Holding

Supply of pipelines and measurement (SKID) equipment for use by the buyer, without transfer of possession or effective control, is a taxable service under Section 65(105)(zzzzj) of the Finance Act, 1994.

Summary

The Commissioner of Service Tax appealed against M/s. Adani Gas Ltd. challenging the taxability of charges collected for supplying pipelines and measurement (SKID) equipment to gas consumers. The issue was whether Section 65(105)(zzzzj) of the Finance Act, 1994 applied, i.e., whether the supply of such tangible goods for use without transferring possession or effective control constituted a taxable service. The Court examined the terms of the Gas Sales Agreement, which retained ownership and control of the equipment with the supplier while allowing the buyer to use it for gas measurement and safety. It held that the equipment satisfied all ingredients of a taxable service under the provision, and the gas connection charges were not merely refundable security deposits. Consequently, the appeal was allowed and the adjudicating authority's order restored.

Issues considered

The applicability of Section 65(105)(zzzzj) of the Finance Act, 1994 to the supply of pipelines and SKID equipment
Whether the SKID equipment is supplied for the use of the buyer despite no transfer of possession or control
Whether the gas connection charges constitute a refundable security deposit or consideration for a taxable service
The interpretation of "use" under Section 65(105)(zzzzj)

Legislation cited

Central Excise Tariff Act, 1985s. Chapter Sub‑Heading 27112900
Constitution of Indias. Article 366(29-A)(d)
Department of Revenue Circular No. 334/1/2008‑TRU
Finance Act, 1994s. 65(105)(zzzzj)
Petroleum and Natural Gas Regulatory Board (PNGRB) Network Tariff Regulationss. 2008

Subjects

service taxtangible goodsuse of goodsSKID equipmentgas connection chargesSection 65(105)(zzzzj)taxable serviceownershippossessioneffective controlgas supply agreement

Judgment

[2020] 8 S.C.R. 875 875

COMMISSIONER OF SERVICE TAX, AHMEDABAD A
v.
M/S. ADANI GAS LTD.
(Civil Appeal No. 2633 of 2020)
AUGUST 28, 2020 B
[DR. DHANANJAYA Y. CHANDRACHUD,
INDU MALHOTRA AND K. M. JOSEPH, JJ.]
Finance Act, 1994:
s. 65(105)(zzzzj) – Levy under – Applicability of – To supply C
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.
D
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 E
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 F
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 G
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 H
875
876 SUPREME COURT REPORTS [2020] 8 S.C.R.

A 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.
B
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
C
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
D 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
E
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
F
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
G 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

H
COMMISSIONER OF SERVICE TAX, AHMEDABAD v. M/S. ADANI 877
GAS LTD.

the buyer’s facilities. At the outset, it is clear from the provisions A
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 the ‘Measurement Equipment’ is to be
B
supplied, installed and maintained by the seller at the cost of the
buyer and that the ownership of the equipment will rest with the
respondent forever. Clause 5.6 further clarifies that the buyer
has no right to adjust, clean, handle, replace, maintain, remove
or modify the measurement equipment. Clause 5.10 guarantees
that the seller shall have the right of entry at all hours to the C
Measurement Equipment and associated apparatus at the Buyer’s
premises. The pipelines are also part of the “Seller’s Facilities”
under the agreement and are constructed and maintained by the
respondent at the cost of the customer. Thus, the ingredient of
not transferring the ownership, possession or effective control
D
of the goods under Section 65(105)(zzzzj) is satisfied. [Paras 22
and 23][900-G-H; 901-A-D]
3.1 The expression “use” does not have a fixed meaning.
The content of the expression must be based on the context in
which the expression is adopted. The use of an article may or E
may not result in a visible change in its form or substance.
Moreover, the nature of use is conditioned by the kind of article
which is put to use. Section 65(105) of the Finance Act, 1994
envisages myriad interpretations of the expression “use”, in a
variety of services such as telecommunication, renting of
immovable property, and services related to art, entertainment, F
and marriage. In the case of some articles, use may be signified
by a physical operation of the article by the person who uses it.
In such a case, actual physical use is what is meant by the supply
of the goods for the use of another. In the case of others, the
nature of the goods supplied impacts the character of the use to
G
which the goods can be put. As an illustration, Section
65(105)(zzzze) of the Finance Act, 1994, seeks to tax services
related to information technology and interprets the “right to
use” to include the “right to reproduce, distribute, sell, etc”.
This understanding of “use” differs from the supply of tangible
goods under Section 65(105)(zzzzj, where effective control or H
878 SUPREME COURT REPORTS [2020] 8 S.C.R.

