Summary
Gas connection charges for supplying pipelines and SKID measurement equipment attracted service tax under Section 65(105)(zzzzj) of the Finance Act, 1994. Although the supplier retained possession and effective control, the equipment served customers by ensuring accurate billing, regulated pressure and safe gas delivery. Use neither required physical operation by the customer nor exclusive benefit to it. The refundable-security-deposit argument failed on the evidence. The Tribunal’s decision was set aside and the adjudicating authority’s order restored.
Issues
- Whether pipelines and SKID equipment supplied under gas sale agreements were supplied for customers’ use despite the supplier retaining possession and effective control.
- Whether gas connection charges were refundable security deposits rather than consideration for a taxable service.
Provisions considered
- Section 65(105)(zzzzj), Finance Act, 1994Applied to the supply of pipelines and measurement equipment for customers’ use without transferring possession and effective control. (¶¶ 13, 23, 26, 28, 30, 38)
- Article 366(29A)(d), Constitution of IndiaDistinguished a deemed sale involving transfer of the right to use goods from the taxable service of supplying goods while retaining possession and effective control. (¶¶ 14, 15)
Held
- The supplier retained ownership, possession and effective control: it alone installed, maintained, calibrated and replaced the measurement equipment and retained access to it at customers’ premises. The statutory requirement concerning retention of possession and control was satisfied. (¶¶ 23, 25)
- Use depends on the nature of the goods and contractual purpose; physical operation and technical expertise are not indispensable. Accurate measurement, pressure regulation and safe delivery benefited customers as well as the seller. Exclusive use by the customer was unnecessary. (¶¶ 26, 27, 28, 30, 38)
- Meru Cab concerned a materially different arrangement involving a taxi operator, driver and passengers. It did not resolve this dispute; its correctness was expressly left open. (¶ 29)
- The security-deposit contention failed on the evidence: refunds varied, the supplier retained portions of the charges, and domestic deposit receipts were not produced. Accounting treatment and the tariff regulations did not determine taxability under the Finance Act. (¶¶ 31, 32, 33, 34, 35, 36, 37)
Result
Appeal allowed. The Tribunal’s judgment was set aside and the adjudicating authority’s order restored; pending applications disposed of.