Air Liquide North India Pvt. Ltd. v. Commissioner of C. Ex., Jaipur

, Member (T)]. - These four appeals are against two impugned orders dated 27-10-2010 and 26-11-2015 of Commissioner (Appeals) Jaipur-I. The issue involved is common. The appellants are engaged in the manufacture of excisable goods like oxygen, nitrogen, carbon dioxide and other gases liable to central excise duty. They are registered with the Department for Central Excise and Service Tax purposes. In furtherance of the manufacture and sale of gases, the appellants also installed plant/machinery/storage tanks for such gases and all connected pipes, gauges in the factory premises of the buyer. For providing such storage tanks and other accessories, the appellants are getting consideration termed ‘facilities service charges’/’rental charges’/’facility fees’. The Revenue entertained a view that such charges collected by the appellant shall be liable to service tax, considering the said activity as providing infrastructural support covered under tax entry ‘business support service’ w.e.f. 1-5-2006. Accordingly, proceedings were initiated against the appellant to demand and recover service tax for the period 1-5-2006 to 31-3-2011. The original authority confirmed service tax liability of Rs. 53,43,877/-, Rs. 18,52,690 and  Rs. 15,06,288/- covered by the four demand notices. He also imposed penalties under Section 76, 77, and 78 of Finance Act, 1994. On appeal, vide the impugned orders, the Commissioner (Appeals) upheld the original orders. The present appeals are against these appellate orders.

2. The Ld. Counsel for the appellant elaborated the grounds of appeal and contested the findings of lower authorities. His submissions can be summarized as below :

(a)     From the agreements it could be seen that supply of goods and equipments, on payment of fixed monthly amount, which is variously termed as ‘lease rent’ or ‘facility charges’ or ‘facility fee’, cannot be taxed under business support service. The appellants have retained the title over the tangible goods supplied by them and had transferred the right of possession and effective control of such goods to the buyers. The terms of agreement clearly will prove that the service in the present case is ‘supply of tangible goods service’.

(b)     The main activity of the appellant is manufacture and supply of gas and in furtherance of that, they have provided these installation of tangible goods in terms of specific agreements with the buyers. They are not providing ‘infrastructure support service’.

(c)     In terms of provisions contained in Article 366(29A)(d) of the Constitution of India, the transaction is covered by the scope of ‘sale’ as governed by State laws for VAT. The appellants were paying VAT on such ‘facility fee’ treating the transaction as that of transfer of right to use which is deemed to be sale under the sale tax law.

(d)    The tax entry as per Section 65(104c) of the Finance Act, 1994, with reference to ‘support services of business or commerce’ has to be understood in line with explanation appended to the said entry. The expression ‘infrastructural support service’ should be considered for its meaning by applying the principal of Nocitur a Sociis. Infrastructural support service is used along with various other type of activities like telemarketing, processing of purchase orders, customer relationship, managing distribution and logistics and other transactional processing. These are basically in the nature of outsourced services. Further, the explanation in the tax entry clearly stipulates that the expression ‘infrastructural support service’ includes, providing office along with office utilities, lounge, reception with competent personnel to handle messages, secretarial services, internet and telecom facilities, pantry and security. The term used is ‘include’. The said expression must be understood as ‘means and includes’. The nature of work carried out by the appellant, namely, the supply and installation of machinery, storage facility along with accessories in the buyers’ premises cannot fall under the various/ categories of services either mentioned in the main definition of BSS or as indicated in the inclusive definition of ‘infrastructural support services’ given in the explanation. Reliance was placed on various case laws, in support of this legal preposition.

(e)     The demand was also contested on limitation. As the appellants were treating the transaction as deemed sale and paying VAT, there is no ground for invoking suppression, misstatement etc. for the demand extending to longer period. On the same basis, there can be no penal action against the appellant.

3. The Ld. AR supported the findings of lower authorities and submitted that the appellants provided machinery/storage facility along with all required accessories which are nothing but infrastructural requirements of the client. The explanation mentioned in the tax entry is only illustrative and does not restrict the scope of the term ‘infrastructural support service’. Accordingly, he submitted that the appellants are liable to service tax as confirmed by the lower authorities.

