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Commissioner of Service Tax, Ahmedabad v. M/s Adani Gas Ltd.

Civil Appeal · 2020 INSC 513Decided 28 Aug 2020
Civil Appeal No. 2633 of 2020
Dr. Justice D.Y. Chandrachud · Justice Indu Malhotra · Justice K.M. Joseph

Background

Adani Gas Ltd. supplies piped natural gas to industrial, commercial and domestic customers and installs metering equipment (a "SKID" unit of valves, filters, regulators and electronic meters) at each customer's premises to regulate supply and record consumption for billing. The tax department demanded service tax on the "gas connection charges" collected for this equipment under the "supply of tangible goods" category (Section 65(105)(zzzzj) of the Finance Act, 1994), while Adani Gas argued the charges were merely refundable security deposits and that the equipment was for its own benefit, not the customer's "use." The CESTAT tribunal had ruled in Adani Gas's favour, prompting the tax department's appeal to the Supreme Court.

Decision Breakdown

The Supreme Court held that the SKID equipment was supplied "for the use of" the customer within the meaning of Section 65(105)(zzzzj), even though ownership and possession remained with Adani Gas, because the customer had a genuine interest in accurate billing and safe gas supply, and because the Gas Sales Agreement cast reciprocal obligations on the customer regarding the equipment. The Court rejected the "refundable security deposit" argument on facts, noting refunds varied unpredictably by customer and were not documented as deposits. It therefore set aside the Tribunal's order, restored the original tax demand, and allowed the appeal.

Lesson Learnt

In service-tax/GST-type "supply of tangible goods" disputes, what matters is whether the customer derives a practical benefit from equipment supplied to them, not merely who legally owns or controls it; businesses cannot avoid tax by labelling genuine service charges as "refundable deposits" without consistent supporting documentation.

Official source (sci.gov.in)View Judgment (PDF)

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