2018 (11) TMI 1384 - AT - Service Tax

Valuation - inclusion of terminal charges shown as the miscellaneous income and recovery of maintenance charges in their books of accounts - Held that - The entire operation of transportation of the crude from Haldia port to BRPL is covered by a single contract. The terminal facilities are only intermediate operation of the transportation of the goods through pipeline. Since, the requisite amount of the service tax has already been paid on the service of transportation through pipeline provided by the respective parties, the terminal facilities being the integral part of the entire pipeline facilitating the transportation of the liquid crude, it will not be legally correct to consider the terminal facilities as independent facilities for which no real transaction of service charges have actually taken place and therefore demanding a service tax on the notional value taken by the appellant only for the purpose of accounting of the cost of the different units working under the appellants, will be not in the interest of the service tax law. Since, service tax has already been paid on the entire amounts which have been charged for transportation of the crude through pipeline, charging of service tax separately for the terminal facilities is legally not sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues:
Service tax liability on terminal charges for warehousing and storage services provided by Barauni Refinery to HBCPL and BRPL.

Analysis:
The departmental audit raised concerns regarding the recovery of terminal charges by Barauni Refinery for providing warehousing and storage services to HBCPL and BRPL. The department contended that these charges were subject to service tax, which the appellants failed to pay, leading to the issuance of two show cause notices.

The first show cause notice, covering the period from 2003-2004 to 2006-2007, demanded service tax of &8377; 58,00,063/- along with interest and penalties under Sections 76 and 78 of the Finance Act, 1994. The second notice, for the period of 2007-2008, demanded service tax of &8377; 23,47,782/- along with similar interest and penalties. The Commissioner adjudicated both notices, confirming the service tax amounts and imposing penalties on the appellants.

The appellants argued that the transportation and storage agreement for crude oil was between HBCPL and BRPL, with Barauni Refinery facilitating the operations under a single contract. They emphasized that Barauni Refinery did not provide separate warehousing or storage services to BRPL, and the terminal charges were merely for internal accounting purposes.

The appellants highlighted that the pipeline division had already paid service tax for the transportation of goods through pipelines, which included the operations involving the terminal facilities. They argued that demanding service tax on the terminal charges separately would be unjustified as no additional revenue was generated, and the charges were part of the overall transportation process.

After considering the arguments from both sides, the Tribunal concluded that the terminal facilities were an integral part of the transportation process covered by a single contract. Since service tax had already been paid for the transportation services through pipelines, imposing tax on the terminal facilities separately was deemed legally unsustainable. Therefore, the Tribunal set aside the order-in-originals, holding them devoid of merit, and allowed both appeals.