount of Rs.40,77,945/- is required to be set aside. Fuel Surcharge - HELD THAT - The amount has not been contested and was paid correctly by the appellant and therefore the subject needs no further elaboration. Minimum Demand Charge (MDC) - HELD THAT - Upon failure of the customer to derive, more than the contractual quantity i.e. 90%, through pipeline, in the circumstances is by way of a penalty charged on the customer for failure in meeting the contractual obligation. The amount thus received by the appellant by way of penalty can by no stretch be termed as provision of any service. Thus, respectfully following the precedent decision, we are of the view that no Service Tax is leviable this count - Appeal allowed. Advance Received against Transmission Charges from PWD APGCL - HELD THAT - In view of the demand already having been paid appropriately by the appellant on this count, in accordance with law, there is no case for elaborating on the demand aforesaid. The balance demand with all attendant liabilities is thus set aside. Amount received against Cost of Gas Meter and Installation Charges - HELD THAT - The amount of Service Tax of Rs.9,50,633/- thereon has already been paid and appropriated and therefore stands concluded. No contest thereto by the appellant is recorded in the impugned order. Amt. against cost of Meter and Installation Charges received from Domestic Consumers - HELD THAT - An amount of Rs.22,63,502/- has been made out and confirmed by the adjudicating authority. However, it is noted that the said amount is required to be collected by way of a security deposit in terms of section 14 of the Petroleum and Natural Gas Regulatory Board Act, 2006 (PNGRB Act). Since this amount is required to be collected in terms of a statutory provision and is refundable at the time of surrender of the connection, this amount cannot form part of the taxable value for consideration for provisioning of taxable service and therefore not liable to Service Tax. Service Tax confirmed thereto by the lower authority is set aside. Reconnection Charges Collection against Re-installation - HELD THAT - This amount is stated to accrue to the appellant, for failure of the customers in default of payment of Bills in time and subsequently dis-connection/re-connection of the said facility. The said amount has accrued on account of dis-connection charges/resumption of supply. There are no merit in the plea of the appellant in stating the same as penal in nature and not a provision of service. Therefore such charges account for provision of service whether by way of initial connection or re-connection or any other name assigned. The appellant is liable to pay Service Tax of Rs.18,491/- thereon and the same is confirmed. Amount of Cenvat Credit taken on Capital Goods utilized against Output Services - HELD THAT - The appellant submits that they have taken the said credit of erection, commissioning and installation service, as an input service, but have erroneously indicated the same as input and capital goods. Since such mistake is a curable defect, the said amount is otherwise eligible for availment of Cenvat credit and therefore allowed. Time Limitation - HELD THAT - The matter did not call for invocation of extended period at all. It is on record that the DGCEI authorities had sourced all information and records from the appellant way back in 2004 under summons seeking from them their written profile and disclosing the nature of business activities carried out along with the requisite records of the case. Hence the confirmed demand for the extended period is time barred. The amount of demands paid, under various heads stated herein - paid/not contested and/or appropriated by the lower authority are settled accordingly. The demand under various heads as held payable are accordingly confirmed - Appeal allowed.

Summary

Issues Involved:
1. Advance Received against Transmission Charges from Tea Estate and other consumers.
2. Fuel Surcharge.
3. Minimum Demand Charge (MDC).
4. Advance Received against Transmission Charges from PWD & APGCL.
5. Amount received against Cost of Gas Meter and Installation Charges.
6. Amount against cost of Meter and Installation Charges received from Domestic Consumers.
7. Reconnection Charges Collection against Re-installation.
8. Amount of Cenvat Credit taken on Capital Goods & utilized against Output Services.
9. Plea of limitation.

Detailed Analysis:

(A) Advance Received against Transmission Charges from Tea Estate and other consumers
The appellant argued that the amount in question was a security deposit, not an advance payment for services. The Tribunal noted that the deposit carried interest and was refundable, thus it should not be considered as part of the taxable service. The Tribunal cited the case of MORIROKU UT INDIA (P) LTD. vs. State of U.P. and other relevant cases, concluding that the security deposit could not be included in the taxable value. The demand of Rs. 40,77,945/- was set aside.

(B) Fuel Surcharge
The appellant did not contest this amount, and it was paid correctly. No further elaboration was needed.

(C) Minimum Demand Charge (MDC)
The Tribunal referenced its previous decision in the appellant's own case and the case of GAIL India Ltd. vs. CCE, Delhi, ruling that the MDC was a penalty for not meeting contractual obligations and not a taxable service. The demand of Rs. 1,47,94,332/- was set aside.

(D) Advance Received against Transmission Charges from PWD & APGCL
The appellant had already paid Service Tax on 33% of the total amount received as per Notification No. 1/2006-ST. The Tribunal found that the appellant had complied with the law, and the remaining demand was set aside.

(E) Amount received against Cost of Gas Meter and Installation Charges
The appellant had already paid and appropriated the Service Tax of Rs. 9,50,633/-. No contest was recorded, and the issue was concluded.

(F) Amount against cost of Meter and Installation Charges received from Domestic Consumers
The Tribunal noted that this amount was a refundable security deposit required under the Petroleum and Natural Gas Regulatory Board Act, 2006. As such, it could not form part of the taxable value. The demand of Rs. 22,63,502/- was set aside.

(G) Reconnection Charges Collection against Re-installation
The Tribunal found that these charges were for the provision of services, whether initial or re-connection, and thus taxable. The demand of Rs. 18,491/- was confirmed.

(H) Amount of Cenvat Credit taken on Capital Goods & utilized against Output Services
The appellant admitted to a clerical error in classifying the credit. The Tribunal found the mistake curable and allowed the credit of Rs. 2,97,617/-.

Plea of Limitation
The Tribunal found no evidence of suppression or intent to evade tax. The information was already sourced by DGCEI in 2004. Thus, the extended period for demand was deemed time-barred.

Second Show Cause Notice:
The Tribunal applied the same findings and conclusions from the first notice to the second notice dated 01.04.2014. The demands were analyzed similarly, and the decisions were replicated.

Conclusion:
The Tribunal modified the orders under challenge, confirming only the uncontested and appropriately paid demands. Penal liabilities were set aside, and the appeals were allowed with consequential relief as per law. The amounts held payable were to be paid forthwith with applicable interest.