24. On blast furnace gas (exempted from Excise duty) emerging in the process of manufac-turing of Sponge Iron from iron ore whether assessee liable to maintain separate record of common inputs used in manufacture of dutiable and exempted products

Held – No.

The facts in brief are that appellants were inter alia manufacturing sponge iron from iron ore. During the process in the furnace, the coke gets converted into carbon monoxide which acting on Iron ore gets partly converted into carbon dioxide. The mixture is know as blast furnace gas because it is generated there. The percentage of carbon monoxide and carbon dioxide is not fixed. The appellants either use this gas for producing further heat in the furnace or by burning at the tall chimney ends. Some quantity was sold by the appellants to M/s. Indorama. The product is exempt under Notification No. 76/86 dated 10-2-1986. The department pointed out that since both dutiable and exempted products were being manufacturing, they were required to pay 8% on selling price of the gas under Rule 6(3)(b) of Cenvat Credit Rules, 2002. The appellants paid the said amount for the period October 2000 to September 2002 on 20-4-2003 and thereafter started paying regularly. For nearly three months, they also paid duty @16% foregoing the exemption. Later on they filed the refund claims on the ground that the generation of blast furnace Gas was inevitable and could not be avoided and in view of Tribunal judgments in Gas Authority of India Ltd. vs. CCE, 2001(136) ELT 1019 (Tri.) and Aarti Drugs – 2001 (133) ELT 385, payment was not required and the buyer has not paid them 8% of the value and or 16% of the duty and they had not passed on the incidence of amount claimed.

It was contended before the Tribunal:–

1. The generation of the product was inevitable which was an unavoidable waste and there was neither contravention of Rule 6(1) nor the provisions of Rule 6(3)(b) were applicable.
   ii. Even if the product was exempted, the provision of Rule 6(3)(b) were not applicable as the appellants has complied with the provisions of Rule 6(2) and had maintained separate account for receipt, consumption and inventory of inputs for use in manufacture of dutiable and exempt goods.

2. No amount was required to be paid in view of Supreme Court judgment in U.O.I vs. Indian Aluminium- 1995 (77) ELT 268 (S.C).

3. No credit was required to be reversed in respect of inputs contained in waste/refuse/by-product in view Circular No. V-4-7-2000-TRU dated 3-4-2000 (sic) (F. No. B-4/7/2000-TRU, dated 3-4-2000) by which application of provisions of erstwhile Rule 57D has been retained.

4. The lower authority wrongly relied upon clauses 82 and 83 of Finance Bill, 2005 and wrongly concluded that the incidence had been passed on, when the customer M/s. Indorama had not reimbursed the amount to them and had also given a letter to that effect. Appellant had paid duty on the blast furnace gas @ 16% during the period 16-12-2003 to 19-3-2004 and produced a certificate from M/s. Indorama that no Cenvat credit was available on the same.

5. The provisions of section 11B were not applicable as the claim pertained to the amount of 8% paid under Rule 6(3)(b) and not duty. For the same reason there was no time limit for making the claim.

6. The amount of 8% was paid subsequent to the clearances of the gas to M/s. Indorama and consequently there was no question of passing on the incidence.
   viii. Even if it was held that the incidence had been passed on, the amount was required to be sanctioned and credited to Consumer Welfare Fund. The could not be rejected.

The learned Commissioner (A) went through the provisions of Rule 57AD of Central Excise Rules 1944 and Rule 6 of Cenvat Credit Rules, 2002. They also referred to following decisions:-

1. Hi-Tech Carbon vs. CCE (2003) 161 ELT 407

2. Hindustan Zinc Ltd. vs. CCE (2004) 178 ELT 255

3. CCE vs. Sterlite Optical Technologies (2004) 178 ELT 486

4. Anil Starch vs. CCE (1990) 49 ELT 525 (T)

5. CCE vs. Sarchem Surfactants (1996) 87 ELT 105 (T).

Finally it was held the appellants are only manufacturing metals from the ore and during the same process, some blast furnace gas emerges. Inputs have not been used separately for ‘manufacture’ of the said gas. Thus, the appellants had no option to comply with the provisions of sub-rule (2), requiring maintenance of separate accounts and inventory. Consequently they cannot be liable pay any amount under sub-rule (3). Unless it can be shown that some quantity of input, on which credit had been taken, was used for manufacture of exempted goods, and they had not exercised the option of maintaining separate records, the credit taken on the aforesaid quantity of inputs on which credit is allowed are not be used for manufacture of exempted goods. In the absence of any such use, no amount @ 8% was required to be paid under sub-rule (3).