A possession is not ceded. Thus, physical operation is not the only
or invariable feature of use. As a corollary to the same, technical
expertise over the goods in question is not a sine qua non for
determining the ability of the consumer to use the good.
Therefore, the expression “use” also signifies the application of
the goods for the purpose for which they have been supplied
B
under the terms of a contract. [Para 27][903-D-G; 904-A]

3.2 The terms of the GSA indicate that the supply,
installation, maintenance and repair of the measurement
equipment is exclusively entrusted to the respondent as the
C seller. These provisions have been incorporated in the GSA to
ensure that a buyer does not calibrate or tinker with the equipment.
It is an incident of ownership and control being vested with the
respondent. The purpose of the SKID equipment and its utility,
lie in its ability to regulate the supply and achieve an accurate
verification of that which is supplied; in the present case the
D supply of goods by the respondent to its buyers. This enures to
the benefit of the seller and the buyer. The seller is concerned
with the precise quantification of the gas which is supplied to the
buyer. The buyer has an interest in ensuring the safety of its
facilities and that the billing is based on the correct quantity of
E gas supplied and delivered under the GSA. To postulate that the
measurement equipment is only for the benefit of the seller in
measuring the quantity of the gas supplied would not be correct.
The GSA is an agreement reflecting mutual rights and obligations
between the seller and the purchaser. Both have a vital interest
in ensuring the correct recording of the quantity of gas supplied.
F Additionally, delivery of gas in a safe and regulated manner,
enabled by the SKID equipment, is an essential component of
the GSA. The SKID equipment subserves the contractual rights
of both the seller and the purchaser of gas. Indeed, without the
SKID equipment there would be no gas supply agreement. In
G fact, in the GSA, the buyer has also provided a warranty to ensure
that the “Buyer’s Facilities” remain technically and operationally
compatible with the “Seller’s Facilities”, both of which include
the ‘measurement equipment’. This warranty would not have been
provided if the measurement equipment was not of ‘use’ to the
buyer. The equipment is thus a vital ingredient of the agreement
H
COMMISSIONER OF SERVICE TAX, AHMEDABAD v. M/S. ADANI 879
GAS LTD.

towards protecting the mutual rights of the parties and in ensuring A
the fulfilment of their reciprocal obligations as seller and buyer
in regulating the supply of gas. As an incident of regulating supply,
it determines the correct quantity of gas that is supplied. The
obligation to supply, install and maintain the equipment is cast
upon the seller as an incident of control and possession being
B
with the seller. Section 65(105)(zzzzj) applies precisely in a
situation where the use of the goods by a person is not
accompanied by control and possession. ‘Use’ in the context of
SKID equipment postulates the utilization of the equipment for
the purpose of fulfilling the purpose of the contract. Section
65(105)(zzzzj) does not require exclusivity of use. The SKID C
equipment is an intrinsic element of the service which is provided
by the respondent, acting pursuant to the GSA, as a supplier of
natural gas to its buyers. Thus, the supply of the pipelines and
the measurement equipment (SKID equipment) by the
respondent, was of use to the customers and is taxable under
D
Section 65(105)(zzzzj) of the Finance Act 1994. [Paras 28 and
30][904-B-H; 905-A, D]

Meru Cab Company Pvt. Ltd. v. Commissioner of Central
Excise, Mumbai 2016 (41) STR (444) (Tri-Mum) –
referred to. E
4. The extent of the refund of gas connection charges,
collected from industrial, commercial and domestic consumers
by the respondent depends on their usage. From the internal
note dated 13 July 2007 and the tabulation of customers, it is
evident that the percentage of funds refunded varies from F
customer to customer, while the remaining amount is retained
by the respondent. In any case, as regards the domestic
customers, no deposit receipts have been provided and instead,
the respondent has relied on the tabulation of the refund of deposit
to industrial consumers to support their contention. Thus, it is
not correct to say that these gas connection charges collected G
from industrial, commercial and domestic consumers constitute
a refundable security deposit. [Para 37][910-F-G]

5. Therefore, the Adjudicating Authority was correct in
concluding that the buyer of gas is as interested as the seller in
H
880 SUPREME COURT REPORTS [2020] 8 S.C.R.

A ensuring and verifying the correct quantity of the gas supplied
through the instrumentality of the measurement equipment and
the pipelines. Additionally, the role of regulating pressure and
ensuring the safety of supply of gas performed by the
measurement equipment is an essential aspect for the ‘use’ of
the consumer. The SKID equipment fulfils the description in
B
Section 65(105)(zzzzj) of a taxable service: service in relation
“tangible goods” where the recipient of the service has use
(without possession or effective control) of the goods. The
Tribunal was in error in interfering with the findings and order of
the Adjudicating Authority. [Paras 38 and 39][910-H; 911-A-C]
C
Case Law Reference

[2006] 2 SCR 823 referred to Para 15

(2020) 3 SCC 354 referred to Para 16
D [2007] 9 SCR 147 referred to Para 17

(2010) 14 SCC 438 referred to Para 19

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2633
of 2020.
E
From the Judgment and Order dated 05.04.2019 of the Custom
Excise and Service Tax Appellate Tribunal, West Zonal Bench at
Ahmedabad in Service Tax Appeal No. 421 of 2011.

