National Aluminium Company Limited Vs Commissioner of GST (CESTAT Kolkata)
Summary: The CESTAT Kolkata Bench, in National Aluminium Company Limited Vs Commissioner of GST, Excise & Customs, Bhubaneswar, examined whether service tax could be levied on water charges paid by the appellant to the Government of Odisha for industrial water supply. The appellant, engaged in manufacturing aluminium, received water from natural sources, including the Kerandi River of the Upper Kolab Reservoir, under an agreement dated 29 September 1988. The Department treated the arrangement as allocation or auction of natural resources, which became taxable with effect from 1 April 2016. Accordingly, a show cause notice dated 20 March 2019 invoked the extended limitation period and proposed service tax for 1 April 2016 to 30 June 2017. The demand was confirmed in adjudication and the appellant challenged the order before the Tribunal.
The appellant contended that the issue was already settled by the Tribunal in Paradeep Phosphates Limited Vs Commissioner of CGST & Excise, Bhubaneswar-I, Final Order No. 76069/2024 dated 7 June 2024. That decision had followed Sasan Power Limited Vs Commissioner, Final Order No. 55672/2024 dated 30 April 2024, which distinguished an agreement for actual supply of water from an assignment of rights to use government-owned natural resources. In Sasan Power, the Tribunal had examined an agreement under which water charges were calculated according to the volume drawn, with the industrial consumer making its own arrangements for drawing water. It concluded that such an agreement concerned supply of water rather than assignment of rights over a natural resource.
The Tribunal held that the distinction was decisive. The mere fact that water originated from a natural resource did not convert the supply arrangement into an allocation or auction of natural resources. Following the decisions in Paradeep Phosphates and Sasan Power, the Tribunal concluded that the water charges paid by National Aluminium Company Limited were not liable to service tax under the disputed classification. It accordingly held that no service tax was payable and no penalty could be imposed. The impugned order was set aside, and the appeal was allowed with consequential relief, if any.
Cases Discussed
- Paradeep Phosphates Limited Vs Commissioner of CGST & Excise, Bhubaneswar-I (CESTAT Kolkata); Final Order No. 76069/2024; 07/06/2024: Directly followed. The Tribunal held that payments for water supply were not taxable as consideration for allocation or auction of natural resources. The decision relied upon Sasan Power Limited.
- Sasan Power Limited Vs Commissioner of CGST & Excise, Jabalpur (CESTAT Delhi); Final Order No. 55672/2024; 30/04/2024: Followed for the distinction between supply of water against volume-based charges and assignment of rights to use government natural resources. The Tribunal held that the former arrangement did not attract the disputed service tax levy.
FULL TEXT OF THE ORIGINAL ORDER OF CESTAT KOLKATA
The appellant is in appeal against the impugned order wherein the service tax has been charged on the water charges paid to the Government of Odisha for supply of water against the charges as per the specified rate stipulated in terms of the Agreement for the period April 1, 2016 to June 30, 2017.
2. The facts of the case are that the appellant is engaged in the manufacture of aluminium.
2.1 The present dispute in the present case, arises relating to levy of service tax on water charges paid by the appellant to the Government of Odisha for supply of water against charges/consideration at a specified rate stipulated in the Agreement dated 29.09.1988.
2.2 It was observed that the supply of water by the Government from natural water sources i.e. Kerandi River of Upper Kolab Reservoir to the appellant falls under the category of “allocation/auction of natural resources”, which is liable to pay service tax w.e.f. 01.04.2016.
2.3 Therefore, a show-cause notice was issued to the appellant on 20.03.2019 by invoking extended period of limitation to demand service tax from the appellant for the period April 1, 2016 to June 30, 2017.
2.4 The matter was adjudicated. The demand of service tax was confirmed.
2.5 Aggrieved from the said order, the appellant is before us.
3. The ld.Counsel for the appellant submits that the issue has settled by this Tribunal in the case of Paradeep Phosphates Limited Vs. Commissioner of CGST & Excise, Bhubaneswar I vide Final Order No.76069/2024 dated 07.06.2024. Therefore, the impugned order to be set aside.
4. The ld.A.R. for the Revenue supported the impugned order.
5. Heard both the parties and considered the submissions.
6. We find that the present issue has been settled by this Tribunal in the case of Paradeep Phosphates Limited (supra), wherein this Tribunal has observed as under :
“6. We find that the issue involved in this matter is whether the appellant is liable to pay service tax in terms of Section 65B (44) of the Finance Act, 1994 under the category of “allocation/auction of natural resources” or not ? The said issue has been examined by this Tribunal in the case of Sasan Power Limited (supra), wherein this Tribunal has observed as under :
“16. Section 40 of the Madhya Pradesh Irrigation Act, as noticed above, deals with supply of water for industrial, urban or other purposes and it provides that the charges shall be as agreed upon between the State government and the company and fixed in accordance with the rules made under the Act. Rule 71A also provides that water may be supplied with the prior permission of the State government for any industrial purpose to a private person at the rates not less than the rates specified in Column (3) of the Table.
17. The Title of the Agreement also shows that it was for supply of water to the industrial power plant. The appellant was required to pay water charges to the government for the water drawn by it from the government water source at the rates fixed by the Water Department which would be Rs.5.50/- per cubic meter. In addition, the appellant was also required to pay local fund cess or any other tax as may be fixed by the government. The appellant was required to make its own arrangement at its own cost for drawl of water from the water resource of the government to the plant. The Agreement also specifically provided that the government has not given any guarantee for the uninterrupted supply of water during and the government also would not be responsible for non supply or inadequate supply of water as a result of any event of Force Majeure. The appellant has to pay water rates/water charges depending on the quantity of water drawn by the appellant. The Agreement also deals with a situation where there can be reduction or shortage in the water supply. This clearly means that the Agreement is for supply of water and not mere access to water source.
18. It is, therefore, more than apparent that the Agreement is for supply of water by the government to the appellant and is not for assignment of any right to the appellant to use the natural resources of the government.
19. The appellant is, therefore, justified in asserting that the Agreement executed between the appellant and the government is for supply of water for which charges are paid by the appellant on the basis of volume of water drawn and it is not a case of assignment of right to use natural resources of the government.
20. In this view of the matter no service was provided by the government to the appellant. The impugned order, therefore, deserves to be set aside on this ground alone.”
7. As the issue in this case has been examined by this Tribunal in the case of Sasan Power Limited (supra), we hold that the payment made by the appellant for water charges, is not liable to be service tax during the impugned period for allocation/auction of natural resources. We, therefore, hold that the appellant is not liable to pay the service tax on water charges paid by them.
8. In view of the above observations, we set aside the impugned order and allow the appeal with consequential relief, if any.”
As this issue has been examined by this Tribunal in the case of Sasan Power Limited Vs. Commissioner of CGST & Excise, Jabbalpur vide Final Order No.55672/2024 dated 30.04.2024, which is followed by this Tribunal in the case of Paradeep Phosphates Limited (supra), we hold that the issue is no more res integra and the water charges paid by the appellant is not liable to pay service tax during the impugned period for allocation/auction of natural resources.
7. Therefore, no service tax is payable by the appellant. Consequently, no penalty is imposable on the appellant.
8. In the above terms, we set aside the impugned order and allow the appellant with consequential relief, if any.
(Operative part of the order was pronounced in the open court)