The appeal was allowed by the Commissioner of Customs and Central Excise (Appeals).

[Ispat Metallics I Ltd., 7 Service Tax Review 69 Order Nos. AT/557 & 558 / RGD 2005 dt. 28-10-2005.]

25. Whether maintaining on executive tongue and snack bar at transit areas of airport is Airport service?

Held: No, in a stay matter
M/s Oberoi Flight Services were the licensee to manage the executive lounge and snack bar counter at transit area in Terminal 2 of Delhi Airport for providing the following facilities:

1. Newspapers and Magazines/ Journals

2. Colour TV and VCR along with Cassettes/Cable TV etc.

3. Tea/Coffee/Drinks/Snacks etc.

4. Liquor (MFL/Imported).

5. Cigarette in separate Smoking Zone.

6. Computer with Internet facility.

7. Communication facility including STD/ISD/Fax – Video Conferencing etc.

The Service Tax was demanded for the above service for the above as Airport service.

The Tribunal observed that the Executive Lounge provides several services like Cable TV, Food and Telecom services in the executive lounge. These services are not airport services, as they have nothing to do with the arrival or departure of aircraft, which is the substance of Airport service. It is also to be seen that some of these services like Cable TV, Phone etc. are separately leviable to service tax under respective headings. The mere fact that a service is rendered within airport area does not give that services the character of Airport service. To explain, Cable TV service, Telecom service, Money change service etc. rendered in the lounge, would not lose their character and become Airport service, merely because of the place where they are rendered. In this view of the matter, we are of the opinion that the finding that the appellant is rendering Airport service is not viable. The appellant is in hospitality business and the running of the executive lounge to provide facilities to passengers is also part of that (hospitality) service and not Airport service.

M/s. Oberoi Flight Services vs. Commissioner of Service Tax, Delhi 7 STR 516 (Tri – Del)

26. Whether offshore services provided will be taxable under reverse charge mechanism prior to 18-4-2006 19 Introduction sec. 66A)

Held – No.

The relevant facts, in brief, are as follows:

1. M/s. Petronet LNG Ltd. (PPL) was engaged in the business of setting up and operating LNG terminal for receiving, storage degasification facility at Dahej, Gujarat. For the said purpose, PLL entered into two contracts.

2. PLL entered into an EPC contract with M/s. Ishikawajma–Harima Heavy Industries Ltd., Japan to develop, design, engineer and procure equipment, materials and supplies, to erect and construct storage tanks of 5 MMTPA capacity, with potential expansion to 10 MMTPA capacity at the specified temperatures. The EPC contract also envisaged providing marine facility (jetty and island brake water) for transmission and supply of LNG to purchasers. The project involved, inter alia, offshore services, onshore supply, onshore services and construction and erection.

3. The agreement detailed the various areas in which the appellant was required to advise, assist in relation to the execution of the project.

4. The agreement contemplated the provisions of both offshore services and onshore services. For the said purpose, the agreement also defined the terms like onshore services and offshore services. The rates specified are different for offshore services and onshore services.

5. PLL settled the amounts as per the invoices issued by the appellants after making a verification of the particulars.

6. The original authority held that the services rendered by the appellant to PLL came under the category of consulting engineers. He confirmed a sum of Rs. 48,05,821/- as service tax along with interest towards offshore services rendered by them on the total fee collected amounting to Rs. 10,05,40,183/- relating to the period.

The appellant took the Tribunal through the various clauses of the agreement which relates to the locations for performing the services by the appellant. The Tribunal went thru the provisions relating to the fees payable which is partly a fixed component and a variable component in respect of both onshore services and offshore services as provided in sub-clause 7.1. They also went through the scope of services provided by the appellant in the light of said agreement.

He submits that the service rendered by the appellant is not limited to the field of engineering. The appellant is not stopping with the rendering advice, but actively involved in monitoring implementation and in trouble shooting; they cannot be treated as rendering “Consultancy engineering services”, further services rendered by them cannot be treated as merely in the field of engineering and therefore, the contract should not be vivisected to hold that part of the services are to be treated as Consulting engineering services.