Sanjay Jain, ASG, Sharad Kumar Singhania, D.L. Chidananda,
F Ashray Behura, Padmesh Mishra, B. Krishna Prasad, Advs. for the
Appellant.

Vikram Nankani, Sr. Adv., Mahesh Agarwal, Anshuman
Srivastava, Utkarsh Pratap, E. C. Agrawala, Advs. for the Respondents.
G

H
COMMISSIONER OF SERVICE TAX, AHMEDABAD v. M/S. ADANI 881
GAS LTD.

The Judgment of the Court was delivered by A
DR. DHANANJAYA Y. CHANDRACHUD, J.
1. This appeal arises from a judgment and order of the Customs,
Excise, & Service Tax Appellate Tribunal,1 West Zonal Bench at
Ahmedabad in Service dated 5 April 2019. The Tribunal has, in exercise
of its appellate jurisdiction, reversed the 30 March 2011 decision of the B
Commissioner of Service Tax, Ahmedabad2 and set aside the demand
for payment of service tax on the charges collected by the respondent
for supply of pipes and measuring equipment to its customers under
Section 65(105)(zzzzj) of the Finance Act, 1994. This appeal rests on
the interpretation and applicability of the provisions of Section C
65(105)(zzzzj) of the Finance Act, 1994.
2. The respondent is in the business of distributing natural gas -
Compressed Natural Gas3 and Piped Natural Gas4 - to industrial,
commercial, and domestic consumers. Among other purposes, industrial
consumers use PNG for manufacturing operations. Domestic and D
commercial consumers use PNG for cooking, power supply and air-
conditioning. In order to facilitate the distribution of PNG to industrial,
commercial and domestic consumers through pipes, the respondent installs
an equipment described as ‘SKID’ at their customers’ sites. The SKID
equipment consists of isolation valves, filters, regulators and electronic
meters. The equipment regulates the supply of PNG being distributed E
and records the quantity of PNG consumed by the customer, which is
then used for billing purposes. The respondent enters into an agreement
– the Gas Sales Agreement5 - with consumers to whom gas is supplied
by it.
3. The manufacture of CNG falls under Chapter Sub-Heading F
27112900 of the Central Excise Tariff Act, 1985. The respondent is also
engaged in providing the taxable service falling under the category of
“transport of goods through pipeline”, as defined in Section 65(105)(zzz)
of the Finance Act, 1994. During the course of an audit by the officers
of Central Excise, Ahmedabad-I during January 2009, it was noticed G
that the respondent had received income under the head of “gas
1
“Tribunal”
2
“Adjudicating Authority”
3
“CNG”
4
“PNG”
5
“GSA” H
882 SUPREME COURT REPORTS [2020] 8 S.C.R.

A connection charges” from its industrial, commercial, and domestic
customers. From the GSA and the invoices, it was found that charges
were collected for the “supply of pipes, measuring equipment etc.” while
providing new gas connections to customers. The ownership of the
equipment is not with the customer but is retained by the respondent.
The customer does not have control or any legal rights over the
B
equipment. Value Added Tax was also not paid on these charges collected
from the customers. A Notice to Show Cause 6 was issued to the
respondent on 13 October 2009 stating that the transactions undertaken
by them are covered under the category of “supply of tangible goods
service”, under Section 65(105)(zzzzj) of Finance Act, 1994 which was
C introduced by Notification No.18/2008- S.T. dated 10 May 2008, with
effect from 16 May 2008. The Show Cause Notice required the
respondent to pay service tax with effect from 16 May 2008 on the gas
connection charges recovered for the period from 16 May 2008 to 31
March 2009. Three similar notices were issued to the respondent for
subsequent periods. The first notice indicated that the respondent had
D
received gas connection charges amounting to Rs. 23,37,51,903/- on
which service tax and cess amounting to Rs. 2,83,46,411/- had not been
deposited. The respondent was called upon to show cause why service
tax should not be demanded together with interest and penalties under
Sections 76, 77 and 78 of the Finance Act, 1994.
E 4. In their reply to the Show Cause Notice, the respondent stated
that:
(i) PNG is distributed through pipes to industrial, commercial
and domestic customers. The SKID equipment is installed
at the customers’ sites to regulate the supply of PNG
F distributed and record the quantity of PNG consumed for
billing purposes;
(ii) The GSA is entered into with the customer. The ‘SKID’
consists of isolation valves, filters, regulators and electronic
meters;
G
(iii) The equipment is installed at the location of the customer
without the transfer of ownership and possession; and the
respondent retains the right to use the equipment;

