Service Tax Demand on Storage Tank Fixed Facility Charges Quashed by CESTAT Chennai

Background and Context

In Inox Air Products Private Ltd. Vs Commissioner of GST & Central Excise (CESTAT Chennai), the Chennai Bench of the Tribunal once again examined whether fixed facility charges (FFC) recovered for providing storage tanks at customers’ premises can be subjected to service tax under the category of “Supply of Tangible Goods Service” under Section 65(105)(zzzzj) of the Finance Act, 1994.

The dispute covered two periods:

  • April 2013 to March 2014
  • April 2014 to March 2015

For these years, the Department alleged that by placing storage tanks at the premises of the customers and collecting FFC, the assessee had rendered a taxable service of “Supply of Tangible Goods” and had thereby incurred liability to service tax.

Show cause notices were issued, and the demands were confirmed by the adjudicating authority through Order-in-Original Nos. 12 & 13/2016-ST dated 24.02.2016, which were subsequently upheld by the Order-in-Appeal No.154/2017 (CXA-II) dated 20.03.2017. These appellate orders were challenged before the CESTAT Chennai.

Core Issue Before the Tribunal

The single, central question before the Tribunal was:

Whether fixed facility charges recovered by the assessee for providing storage tanks at the customers’ premises can be taxed as “Supply of Tangible Goods Service” under Section 65(105)(zzzzj) of the Finance Act, 1994, when those charges are already being included in the assessable value of goods for the purpose of central excise duty.

The controversy centred around the characterization of FFC:

  • As part of the assessable value of liquid gases (goods), already subjected to excise duty,
    or
  • As consideration for a taxable service, specifically “Supply of Tangible Goods Service”.

Arguments by the Assessee

Reliance on Earlier Orders in Its Own Case

Counsel for the assessee pointed out that:

  • The identical issue involving the same assessee, concerning the same business model and the same nature of charges (FFC), had already been adjudicated.
  • In Final Order No.40455/2023 dated 20.06.2023, the Tribunal had set aside service tax demands raised on FFC by holding that they could not be treated as consideration for “Supply of Tangible Goods Service”.
  • The same Bench had subsequently followed this earlier decision in another Service Tax Appeal No.41716 of 2015 of the assessee, granting relief on the same legal question.

On this basis, the assessee requested that the present demands be annulled by applying the principle of consistency and following the binding precedent already laid down by the Bench in its own case.

Business Model and Nature of FFC

The assessee is engaged in manufacturing liquid gases. Due to the physical properties and storage requirements of liquid gases:

  • The product cannot be supplied without specialized storage facilities at the customer’s location.
  • The assessee therefore procures, installs, and maintains storage tanks at the customer’s premises.
  • These tanks remain the property of the assessee, but once installed, the possession and effective control of the tanks during the contract period are vested with the customer.
  • The assessee charges Fixed Facility Charges (FFC) and, in certain cases, Minimum Take Or Pay (MTOP) charges as part of the commercial arrangement.