He submits that the entire transaction has to be seen as a whole and one part of the transaction cannot be seen in isolation for purpose of taxation. By treating the agreement as single contract, it is clear that the appellants provided the services which are the combination of engineering, administration and financial services for a single consideration. The services provided under the agreement are not solely in the discipline of engineering. Further, the services are not purely in cerebral nature. Hence the appellants are not liable to pay service tax on the consideration received under the agreement.

The terms of the agreement between PLL and Ishikawajma – Harima Heavy Industries Ltd. came for scrutiny by the Hon’ble Supreme Court reported in 2007 (6) S.T.R. 3 (S.C.) – 2007 TIOL 03-SC-IT. Hon’ble Supreme Court has held that the Indian Taxing Authority has no right to tax the transaction undertaken outside India. The Hon’ble Supreme Court held that even though the contract is turnkey contract and cannot be vivisected, however, where the question of jurisdiction is involved, the entire transaction cannot be taxed by treating the agreement as a single contract. The Supreme Court therefore held that the services undertaken outside India though used in India cannot be taxed by the Indian Taxing Authorities. Ishikawajma-Harima Heavy Industries Ltd. is one of the contractors who executed the construction of re-gasification terminal of PLL. The appellants submit that the above said judgment squarely covers the offshore services provided by the appellants under the agreement. Hence, the amount charged for providing the offshore services will not be liable to service tax.

It was further submitted that the services rendered outside India are made liable to service tax in view of section 66A which has been inserted in the service tax provisions by the Finance Act, 2006 with effect from 18-4-2006. Therefore, prior to this date, services rendered outside India are not taxable under the provisions of Finance Act, 1994.

The Tribunals observed that appellant have submitted that part of the services are rendered from outside India. The agreement entered into by them clearly indicates that certain service are rendered outside India and the detailed billing agreed upon between the appellant and PLL based on man days spent separately for onshore and offshore services confirms this. The very same agreement is being relied upon to concluded that the assessee are rendering the services of Consulting engineers and the said agreement also clearly specifies which are onshore services are higher. PLL was not expected to pay a much higher amount by classifying the onshore services, just to avoid some percentage as service tax.

The Tribunal further observed that there has been an amendment by way of inserting section 66A in the Service Tax Provisions by the Finance Act, 2006 w.e.f. 18-4-2006. There is no doubt that the services rendered are ultimately in relation to setting up of the LNG terminal in India. Nevertheless, no reliable evidence has been adduced to contradict the claim of the appellant that the service claimed by them as offshore services are not offshore services. Such offshore services are liable for tax consequent to the amendment w.e.f. 18-4-2006, but for earlier period the same will not be so.

Service Tax Circular No. 36/4/01 dt. 8-10-2001 holds that services provided beyond the territorial waters will not attract service tax. This circular will be relevant till the amendment brought out in service tax laws by insertion of section 66A w.e.f. 18-4-2006. Therefore, the appellant’s contention that the demand on services relating to identified offshore services cannot be subjected to service tax during the relevant/period is acceptable. The demand pertaining to service tax on offshore service was set aside.

Foster Wheeler Energy Ltd. vs. CCE, Vadodra. 7 STR 443 (TRI Ahmedabad)

27. Whether sales tax is leviable or service tax is chargeable on sale of SIM cards ?

Held : Sales Tax

Brief facts of the cases are that the appellants herein are providers of cellular telephone services which services are covered by the definition under section 65(74) of Chapter V of the Finance Act, 1994, as amended. On the basis of information received by the department that they have not been including the value of SIM cards in the taxable value on which they were paying service tax, they were asked to inform the practice followed by them for payment of service tax on SIM cards, to which the appellants replied that they were not paying service tax on the value of the SIM cards.

Post 1-5-2001, they were selling SIM cards and paying sales tax on the sale proceeds, as levied by the Government of Maharashtra. Show cause notices proposing to demand service tax together with interest on the sale of SIM cards and proposing penal action were issued to the appellants, alleging that they had deliberately concealed the value of taxable service and furnished inaccurate value by not including SIM card charges recovered from the customers with intent to evade payment of tax.

On hearing both sides the Tribunal referred to the judgment of Apex Court in the case of BSNL reported in 2 STR 161 (Supreme Court). They also referred to the decision of the Tribunal in the case of Idea Mobile Communication Ltd. vs. CCE 4 STR 132 and came to the conclusion that since the appellants have paid sales tax and they are not challenging the levy thereof the transaction cannot be considered as an activity of service and service tax cannot be levied.

BPL Mobile Communication Ltd

vs. CCE, Mumbai 7 STR 440 (TRI – Mumbai).