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TMI Blog2019 (9) TMI 1082X X X X Extracts X X X X X X X X Extracts X X X X ..... 3022 of 2017 has been preferred by the petitioner-company for quashing/setting aside the order dated 24.03.2017 for the assessment year 2008-09 whereas W.P.(T) No. 3172 of 2018 pertains to the assessment year 2009-10, passed in Revision Case No. JR 82 of 2012 and Revision Case No. JR 83 of 2012 respectively by the Commercial Taxes Tribunal, Jharkhand wherein order dated 30.10.2012 passed by the Commissioner of Commercial Taxes, Jharkhand has been confirmed. 3. The Case of the Petitioner is that the Petitioner-Company is engaged in production and supply of gases like, Oxygen, Nitrogen and Argon gases for industrial and medical use and the present writ petitions relate to one of its manufacturing unit situated at Jamshedpur in the State of Jharkhand. The petitioner, pursuant to two separate agreements vide agreements dated 3rd June, 1996 and 28th June 2002, established two units for meeting the requirement of continuous supply of Oxygen, Nitrogen and Argon gases to Tata Steel Ltd. Under the aforesaid agreements entered by the petitioner with Tata Steel Ltd., petitioner was required to install and operate its own air separation plant and ancillary equipments for supply of Oxygen, Ni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ner irrespective of supply of gases by the petitioner to Tata Steel Ltd. except in cases of Force Majeure, where due to default on the part of the petitioner, supply of gases could not be undertaken. The said facility charge under the agreement is being recovered by the petitioner from Tata Steel Ltd. by raising advance monthly bills and, as already stated above, irrespectively of the fact whether gases were purchased by Tata Steel Ltd. or not during the month concerned and irrespective of the quantum of purchases, the facility charge amount was payable to the petitioner. The said amounts towards facility charge were not dependent upon the sale or supply of gases and were recovered from the buyer i.e. Tata Steel Ltd. irrespective of supply of gases. 7. It is a specific case of the petitioner is that it has discharged its liability of payment of value added tax (VAT) on the consideration received for supply of gases and no VAT amount was leviable and/or charged from the petitioner prior to the present assessment years in dispute on the amount of facility charge recovered by it from Tata Steel Ltd. for providing facilities mentioned aforesaid. 8. However, an inspection was carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... titioner is an additional consideration for sale and would be, thus, covered by the definition of 'sale price' as contained in section 2(xlviii) of the JVAT Act, 2005. Learned counsel for the petitioner referred to various clauses of the agreement and contended, inter alia, that the amount of "facility Charges" being realized by the petitioner from its customers cannot be treated to be a 'sale consideration for gases' but, in fact, it is the charges realized by the petitioner for providing facility of continuous supply of gases in a gaseous form. It has been submitted that the petitioner-company supplies industrial gases primarily in three forms namely,-- (i) Supply of gas in liquid form in gas cylinders. (ii) Gases in liquid form through tankers, stored in customer's premises in vacuums insulated storage tanks; (iii) Gases in gaseous form through pipelines. 11. It has been submitted that so far as supply of gases through gas cylinders, the petitioner used to realize rental for gas cylinders which were sought to be taxed by the Central Excise authority by considering it to be 'additional consideration of supply of gases'. However, the said issue was set at rest by the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd pipelines, Tata Steel Ltd. entered into agreement with the petitioner for installation of the aforesaid plant over the land adjacent to the industrial unit of Tata Steel Ltd. by the petitioner. Accordingly, under the agreement, two separate charges were prescribed, one being the 'facility charges' which accounted for reimbursement of the cost of investment undertaken by the petitioner on installation of industrial unit including operation and maintenance of the plant, pipelines and meters. The other charges stipulated in the agreement was the gas price which was payable on supply of gases. According to Mr. Gadodia, the amount realized towards facility charge has nothing to do with the sale of gases; and both are two distinct and separate charges realized by the petitioner from its customer Tata Steel Ltd. 15. It has been further submitted that, exactly, similar issue arising out of the same agreements came for consideration by Central Excise authority, wherein the amount of facility charge was treated to be an additional consideration for sale and excise duty was sought to be levied thereupon in terms of Section 4 of the Central Excise Act 1944. It is submitted that the said i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Moriroku UT India (P) Ltd. Vs. State of Uttar Pradesh, reported in (2008) 4 SCC 548. Lastly, it has been submitted on behalf of the petitioner that "Explanation-II" to the definition of 'Sale Price' as contained under Section 2(xlviii) of the JVAT Act is not applicable in the facts and circumstances of the present case as facility charge itself cannot be treated to be the consideration towards sale of gases. In this connection, reliance has been placed to the decision of the Hon'ble Madras High Court in the case of State of Tamil Nadu -Vs- Srinivasa Timber Depot, reported in (1974) 33 STC 423 (Madras) as well as the decision rendered by the Hon'ble Supreme Court against the aforesaid Judgment of the Madras High Court in the