6
H “Show Cause Notice”
COMMISSIONER OF SERVICE TAX, AHMEDABAD v. M/S. ADANI 883
GAS LTD. [DR. DHANANJAYA Y. CHANDRACHUD, J. ]

(iv) The arrangement between the respondent and its customer A
provides for the supply of gas, for which measurement
equipment (the SKID equipment), is installed at the cost of
customers at their premises for the purpose of billing;
(v) The equipment is used by the respondent for its own purposes
and the customer does not use the measurement equipment; B
(vi) Under the GSA, the right to adjust, clean, handle, replace,
maintain, remove or modify the equipment is conferred upon
the respondent. The equipment is used by the respondent
and the customer does not buy or use the equipment;
(vii) Under the GSA, the respondent has a right of entry at all C
hours to the measurement equipment to a pipeline upto all
consumption points and gas consuming facilities inside the
buyer’s premises;
(viii) The equipment is used only for metering and billing so as to
not invite any dispute or objection from the customers; and D
(ix) The amount which is collected from the customer is in the
form of an interest-free security deposit, for the purpose of
ensuring safe-keeping of the measurement equipment as is
required by Attachment 3 to Schedule A of the Petroleum
and Natural Gas Regulatory Board (Determination of E
Network Tariff for City or Local Gas Distribution Networks
and Compression Charge for CNG) Regulations 20087. This
deposit is to be returned at the time of discontinuing or
terminating the connection and between 25 to 100 per cent
of the charges were refunded by the respondent in the year F
2008-09.
The respondent thus contended that they were not liable to pay
service tax and consequently the demand for tax interest and penalty
was not sustainable.
5. The Show Cause Notice was adjudicated by an order dated 30 G
March 2011 of the Adjudicating Authority. Confirming the demand, the
Adjudicating Authority noted that the demand in the Show Cause Notice
was not under the category of “transport of goods by pipeline or other
7
“PNGRB Network Tariff Regulations 2008”, published vide notification dated 19
March 2008. H
884 SUPREME COURT REPORTS [2020] 8 S.C.R.

A conduit services” under Section 65(105)(zzz) on the charges recovered
from the supply of gas, but for supplying measurement equipment at the
time of providing a new gas connection to a customer, under the category
of “supply of tangible goods services” under Section 65(105)(zzzzj). The
Adjudicating Authority held that “…there is a definite element of service
involved in this transaction.” The Adjudicating Authority held that the
B
respondent is not only a seller engaged in the sale of gas to the customer
but also a service provider who supplies, installs and maintains
measurement equipment at the customers’ premises. The customer, in
this view, is a purchaser of gas and a service recipient for the supply,
installation and maintenance of measurement equipment. The fact that
C (i) ownership of the measurement equipment vests with the respondent;
and (ii) there is no transfer of the right of possession and effective control
is undisputed, thereby satisfying two of the required ingredients for Section
65(105)(zzzzj). Noting that the purpose of the measurement equipment
is to ensure effective and accurate billing, the Adjudicating Authority
held that the expression ‘use’ is attracted and it is the customer who
D
must be held to be in use of the equipment, regardless of the customer
lacking technical expertise in handling the measurement equipment. This
conclusion was based on the following reasoning:
“The expression “use” does not mean that the recipient has to
personally and physically use the equipment all the time. It broadly
E refers to the direct or indirect use whether personally or through
anybody else and meant to serve the intended purpose of the
goods. The contention of the said noticee that they use the
“Measurement Equipment” which are installed for their own
benefits and purposes is misplaced. Accuracy in billing is as
F much a concern of the buyer of gas as is of the seller and
hence, he gets it installed at his own cost and therefore
working of the “Measurement Equipment” is verified
periodically by the buyer as well as the seller as agreed by
both in the Agreement.” (emphasis supplied).
G 6. The order also noted that the entirety of the gas connection
charges collected at the time of installing the connection are not refunded
at the time of discontinuation or termination. The Adjudicating Authority
allowed the respondent to claim the benefit of cum-tax value and
reduced the demand for service tax from Rs. 2,83,46,411/- to
Rs. 2,52,73,526/-. Penalties were imposed under Sections 77 and 78 of
H the Finance Act 1994.
COMMISSIONER OF SERVICE TAX, AHMEDABAD v. M/S. ADANI 885
GAS LTD. [DR. DHANANJAYA Y. CHANDRACHUD, J.]

