CESTAT Rules Inox Air Products’ Fixed Facility Charges for Storage Tanks Not Taxable as ‘Supply of Tangible Goods’ Service [Read Order]

The Chennai Bench of the Customs, Excise, and Service Tax Appellate Tribunal(CESTAT) ruled that Fixed Facility Charges (FFC) collected by Inox Air ProductsPvt. Ltd. for providing storage tanks are not taxable as ‘Supply of Tangible Goods’ service.

Inox Air Products Pvt. Ltd., the appellant, is engaged in the manufacture and supply of liquid gases. Since such gases require proper storage, the appellant installed storage tanks at the premises of customers and collected Fixed Facility Charges for the same.

The department issued show cause notices alleging that providing storage tanks amounts to ‘Supply of Tangible Goods’ service and service tax is payable on the FFC collected. The adjudicating authority confirmed the demand along with interest and penalties. On appeal, the Commissioner (Appeals) upheld the order. Aggrieved by this, the appellant approached the Tribunal.

The appellant’s counsel argued that the issue is already settled in its own case by earlier decisions of the Tribunal. It explained that the tanks are installed only to enable storage of liquid gases and are part of the supply of gas.

They pointed out that as per Board circular, FFC has to be included in the assessable value of gases for payment of excise duty and it has been paying such duty. The appellant’s counsel further argued that once these charges are treated as part of transaction value for excise duty, they cannot be treated again as consideration for a separate taxable service.

The revenue counsel argued that providing tanks at the customer’s premises amounts to supply of tangible goods for use and is liable to service tax. It relied on the findings of the lower authorities.

The two-member bench comprising P. Dinesha (Judicial Member) and Vasa Seshagiri Rao (Technical Member) observed that in the appellant’s own case, the same issue had already been decided and the demand was set aside.

The tribunal observed that the appellant manufactures liquid gases and installation of tanks is necessary for storing and supplying such gases. It explained that as per Board circular, FFC is to be included in the transaction value for payment of excise duty and the appellant has been discharging such duty.

The tribunal observed that even though the ownership of tanks remains with the appellant, the nature of the transaction and the Board clarification show that these charges cannot be treated as consideration for supply of tangible goods service.

The tribunal also observed that the Board circular is binding on the department and must be followed. The tribunal set aside the impugned order and allowed the appeals filed by Inox Air Products Pvt. Ltd. with consequential relief.

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