4. We have heard both the sides and perused the appeal records.

5. The point for resolution is whether or not the appellants are liable to service tax in respect of the consideration received from the clients for putting up machinery/storage facilities for gas and connected accessory in their premises. The consideration received in terms of agreements are variously termed as ‘facility service charges’/’rental charges’/’facility fees’. Revenue contends that the appellants are providing infrastructural support to their clients. The appellants contest the said claim, stating that they have supplied tangible goods and were discharging VAT considering the transaction as sale. Further, they have also contested the applicability of tax entry under Section 65(105)(zzzq) of the Finance Act, 1994.

6. The statutory definition of Business Support Service is as below:

“Support Services of Business or Commerce” means services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfillment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, operational assistance for marketing, formulation of customer service and pricing policies, infrastructural support services and other transaction processing.

Explanation - For the purposes of this clause, the expression “infrastructural support services” includes providing office along with office utilities, lounge, reception with competent personnel to handle messages, secretarial services, internet and telecom facilities, pantry and security;”

7. The Board Circular dated 28-2-2006 explained the scope of the above said tax entry. It is clarified as under : -

“Business entities outsource a number of services for use in business or commerce. These services include transaction processing routine administration processing, routine administration or accountancy, customer relationship management and tele-marketing. There are also business entities which provide infrastructural support such as providing instant offices along with secretarial assistance known as ‘Business Centre Services’. It is proposed to tax all such outsourced services.”

8. In the present case, the admitted facts are that the appellants are engaged in the manufacture and sale of various types of industrial gases. They have entered into agreement with various clients for sale of such industrial gases. In respect of some of the clients they have also entered into separate agreements to provide certain plant and machinery or mostly, gas storage facilities along with necessary accessories. We have perused some of these agreements. In case of supply of equipments, plant and machinery, the appellants are entering into of lease agreement and the consideration is termed as ‘lease rental charges’. In most of the cases, the appellants are engaged in providing gas storage facility along with connected accessories. The agreements entered into for putting up these facilities at the client’s premises are co-terminus with sale and purchase agreement for supply of gas. This makes it clear that the storage facility are closely linked with sale of gas by the appellant. In other words, the creation and maintenance of such facility in the client’s premises is in furtherance of facilitating such sale of gas, by the appellant and purchase of same for industrial use by the client. It is a beneficial arrangement for both. In such situation it will not be correct to consider the amount received towards lease rent/facility fee etc. as consideration for providing business support to the client. In Royal Western India Turf Club Ltd., (Tri. Mum), the Tribunal held that providing place within the premises of the turf club by way of stall or canteen for consideration, is nothing but hiring or leasing of immovable property and cannot be considered as business support service.

9. In Mundra Port & Special Economic Zone Ltd., (Tri. Amd), the Tribunal held providing railway lines inside the port area for the railways to move the wagons cannot be considered as providing infrastructural facilities to the railways. It is a beneficial arrangement for both the parties and there is no service of business support by one to another.

10. The appellants strongly pleaded that the scope of infrastructure support as mentioned under tax entry ‘business support service’ will not cover the present case. Reliance was placed on the explanation to state that the nature of activities which are to be generally considered as infrastructural support service can be ascertained from such inclusive definition. These are mainly administrative and office related support. The type of activities like putting up and managing gas storage facility in industrial unit are not fitting into overall scope of the infrastructural support service as contemplated by the inclusive definition given in the explanation. We note that though the activities of the appellant, can be brought under very generic understanding of infrastructure support, when examined with statutory scope as per explanation indicating nature of services which are to be brought under tax net than it would appear that the present activity will not get covered under the said tax entry. We also take note that in legal interpretation, there are situation where the word ‘includes’ in certain context be a word of limitation [South Gujarat Roofing Tiles Manufactures - 1977 (1) SCR 878]. In certain situations the nature of included items would not only partake of the character of the whole, but may be construed as clarificatory of the whole. In the present case even considering the explanation for infrastructural support service is only defined in an inclusive way, still it will not be incorrect to hold such inclusive definition will throw light upon what are all the nature of services which are sought to be taxed.

11. We also note that the appellants have treated the transaction as a deemed sale and discharged sales tax on the consideration. This has been categorically asserted by them in their appeals. It is to be noted that renting of immovable property or the supply of tangible goods as services liable to tax, appear to have direct relevance to the transactions now under examination. We are of the considered opinion that the present transactions which are sought to be taxed by the Revenue cannot be considered as covered by the scope of business support service during the material time. Accordingly, we hold that the impugned orders are not legally sustainable. The same are set aside and the appeals are allowed.

(Order pronounced in open court on 8-6-2017)