7. The respondent assailed the order of adjudication before the A
Tribunal. By its judgment dated 05 April 2019, the Tribunal allowed the
appeal filed by the respondent. The Tribunal observed that the SKID
equipment is installed by the respondent at the customers’ site and at the
cost of the customer without the transfer of ownership and possession.
However, the crucial issue which required analysis was whether the
B
SKID equipment is for the use of the customer. Adverting to the GSA
which is entered into between the respondent and its customers, the
Tribunal held:
“ … the appellant supplies natural gas through pipes to the
Industrial, Commercial or Domestic customers and for this purpose
installs an equipment called “SKID” at the customer’s site to C
regulate the supply of natural gas supplied through pipes and to
record the quantity consumed by the customers for the purpose
of billing. The gas pipeline from the nearest distribution point is
laid and maintained by appellant at the cost of the customer and
the measuring equipment is also supplied, installed and maintained D
by the appellant at the cost of the customer. The terms of the
agreement leave no manner of doubt that the purpose of
the equipment is to measure the amount of gas supplied to
the customer for the purpose of billing. They are, therefore,
for the use of the appellant and are not for use by the
customers. The finding to the contrary recorded by the E
Adjudicating Authority is, therefore, not correct.” (emphasis
supplied)
8. The Tribunal held that the metering equipment is installed for
measuring the amount of gas supplied to the customer for the purpose of
billing; hence the use of the equipment is by the respondent and not by F
the customer.
9. The decision of the Tribunal has been assailed on behalf of the
revenue/appellant in the appeals. Mr. Sanjay Jain, Additional Solicitor
General of India, submitted that the GSA which is a ‘take or pay
agreement’ demonstrates that: G
(i) The SKID equipment is installed by the respondent at the
cost of the buyer;
(ii) Neither ownership nor possession of the equipment is
transferred to the buyer;
H
886 SUPREME COURT REPORTS [2020] 8 S.C.R.

A (iii) The measurement equipment is installed, maintained and
repaired by the respondent at the cost of the buyer;
(iv) Mere technical expertise on part of the respondent to
operate the equipment does not preclude the usage by the
buyer;
B (v) The buyer is as much concerned about the accuracy of the
billing as the supplier of gas. The measurement equipment
enures to the benefit of the buyer for the purpose of verifying
the correctness of the charges levied based on the quantity
of gas consumed;
C (vi) Though the gas connection charges which are initially
recovered are claimed to be refundable, the quantum of
refunds may vary from buyer to buyer and the data which
was produced by the respondent indicates that in several
cases full refunds have not been made; and
D (vii) The CBEC circular No. 334/1/2008-TRU dated 29 February
2008 has clarified that transactions that enable usage of
goods without transferring the right to use, are in the nature
of a service under Section 65(105)(zzzzj) and not sale under
Article 366(29-A)(d) of the Constitution of India. Since the
E respondent has not paid VAT for the charges collected on
supply of pipelines and the measurement equipment, this
transaction must be treated as a service.
10. The ASG submitted that the use of the SKID equipment is not
merely by the respondent as the seller of gas but by the buyer as well for
F the purpose of verifying the accuracy of billing. The decision of the
Tribunal was faulted on the ground that its finding - that the use of the
equipment is by the seller - is contrary to the terms of the GSA.
11. Opposing these submissions Mr Vikram Nankani, learned
Senior Counsel appearing on behalf of the respondent, submitted that:
G (i) The GSA is an agreement for the sale and purchase of
goods, namely, PNG;
(ii) The terms of the GSA provide contractual rights to the buyer,
including the right to verify and dispute the bill raised by the
supplier and to seek arbitration;
H
COMMISSIONER OF SERVICE TAX, AHMEDABAD v. M/S. ADANI 887
GAS LTD. [DR. DHANANJAYA Y. CHANDRACHUD, J.]

(iii) The rights of a buyer of gas under the GSA must be kept A
distinct from the use of the SKID equipment and the essential
issue in the present case is whether the equipment is installed
for the use of the buyer;
(iv) Under the terms of the GSA, ownership continues to vests
with the respondent at all times and the buyer of gas is not B
entitled to adjust, modify or maintain the equipment. The
buyer has no possessory right nor can they lease or sub-let
the equipment;
(v) The purpose of the measurement equipment in a gas supply
contract is to measure the quantity of gas supplied to the C
buyer of gas. However, the buyer gets no service out of
the equipment;
(vi) In determining the issue in appeal, it is necessary to isolate
the rights conferred by the GSA on the buyer of gas from
the issue as to whether the buyer has the use of the SKID D
equipment. The SKID equipment is a technical device and
the buyer has no right to use the equipment; and this inability
to use the equipment by the customer would not be within
the scope of the taxing provision, which must be construed
strictly;
E
(vii) Amounts collected under the head of “gas connection
charges” are mainly in the nature of interest-free security
deposits, which are required to be refunded in part, or in
full, depending on the duration of the contract which
determines depreciation. They are not collected as a
consideration for providing a service; and under Article F
366(29-A)(d), a tax on the sale or purchase of goods includes
a tax on the transfer of the right to use goods for any
purpose, without necessarily transferring the title. Section
65(105)(zzzzj) was introduced with the intention of capturing
services which were technically not ‘sales’ and were G
escaping the net of VAT. In the present case, there is no
transfer of the right to use the equipment nor is there any
element of service in the supply of the metering equipment.
The equipment is installed by the respondent as a seller of
gas and is not used by the buyer.
H
888 SUPREME COURT REPORTS [2020] 8 S.C.R.

