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TMI Blog2025 (3) TMI 361X X X X Extracts X X X X X X X X Extracts X X X X ..... he Advance Ruling No. GUJ/GAAR/R/2022/26 dated 11.5.2022. 3. Briefly, the facts are enumerated below for ease of reference: * The appellant, is a wholly owned subsidiary of M/s. Shell Gas B V Netherlands; that it owns & operates an LNG [Liquefied Natural Gas] regasification terminal at Hazira, Surat and is registered with the Department; * that in addition to the services of regasification of LNG, they also provide certain incidental & ancillary services related to [i] unloading of LNG; [ii] storage of LNG in cryogenic tank; [iii] delivery of RLNG [Re-gasified LNG]; * that NG [Natural Gas], a highly flammable gas is condensed into liquid state at close to atmospheric pressure by cooling down the gas to very low temperature (-160°c) for transportation; that upon receipt of LNG at the destination port it is again converted into gaseous state; * the vaporization is achieved either through ORV [Open Rack Vaporizer] method or through SCV [Submerged Combustion Vaporizer] method; that SCV is only a standby; that at all times, ORV is the primary and preferred mechanism for regasification of NG; * that in terms of the agreement, the regasification charges are compute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant purchased gas for these procedures, it would have added to the cost of purchase towards provision of service; * that further the uncertainty in gas measurement loss can be both negative as well as positive; that negative loss means there is gain in stock of gas for the appellant; * that gas charge is a cost on re-gasification services; that it is an expenses incurred by the appellant; * that consideration includes any payment in money or otherwise; * that the case law cited are different in facts. 6. The GAAR, vide the impugned ruling dated 11.5.2022, held as follows: 1. The scope of Re-gasification Services covers not only the services related to regasification of LNG into RLNG on behalf of M/s Shells customers but includes allied, incidental and ancillary services such as receipt of LNG Carriers at the Port, unloading of LNG from LNG carriers and its receipt at Terminal receipt point, temporary storage of LNG in storage tanks and delivery of RLNG to the customers, as detailed at para 2. 2. Thus this SUG [(a) gas used as fuel by Shell in GTG/ SCV; (b) gas used by M/s Shell for safety procedures by flaring/ venting out, even in cases of shutdown/breakdown/ power ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under GST; that in order to qualify as consideration it should be [i] monetary or non-monetary [ii] received in respect or inducement of supply; [iii] made by the recipient or by any other person; that there is no non-monetary consideration involved; * that there is no nexus between the SUG and the service provided by the appellant; * that SUG does not fall within the ambit of either section 15 (2) (b) or (c), ibid; that it does not fall within 15 (2) (b) since it is not an amount incurred by the recipient & is a process loss; that it is not covered under 15(2)(c) because it is not an incidental expense charged by the appellant to the customer but a process loss; * that the GAAR has failed to appreciate that in the eventuality of a positive SUG, the appellant would have to bear the cost; * that to qualify as consideration the same should be a desire of the promisor, which is a fundamental principle of Contract Act; that in the present case neither the customer nor the appellant desire SUG. 8. Personal hearing in the matter was held on 08.11.2024, wherein Shri Sujit Ghosh, Sr Advocate, Ms. Anshika Agarwal, Advocate and Ms. Vandana Natrajan, appeared on behalf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the contract is to provide LTCOR1 services; * that the purpose of SUG is in the nature of remission to avoid situations triggering imposition of penal consequences i.e. liquidated damages/termination; the concept of remission is well known under the Section 63 of the Indian Contract Act, 1872; * The below mentioned perversities and infirmities in the impugned ruling makes it ex facie bad in law: * that in respect of the gas turbine generators (GTG) the primary source of power is the power supplied by the State Electricity Grid; * the SCV is operated intermittently and on need basis; that under normal operation, it is in standby because primary equipment used as vaporizer is ORV; * how SUG is covered under consideration in terms of section 15 for inclusion of these for valuation of the regasification services is not explained; * that section 15 (2) (b) applies only if there is a contract which expressly provides that a certain cost has to be incurred by the Supplier but factually, the service recipient has incurred that cost; that in the absence of any such contractual liability, it cannot be added for computation of GST; * that the cost of such SUG is never charged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... once SUG does not qualify as a consideration, it cannot form part of the value on which GST can be charged; * The Ld. Authority has failed to understand the concept of 'process loss' contemplated under the agreement viz * that SUG as a process loss has been recognised by reputed Companies/organisations; * measurement uncertainties can occur while measuring volume and calorific value of LNG unloaded at the terminal and volume of send out LNG and its calorific value measurements; * for the Appellant's Terminal, the Report determines a conservative statistical estimate of SUG losses to be 1.22 per cent which is the sum of average of other losses of 0.19 percent and measurement uncertainties of 1.03 percent; * Industry practice is to have contracts based on a pre-aged regasification loss percentage including measurement inaccuracies and uncertainties for arriving at the net deliverable quantity; * that the contracted percentage of losses typically vary in the order of 0.66 percent to more than 1 percent within the Indian LNG industry and 0.3 percent to 2 percent as per international practice. * the gas allocated towards loss is not towards any specific service provided by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts. Explanation.-For the purposes of this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy. 13. The primary averment raised is that SUG is nothing but a process loss. To verify the authenticity of the claim so made, during the course of personal hearing itself details were sought from the appellant. The appellant in his additional submission dated 6.1.2025 and further clarifications dated 6.1.2025 and 9.1.2025 provided a table depicting details, relating to SUG, which is as under: Please see the table below, updated with Column 7 for details of the difference referred to, in your email- -1 -2 -3 -4 -5 -6 -7 Year Total quantum of regasification done Total SUG Loss Evaporated (Out of Total SUG Loss) Used by Equipment/Machinery/Tools (Out of Total SUG Loss) Other*/ (Out of Total SUG Loss) Balance SUG retained by the Company, subsequently sold 2021-22 121283455 726175.18 0 347036.1 2296.57 376842.51 2022-23 100787344.8 594053.32 0 99033.5 2217.71 492802.11 2023-24 81353735.04 450062.3 0 30870.6 1632.53 417559.17 2024-Nov'24 74456335.07 400305.64 0 18561.2. 920.24 380824.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the GAAR while arriving at their impugned ruling, which is in appeal before us, did not have the benefit of examining this data. To that extent, the ruling has been delivered without taking such an important data into consideration. 16. Now, section 101 (1) of the CGST Act, 2017, states as under viz Section 101: Order of the Appellate Authority (1) The Appellate Authority may, after giving the parties to the appeal or reference an opportunity of being heard, pass such order as it thinks fit, confirming or modifying the ruling appealed against or referred to. [emphasis supplied] 17. A plain reading of the subsection (1) of the section 101, ibid, depicts that the appellate authority may pass such order as it thinks fit, by either confirming or modifying the ruling pronounced by the advance ruling authority. 18. The GAAR however, as is already mentioned, delivered its ruling without the benefit of examining the data, since it was provided for the first time before the Appellate Authority for Advance Ruling. In light of such a peculiar situation, in the interest of justice, we deem it appropriate to remand back the matter to the GAAR. We are mindful of the fact that section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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