Setback for GACL: CESTAT Upholds Service Tax Demand on ISO Tank Lease under Business Auxiliary Service [Read Order]

The Ahmedabad Bench of Customs,Excise and Service Tax Appellate Tribunal(CESTAT),upheld the service tax demand against Gujarat Alkalies and Chemicals Ltd. (GACL), holding that the lease of ISO tanks from a French company for storing Aluminium Chloride abroad qualified as a taxable “Business Auxiliary Service” under Section 65(19)(iv) of the Finance Act, 1994, as it involved procurement of input services.

Gujarat Alkalies And Chemicals Ltd ,appellant-assessee,had a manufacturing unit at Dahej, Bharuch, registered under the Central Excise Act. The assessee opted for the Cenvat Credit Scheme to claim credit on inputs, capital goods, and services used in the manufacture of excisable goods, including Aluminium Chloride, which was also exported.

To support exports, the assessee leased ISO Tanks from a French company, M/s. Combipass S.A.S., and used them for storing Aluminium Chloride at Antwerp and Rotterdam. These tanks remained outside India and were used solely for export purposes. The assessee claimed that since the service was used in a non-taxable territory, no Service Tax was payable on the lease rent under Rule 4 of the Place of Provision of Service Rules, 2012.

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However, during audit, authorities treated the lease as a taxable “Business Auxiliary Service” and held that Service Tax was payable under reverse charge. Two Show Cause Notices were issued one demanding Rs. 6,01,114 for the period July 2014 to January 2015, and another demanding Rs. 7,72,558 for February 2015 to September 2015, along with interest and penalties.

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The Joint Commissioner confirmed the demands, interest, and penalties. The assessee challenged this decision through the present appeals.

A single member bench of Dr. Ajaya Krishnan Vishvesha (Judicial Member) heard both sides and examined the records. It noted that the key issue was whether the service in question leasing of ISO tanks fell under "Business Auxiliary Service" as defined under Section 65(19) of the Finance Act, 1994.

As per Section 65(19)(iv), “Business Auxiliary Service” included procurement of goods or services that are inputs for the client. The tribunal held that the lease of ISO tanks for transporting Aluminium Chloride qualified as such a service. Therefore, it was covered under "Business Auxiliary Service" and was taxable.

The appellate tribunal referred to Rule 4 of the Place of Provision of Services Rules, 2012, and agreed with the Commissioner (Appeals) that it did not apply in this case. Instead, Rule 3 was applicable, as the tanks were provided by the foreign service provider to the appellant in India. Consequently, the place of provision was India, making the service taxable here. Since the provider was located outside India, the service tax had to be paid under reverse charge by the recipient, as per Section 68(2) read with Notification No. 30/2012-ST.

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The CESTAT also noted that the assessee had paid service tax on the same contract from 2010–11 to 2013–14 but failed to do so from 2014 onwards without providing any valid reason or seeking clarification from the department. The tribunal found that the assessee misapplied Rule 4 to avoid tax and had the audit not flagged it, the non-payment would have continued.

It held that the extended period under the proviso to Section 73(1) was rightly invoked and upheld the demand, interest, and penalties under Section 78. The bench also observed that the judgments cited by the assessee were not applicable to the facts of the case.

Accordingly, the CESTAT  found no infirmity in the impugned order and upheld the confirmation of service tax demand, interest, and penalties for both show cause notices.

In short,the appeal was dismissed.

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