A 12. The question that arises for our consideration is whether Section
65(105)(zzzzj) of the Finance Act, 1994 is applicable in the present case,
that is, whether the supply of pipes and measurement equipment (SKID
equipment), charged under the head of “gas connection charges” by the
respondent to its industrial, commercial, and domestic consumers, amounts
to supply of tangible goods for their use. While assessing the merits of
B
the rival submissions, it is necessary to interpret the provisions of Section
65(105)(zzzzj).
13. 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
C service’. Section 65(105)(zzzzj) of the Finance Act, 1994 reads as
follows:
“65(105) “taxable service” means any service provided or to be
provided-
D xx xx xx
(zzzzj) to any person, by any other person in relation to supply of
tangible goods including machinery, equipment and appliances for
use, without transferring right of possession and effective control
of such machinery, equipment and appliances.”
E 14. Section 65(105)(zzzzj) of the Finance Act 1994 was introduced
by Notification No.18/2008-S.T. with effect from 16 May 2008. Section
65(105)(zzzzj) levies a service tax on the use of tangible goods. On the
other hand, the transfer of the right to use any goods is treated as a
‘deemed sale’ and is subject to sales tax under Article 366(29-A)(d) of
F the Constitution of India. It is necessary to distinguish the applicability of
these two provisions. Article 366(29- A)(d), provides:
“(366)(29-A) tax on the sale or purchase of goods includes—
xx xx xx
(d) a tax on the transfer of the right to use any goods for any
G purpose (whether or not for a specified period) for cash, deferred
payment or other valuable consideration;
xx xx xx
and such transfer, delivery or supply of any goods shall be deemed
H to be a sale of those goods by the person making the transfer,
COMMISSIONER OF SERVICE TAX, AHMEDABAD v. M/S. ADANI 889
GAS LTD. [DR. DHANANJAYA Y. CHANDRACHUD, J.]

delivery or supply and a purchase of those goods by the person to A
whom such transfer, delivery or supply is made.”
15. The applicability of Article 366(29-A)(d) was discussed in a
decision of this Court in Bharat Sanchar Nigam Limited and another
v. Union of India and others8 (“BSNL”). In BSNL, the Court held
that the purpose of Article 366(29- A)(d) was to levy tax on those B
transactions where there was a “transfer of the right to use any goods”
to the purchaser, instead of passing the title or ownership of the goods.
Thus, by a fiction of law, these transactions were now treated as ‘sale’.
Elucidating on the “transfer of the right to use any goods”, Dr A R
Lakshmanan J. in a concurring opinion held:
C
“97. To constitute a transaction for the transfer of the right to use
the goods, the transaction must have the following attributes:
a. there must be goods available for delivery;
b. there must be a consensus ad idem as to the identity of the
goods; D
c. the transferee should have a legal right to use the goods-
consequently all legal consequences of such use including any
permissions or licenses required therefore should be available
to the transferee;
E
d. for the period during which the transferee has such legal
right, it has to be the exclusion to the transferor; this is
the necessary concomitant of the plain language of the
statute viz. a “transfer of the right to use” and not merely
a licence to use the goods;
F
e. having transferred the right to use the goods during the period
for which it is to be transferred, the owner cannot again transfer
the same rights to others.”
(emphasis supplied)
16. The test laid down in BSNL has been applied by courts to G
determine whether a transaction involves the “transfer of the right to
use any goods” under Article 366(29-A)(d). In doing so, the courts have
analysed the terms of the agreement underlying the transaction to
ascertain whether effective control and possession has been transferred
8
2006 (3) SCC (1). H
890 SUPREME COURT REPORTS [2020] 8 S.C.R.

