The Supreme Court held that gas regulating measuring equipment installed at customers’ sites is taxable service.
The respondent company, M/s Adani Gas Ltd. was in the business of distributing natural gas, Compressed Natural Gas (CNG) and Piped Natural Gas (PNG) to industrial, commercial, and domestic consumers.
For the distribution of PNG to industrial, commercial and domestic consumers through pipes, the respondent installed an equipment called ‘SKID’ at customers’ sites.
The SKID equipment consisted of isolation valves, filters, regulators and electronic meters. The equipment regulated the supply of PNG and recorded the quantity of PNG consumed by the customer, which was then used for billing purposes.
The respondent entered into the Gas Sales Agreement (GSA) with consumers to whom gas is supplied by it.
During the course of an audit by the officers of Central Excise, it was noticed that while providing new gas connections to customers, the respondent had received gas connection charges from customers for the “supply of pipes, measuring equipment etc.
It was found that the ownership of the equipment was not with the customer but is retained by the respondent. The customer did not have control or any legal rights over the equipment. Value Added Tax was also not paid on these charges.
The dispute arose on the charge of service tax said gas connection charges being “supply of tangible goods service”, under Section 65(105)(zzzzj) of the Finance Act, 1994.
The Tribunal held in favour of the respondent and held that the metering equipment was installed for measuring the amount of gas supplied to the customer for the purpose of billing; hence the use of the equipment is by the respondent and not by the customer.
The Supreme Court observed that Section 65(105)(zzzzj) of the Finance Act 1994 provides for taxability of supply of tangible goods for use, without transferring right of possession and effective control over such goods, as a ‘taxable service’.
The three judge bench of Justice Dr. Dhananjaya Y Chandrachud, Justice Indu Malhotra and Justice K M Joseph upheld the view of the Adjudicating Authority in concluding that the buyer of gas was as interested as the seller in ensuring and verifying the correct quantity of the gas supplied through the instrumentality of the measurement equipment and the pipelines.
“The role of regulating pressure and ensuring the safety of supply of gas performed by the measurement equipment is an essential aspect for the ‘use’ of the consumer. The SKID equipment fulfils the description in Section 65(105)(zzzzj) of a taxable service: service in relation to “tangible goods” where the recipient of the service has use (without possession or effective control) of the goods,” the apex court said.Subscribe Taxscan AdFree to view the Judgment