case of "State of Tamil Nadu -Vs- Srinivasa Timber Depot, reported in (1991) 80 STC 393 (S.C.)". The petitioner has further relied upon the decision of Messrs. Srinivasa Timber Depot-Vs- Deputy Commercial Tax Officer, Choolai Division Madras & ors., reported in (1969) 828 L.W. 147 (Mad.) to demonstrate that Explanation-II to the definition of 'Sale Price' is not applicable in the facts and circumstances of the present case. The petitioner further relied upo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of law that the terms of an agreement have to be read in whole in consonance with each other. The petitioner Company has relied upon individual clause and on basis of such clause tried to show that the gas prices and facility charges are independent and distinct from each other. However, a proper perusal of the agreement between the petitioner Company and the TATA Steel Ltd. shows that gas charge and facility charge are linked to each other. 19. It was further submitted that clause 11.3.A clearly stipulates that the base price of the facility charge shall be Rs. 76 Lakhs. However, 60 per cent of this base price shall vary in direct proportion to the wholesale price index. Further, gas price of various gases such as Oxygen, Nitrogen and Argon are also variable and is based on price variation on power cost which is clearly stipulated in clause 11.1.A, 11.1.B, 11.2.A and 11.2.B. The relation between the facility charge and the price of gas makes it clear that the facility charge as payable is dependent upon the price of gas so supplied. It was further submitted that as the facility Charge is dependent upon the wholesale price index, it cannot be said that facility charge is only b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h June, 2002. For the sake of ready reference, certain clauses of the agreement dated 3rd June, 1996 is quoted herein-under:- "1.2: Appointment Date means the date on which BOCL will be ready to supply the full supply of Oxygen, Nitrogen and Argon to TISCO on a continuous basis and the date from which TISCO shall start to pay the monthly facility charge. BOCL will designate this date by 90 days Advance notice in writing. TISCO's obligation to start the monthly facility charge to BOCL in terms of this definition will not however start if after designating this date BOCL fails to commence supply of gases to TISCO from the date so designated" "1.6: "Facility Charge" means the monthly charge paid by TISCO to BOCI in accordance with this Agreement, for the provision, operation and maintenance of the Plant, the Pipelines and the Meters." "1.7 "Gas Prices" mean the prices paid by TISCO to BOCI for Oxygen, Nitrogen and Argon gas supplies in accordance with this Agreement." "1.16 "WPI" means the Wholesale Price Index for Manufactured Products (base 1981/82 = 100) as published by the Reserve Bank of India in its weekly bulletins, calculated as a simple arithmetic average of the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion at all times" "11. PRICE Subject to the provisions of the following sub-clauses of this Clause 11, TISCO shall pay the following prices and charges to BOCI under this Agreement. 11.1.A For Oxygen supplies (unit charge): Sl. No. Rate of Supply Nm3 per hour Base Price Rs./NM3 Power Cost Rs/100Nm3 per 1P/kWh. ___ ____________ _______ ___________ 1. Upto 29,000 1.50 0.650 2. Over 29,000 1.45 0.625 ------------------ ------------- ----------------- 11.1.B Oxygen Gas Price Variation on Power Cost: The above prices for Oxygen supplies are based on a Power cost of Rs. 2.32 KWh. For any increase/decrease in the actual cost of power from the base rate, there will be a corresponding pro rata increase/decrease in the gas price applicable for the week, as per clause 11.1.A, per 1P/kWh Power Cost variation from the base rate. 11.2.A For Nitrogen and Argon supplies (unit charge): Nitrogen -- High Pressure : Rs. 0.60 per Nm3 Nitrogen -- Medium Pressure :Rs. 0.30 per Nm3 Nitrogen -- Low Pressure : Rs. 0.05 per Nm3 Argon -- : Rs. 5.00 per Nm3 11.2.B The gas prices for Nitrogen and Argon are based on a Power Cost of Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g BOCI operations, in which case the monthly Facility Charge shall be payable by TISCO for a maximum period of one month in case the Force Majeure condition continued beyond one month." "16: Force Majeure- In the event of either party hereto being prevented or hindered from performing any of its obligation under this Agreement as a result of any breakdown of or accident to machinery or equipment, damage to pipelines, failure of electrical or water supply, any act of God, flood, fire, accident, commotion, strike, lockout, any act of third party or of Government or any cause beyond its reasonable control, the affected party shall give immediate written notice to the other. During the continued existence of the effect of such events, the parties shall be excused from the performance of their obligation under this Agreement, other than in the case of payment by TISCO of the monthly Facility Charge which will continue to be paid as specified in Clause 11. However, if due to Force Majeure event affecting BOCL operations, BOCL is prevented from supplying the gases to TISCO, then the Facility Charge shall be payable by TISCO for a maximum period of one month in case the Force Majeure co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is based on price variation on power cost. This term is stipulated in Clause 11.1.A, 11.1.B, 11.2.A and 11.2.B. The relation between the facility charge and the price of gas makes it clear that the facility charge as payable is dependent upon the price of gas so supplied. Further, as the facility charge is dependent upon the wholesale price index, it cannot be that facility charge is only being charged as against maintenance of the plant but also includes components of the cost and sale price of the gases so being supplied by the petitioner. 