A by the supplier to the recipient of the goods. Recently, this Court in
Great Eastern Shipping Company Limited. v. State of Karnataka
and others9 considered whether the transfer of a vessel under a charter
party agreement was a ‘deemed sale’, subject to sales tax. The Court,
after analysing the terms of the charter party agreement, held:
B “43. We are not turning our decision upon the terms used like
‘let’, ‘hire’, ‘delivery’ and ‘redelivery’ but on the other essential
terms of the Charter Party Agreement entered in the instant case
which clearly makes out that there is a transfer of exclusive right
to use the vessel which is a deemed sale and is liable to tax under
the KST Act. In the instant case, full control of the vessel
C had been given to the charterer to use exclusively for six
months, and delivery had also been made. The use by
charterer exclusively for six months makes it out that it is
definitely a contract of transfer of right to use the vessel
with which we are concerned in the instant matter, and that
D is a deemed sale as specified in Article 366(29A)(d). On the
basis of the abovementioned decision, it was urged that all Charter
Party Agreements are service agreements. The submission cannot
be accepted, as there is no general/invariable rule/law in this
regard. It depends upon the terms and conditions of the charterparty
when it is to be treated as only for service and when it is the
E transfer of right to use.
xx xx xx
54. When we consider the charterparty in question in the context
of applicable law, particularly in view of the constitutional provisions
F of Article 366(29A)(d), we find that there is transfer of right to
use tangible goods, which is determinative of deemed sale as per
the Constitution of India and provisions of section 5C reflecting
the said intendment. We are of the considered opinion that
there is transfer of right to use exclusively given to
charterer for six months, and the vessel has been kept
G under the exclusive control. The charterer qualifies the test
laid down by this court in BSNL (supra).”
(emphasis supplied)

9
H 2020 (3) SCC 354.
COMMISSIONER OF SERVICE TAX, AHMEDABAD v. M/S. ADANI 891
GAS LTD. [DR. DHANANJAYA Y. CHANDRACHUD, J. ]

17. Therefore, sales tax is levied in pursuance of Article 366(29- A
A)(d) on transactions which resemble a sale in substance as they result
in a transfer of the right to use in goods, instead of the transfer of title in
goods. The Finance Act, 1994, deriving authority from the residuary
Entry 97 of the Union List, enabled the Central Government to levy tax
on services. ‘Service tax’ was introduced as a response to the
B
advancement of the contemporary world where an indirect tax was
necessary to capture consumption of services, which are economically
similar to consumption of goods, in as much as they both satisfy human
needs.10 This Court, in Association of Leasing and Financial Service
Companies v. Union of India,11 had noted:
“38…Today with technological advancement there is a very thin C
line which divides a “sale” from “service”. That, applying the
principle of equivalence, there is no difference between production
or manufacture of saleable goods and production of marketable/
saleable services in the form of an activity undertaken by the
service provider for consideration, which correspondingly stands D
consumed by the service receiver. It is this principle of equivalence
which is inbuilt into the concept of service tax under the Finance
Act, 1994. That service tax is, therefore, a tax on an activity.
That, service tax is a value added tax. The value addition is on
account of the activity which provides value addition…Thus,
service tax is imposed every time service is rendered to E
the customer/client…Thus, the taxable event is each exercise/
activity undertaken by the service provider and each time service
tax gets attracted.” (emphasis supplied)
18. The introduction of Section 65(105)(zzzzj) in the Finance Act,
1994, was with the intention of taxing such activities that enable the F
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). 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 G
65(105)(zzzzj) vis-à-vis Article 366(29-A)(d). The relevant portions of
the circular are as follows:
10
All India Federation of Tax Practitioners v. Union of India, (2007) 7 SCC 527,
para 4.
11
(2011) 2 SCC 352. H
892 SUPREME COURT REPORTS [2020] 8 S.C.R.

A “4.4 SUPPLY OF TANGIBLE GOODS FOR USE:
4.4.1 Transfer of the right to use any goods is leviable to sales
tax/VAT as deemed sale of goods [Article 366(29A)(d) of the
Constitution of India]. Transfer of right to use involves transfer
of both possession and control of the goods to the user of
B the goods.
4.4.2 Excavators, wheel loaders, dump trucks, crawler carriers,
compaction equipment, cranes, etc., offshore construction vessels
& barges, geo-technical vessels, tug and barge flotillas, rigs and
high value machineries are supplied for use, with no legal right of
C possession and effective control. Transaction of allowing
another person to use the goods, without giving legal right
of possession and effective control, not being treated as
sale of goods, is treated as service.
Proposal is to levy service tax on such services provided in relation
D to supply of tangible goods, including machinery, equipment and
appliances, for use, with no legal right of possession or effective
control. Supply of tangible goods for use and leviable to VAT
/ sales tax as deemed sale of goods, is not covered under
the scope of the proposed service. Whether a transaction
involves transfer of possession and control is a question of
E facts and is to be decided based on the terms of the contract
and other material facts. This could be ascertainable from
the fact whether or not VAT is payable or paid.”
(emphasis supplied)

