Case Note & Summary
The appellant, M/s Inox Air Products Limited, is engaged in setting up air separation plants at customers' premises, which are leased to customers and operated/maintained by the appellant under an agreement. The dispute concerns service tax liability on amounts received for operating and maintaining equipment for oxygen production at the premises of two steel companies. The appellant had paid service tax on fixed service charges received. However, a show cause notice dated 9th April 2009 demanded additional service tax of Rs.3.31 crore on the ground that electricity supplied free of cost by the customers should be included in the value of taxable service. The appellant contended that free electricity was not consideration for services. The adjudicating authority confirmed the demand, and the appellant appealed to CESTAT, which directed a pre-deposit of Rs.1 crore as a condition for hearing the appeal. The appellant challenged this pre-deposit order before the High Court. The High Court held that the pre-deposit order was not justified because the appellant had a strong prima facie case on merits. The court noted that the electricity supplied free of cost was not a consideration received by the assessee for rendering services, and therefore, not includible in the value of taxable service. The court set aside the pre-deposit order and directed CESTAT to hear the appeal without any pre-deposit.
Headnote
A) Service Tax - Valuation - Consideration - Free Supply of Electricity - Section 67 of Finance Act, 1994 - The issue was whether the value of electricity supplied free of cost by the customer to the service provider should be included in the value of taxable service for service tax purposes. The court held that the electricity supplied free of cost was not a consideration received by the assessee for rendering the services, and therefore, not includible in the value of taxable service. (Paras 1-8)
B) Central Excise - Appeal - Pre-deposit - Section 35F of Central Excise Act, 1944 - The court examined whether the CESTAT was justified in directing a pre-deposit of Rs.1 crore as a condition for hearing the appeal. The court held that the pre-deposit order was not justified as the appellant had a strong prima facie case on the merits of the valuation dispute. (Paras 1-8)
Issue of Consideration
Whether the CESTAT was justified in directing the appellant to deposit Rs.1 crore for entertaining the appeal against the order-in-original dated 22nd September 2009.
Final Decision
The appeal is allowed. The impugned order of CESTAT directing pre-deposit of Rs.1 crore is set aside. CESTAT is directed to hear the appeal without any pre-deposit.
Law Points
- Pre-deposit for appeal
- Service tax valuation
- Consideration
- Free supply of electricity
- Section 35F of Central Excise Act
- 1944
Case Details
2012 LawText (BOM) (07) 80
Central Excise Appeal (L) No.19 of 2012
J.P. Devadhar, R.Y. Ganoo
Mr.V Shridharan, Senior Counsel with Mr.Jas Sanghavi i/by PDS Legal for the appellant; Mr.Pradeep S Jetly with Mr.J B Mishra for the respondent
M/s Inox Air Products Limited
The Commissioner of Central Excise & Customs, Nagpur
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Nature of Litigation
Appeal against CESTAT order directing pre-deposit of Rs.1 crore for entertaining appeal against service tax demand.
Remedy Sought
Appellant sought setting aside of the pre-deposit order and direction to CESTAT to hear the appeal without pre-deposit.
Filing Reason
CESTAT directed pre-deposit of Rs.1 crore as condition for hearing appeal against order-in-original confirming service tax demand of Rs.3.31 crore.
Previous Decisions
Adjudicating authority confirmed service tax demand; CESTAT directed pre-deposit of Rs.1 crore.
Issues
Whether the CESTAT was justified in directing the appellant to deposit Rs.1 crore for entertaining the appeal against the order-in-original dated 22nd September 2009.
Submissions/Arguments
Appellant argued that electricity supplied free of cost was not consideration for services and that the pre-deposit order was unjustified as they had a strong prima facie case.
Respondent argued that the pre-deposit was justified as the appellant had not made out a prima facie case.
Ratio Decidendi
The pre-deposit order under Section 35F of Central Excise Act, 1944 is not justified when the appellant has a strong prima facie case on merits. Free supply of electricity by customer to service provider is not consideration for taxable service under Section 67 of Finance Act, 1994.
Judgment Excerpts
Whether the CESTAT was justified in directing the appellant to deposit Rs.1 crore for entertaining the appeal against the orderinoriginal dated 22nd September 2009 is the question raised in this appeal.
The appellant – assessee is inter alia engaged in setting up air separation plant (equipments for short) at the customers premises.
By a showcause notice dated 9th April 2009, the assessee was called upon to showcause as to why service tax amounting to Rs.3.31 crore should not be recovered from the assessee on the ground that the assessee was receiving electricity free of cost from the steel companies and since the services could not be rendered without the electricity, the cost of electricity supplied by the customers ought to have been included in the value of taxable service.
Procedural History
Show cause notice dated 9th April 2009 issued to appellant demanding service tax of Rs.3.31 crore. Adjudicating authority confirmed demand. Appellant appealed to CESTAT. CESTAT directed pre-deposit of Rs.1 crore. Appellant filed appeal before High Court against pre-deposit order. High Court allowed appeal and set aside pre-deposit order.
Acts & Sections
- Finance Act, 1994: Section 67
- Central Excise Act, 1944: Section 35F