27. Further, as per the inquiry report, which is attached as annexure- 3 and 4 to the writ petition, it transpires that apart from almost 90 per cent of the gases so being supplied to Tata Steel the petitioner company also supplies gases to other companies such as Usha Martin, Tata Motors etc. The rates of supply of gases to those companies are variable and higher than that of Tata Steel. Therefore, it can be safely inferred that certain aspect of price is charged from Tata Steel under the head of facility charge and hence the same is subject to JVAT as it amply falls under the definition of sales Price as stated in Section 2 (xlviii) of JVAT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement has been read, understood and interpreted in its entirety. The submissions made by the petitioner show that facility charge has been created in order to circumvent the applicability of JVAT on the same amount. Any agreement made with the intent to evade taxes is in contradiction to Section 23 of the Indian Contract Act, 1872 and hence the same is void. The same was held in the case of Unitech Limited v. Union of India (2016) 2 SCC 569. 30. The Hon'ble High Court of Calcutta in its judgment rendered in the case of BOC India Limited v. West Bengal Commercial Tax Appellate and Revisional Board, Kolkata Ors. reported in (2010) 34 VST 448 has dealt with a case, which is similar to the instant case filed here by the same Petitioner i.e. BOC India Ltd., pertaining to the applicability of sales tax on the 'facility charge' being taken by the Petitioner. The Hon'ble High Court of Calcutta after analyzing the definition of 'Sale Price' under the Bengal Finance (Sales Tax) Act, 1941 and relying on the decision of the Hon'ble Supreme Court rendered in the case of Black Diamond Beverages v. Commercial Tax Officer, (1997) 107 STC 219 (SC) concluded that "... the charges which has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant question to ask is as to what is the amount payable by the purchaser to the dealer as consideration for the sale and not as to what is the net consideration retainable by the dealer". It was further held that the concept of real price or actual price retainable by the dealer was irrelevant. Reference in that connection was made by this Court to what Goddard, L.J. stated in Love v. Norman Wright (Builders) Ltd. [(1944) 1 All ER 618 : 1944 KB 484] This Court then observed that if the dealer transported goods from his factory to his place of business and sold them at a price which was arrived at after taking into account "freight and handling charges" incurred by him in transporting the goods, then the said charges would obviously be part of the "sale price" because it would be payable by the purchaser to the dealer as part of the consideration for the sale of goods. It was also observed that the same would be the position even if the freight and handling charges were shown separately in the bill and added to the price of the goods, for the character of the payment would be the same. If on the facts, the "freight and handling charges" represented the expenditure incurred by the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sale of goods by the petitioner to Tata Steel Limited and is a consideration passing from Tata Steel Limited to the petition for sale of goods as also confirmed by the Hon'ble Supreme Court of India in its judgment dated 03.02.2016 passed in Civil Appeal No. 1799 of 2010 wherein this very Petitioner was the contesting party. 36. Further, it is also relevant to note that the Petitioner for the same goods i.e. gases which are being sold to purchasers other than Tata Steel Limited is not charging facility charges but the petitioner is charging higher sale price for the said goods. This indicates that where the facility charge is not charged separately by the petitioner the sale price of the goods is higher and accordingly it demonstrates that the facility charge is a part of sale price but charged separately to some customers and charged compositely to other customers by including the same into the sale price. 37. The definition of 'Sale Price' under the JVAT Act, 2005 is also important and the same also supports the case of the revenue that Facility Charge has to be included in the 'Sale Price'. 'Sale Price' has been defined in Section 2 (xlviii) of the JVAT Act, 2005. The defini ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 88 : 1989 SCC (Tax) 469] ]. Therefore, for sales tax purposes, what has to be taken into account is the consideration for transfer of property in goods from the seller to the buyer. For this purpose, tax is to be levied on the agreed consideration for transfer of property in the goods and in such a case cost of manufacture is irrelevant. As compared to the sales tax law, the scheme of levy of excise duty is totally different. For excise duty purposes, transfer of property in goods or ownership is irrelevant. As stated, excise duty is a duty on manufacture" 41. Thus is ample clear that taxable event in case of 'Central Excise' and 'Sales Tax' is different. While 'manufacture' is the event in case of Central Excise; the taxable event in the case of VAT is 'sale'. 42. Furthermore, as aforesaid, the Hon'ble Apex Court, in the case of BOC India Limited Vs. Commissioner of Commercial Tax and Ors., (Civil Appeal No. 1799 of 2010) has clarified that the VAT is leviable on facility charges. As the 'facility charge' is dependent upon the sale price of the product (Clause 11.3A), coupled with the fact that the sale is concluded after joint measurement by both parties, VAT is applicable on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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