COMMISSIONER OF SERVICE TAX, versus M/S. ADANI GAS LTD.

Citation: [2020] 8 S.C.R. 875 · Decided: 28-08-2020 · Supreme Court of India · Bench: D.Y. CHANDRACHUD · Disposal: Dismissed

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Judgment (excerpt)

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COMMISSIONER OF SERVICE TAX, AHMEDABAD
v.
M/S. ADANI GAS LTD.
(Civil Appeal No. 2633 of 2020)
AUGUST 28, 2020
[DR. DHANANJAYA Y. CHANDRACHUD,
INDU MALHOTRA AND K. M. JOSEPH, JJ.]
Finance Act, 1994:
s. 65(105)(zzzzj) – Levy under – Applicability of – To supply
of pipes and measurement equipment (SKID equipment) charged
under the head of ‘gas connection charges’ by the assessee to its
industrial, commercial and domestic consumers treating the same
as supply of ‘tangible goods’ for their use – Held: SKID equipment
fulfils the description in s. 65(105)(zzzzj) of a taxable service i.e.
service in relation to ‘tangible goods’ where recipient of the service
has use (without possession or effective control) of the goods.
Allowing the appeals, the Court
HELD: 1.1. Section 65(105)(zzzzj) of the Finance Act, 1994
provides for taxability of supply of tangible goods for use, without
transferring right of possession and effective control over such
goods, as a ‘taxable service’. The introduction of Section
65(105)(zzzzj) in the Finance Act, 1994, was with the intention of
taxing such activities that enable the customer’s use of the service
provider’s goods without transfer of the right of possession and
effective control. This provision creates an element of taxation
over a service, as opposed to a ‘deemed sale’ under Article
366(29-A)(d) of the Constitution of India. For the purpose of
clarification, the Department of Revenue issued a Circular, D.O.F.
No.334/1/2008-TRU, dated 29 February, 2008. The said circular
clarified the applicability of Section 65(105)(zzzzj) vis-à-vis Article
366(29-A)(d). [Paras 13 and 18][888-C; 891-F-G]
Bharat Sanchar Nigam Limited and Another v. Union
of India and Others (2006) 3 SCC 1 : [2006] 2 SCR
823; Great Eastern Shipping Company Limited. v. State
of Karnataka and Others (2020) 3 SCC 354; All India
875
[2020] 8 S.C.R. 875
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SUPREME COURT REPORTS
[2020] 8 S.C.R.
Federation of Tax Practitioners v. Union of India, (2007)
7 SCC 527 : [2007] 9 SCR 147; Indian National
Shipowners’ Association and Anr. v. Union of India and
Others (2009) 4 AIR Bom R 775; Union of India v.
Indian National Shipowners’ Association and Anr
(2010) 14 SCC 438  – referred to.
1.2 The taxable service in the Finance Act, 1994, is defined
as a service which is provided or which is to be provided by any
person to another “in relation to supply of tangible goods”. The
provision indicates that the goods may include machinery,
equipment or appliances. The crucial ingredient of the definition
is that the supply of tangible goods is for the use of another,
without transferring the right of possession and effective control
“of such machinery, equipment and appliances”. Hence, in order
to attract the definition of a taxable service under sub-clause
(zzzzj), the ingredients that have to be fulfilled are: (i) The
provision of a service; (ii) The service is provided by a person to
another person; (iii) The service is provided in relation to the
supply of tangible goods, including machinery, equipment and
appliances; (iv) There is no transfer of the right of possession;
(v) Effective control over the goods continues to be with the
service provider; (vi) The goods are supplied for use by the
recipient of the service. There is an element of service which is
the foundation for the levy of the tax. [Para 20][893-G; 894-A-C]
2. The GSA is an agreement between the respondent and
its purchaser for regulating the terms on which gas is sold by the
respondent. The agreement is of a ‘take or pay’ genre. The buyer
must lift the quantity contracted or pay for it. The agreement
provides for the supply of gas at the Delivery Point through gas
pipelines constructed from the distribution main to the
measurement equipment. Further, both the seller and the buyer
have provided warranties for maintaining the ‘measurement
equipment’ in good working condition, in their respective
capacities. The measurement equipment is installed for the
measurement and recording of the volume and pressure of the
gas delivered at the Delivery Point and for the safe operation of
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the buyer’s facilities. At the outset, it is clear from the provisions
of the agreement, and it has been admitted by both the parties,
that there is no transfer of ownership or possession of the pipelines
or the measurement equipment (SKID equipment equipment)
by the respondent to its customers. Clause 5.3 of the agreement
specifically provides that t

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