F 19. The above circular clarified that Section 65(105)(zzzzj) is
applicable only to those transactions where there is a supply of tangible
goods for use, without the transfer of possession or effective control to
the recipient. This aspect has been interpreted by various courts and
tribunals. In the Bombay High Court decision in Indian National
Shipowners’ Association and Anr. v. Union of India and others
G (“Shipowners”),12 the petitioners were engaged in providing services
to major exploration and production operators by supplying their various
vessels including offshore drilling rigs, offshore support vessels, harbour
tugs, and construction barges. The question before the Bombay High
Court was whether, prior to the introduction of Section 65(105)(zzzzj) in
12
H (2009) 4 AIR Bom R 775.
COMMISSIONER OF SERVICE TAX, AHMEDABAD v. M/S. ADANI 893
GAS LTD. [DR. DHANANJAYA Y. CHANDRACHUD, J.]

2008, the petitioner could be taxed on its services in relation to mining of A
mineral, oil, or gas under Section 65(105)(zzzy). In the present matter,
we are not concerned with the merits of Shipowners’, which was
affirmed on appeal by this Court in Union of India v. Indian National
Shipowners’ Association and Anr.13 This Court explicitly restricted
itself to the interpretation of Section 65(105)(zzz) while leaving the other
B
observations on interpretation of the law, “open to be considered at length
at an appropriate stage”.14 We note however, the analysis of Section
65(105)(zzzzj) of the Bombay High Court, where the High Court observed:
“38. Entry (zzzzj) is entirely a new entry. Whereas Entry (zzzy)
covers services provided to any person in relation to mining of
mineral, oil or gas, services covered by Entry (zzzzj) can be C
identified by the presence of two characteristics namely (a)
supply of tangible goods including machinery, equipment
and appliances for use, (b) there is no transfer of right of
possession and effective control of such machinery,
equipment and appliances. According to the members of the D
1st petitioner, they supply offshore support vessels to carry out
jobs like anchor handling, towing of vessels, supply to rig or
platform, diving support, fire fighting etc. Their marine construction
barges support offshore construction, provide accommodation,
crane support and stoppage area on main deck or equipment.
Their harbour tugs are deployed for piloting big vessels in and out E
of the harbour and for husbanding main fleet. They give vessels
on time charter basis to oil and gas producers to carry out offshore
exploration and production activities. The right of possession
and effective control of such machinery, equipment and
appliances is not parted with. [...]” F
(emphasis supplied)
20. The taxable service 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 G
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
13
2010 (14) SCC 438.
14
2010 (14) SCC 438, para 7. H
894 SUPREME COURT REPORTS [2020] 8 S.C.R.

A 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;
B (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; and
C
(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.
21. A GSA entered into by the respondent on 17 November 2008
D with one of its buyers (Polymer Industries) has been adverted to by the
contesting parties as a representative sample. Under the terms of the
GSA, the respondent as the seller agrees to sell and tender for delivery
at the ‘Delivery Point’, gas in the quantities, times and at the prices
determined in accordance with it. Clause 2.1 stipulates that:
E “2.1. The Seller agrees to sell and tender for delivery at the
Delivery Point, and the Buyer agrees to purchase and receive at
the Delivery Point and pay for Gas in quantities at the times and
at the prices determined in accordance with, and subject to the
terms and conditions of this Agreement.”
F The expression ‘Delivery Point’ is defined thus:
“ “Delivery Point” means the flange or weld or agreed mark at
the downstream of the isolation valve located immediately outside
the Buyer’s premise as identified in Schedule 2.”
Clause 5.1 requires the seller to deliver gas to the buyer at the
G Delivery Point. The seller is required to set up a gas pipeline to the
metering station of the buyer from the nearest distribution mains at the
cost of the buyer:
“5.1. The seller shall deliver the Gas to the Buyer at the Delivery
Point in accordance with the terms of this Agreement. Gas
H pipeline to the Buyer’s metering station from nearest
COMMISSIONER OF SERVICE TAX, AHMEDABAD v. M/S. ADANI 895
GAS LTD. [DR. DHANANJAYA Y. CHANDRACHUD, J.]

distribution mains would be constructed and maintained A
by the Seller at the Buyer’s cost.”
(emphasis supplied)
Clause 5.3 states that the ‘Measurement Equipment’ is to be
supplied, installed and maintained by the seller at the cost of the buyer:
B
“5.3. The Measurement Equipment shall be supplied,
installed and maintained by the Seller at the Buyer’s cost.
Ownership of equipment will rest with AEL [respondent
herein] forever. Buyer shall provide free of cost adequate
land and power connection in its premise for the installation of
Measurement Equipment. Buyer shall pay for providing gas C
pipeline connection including pipeline from distribution mains
upto the measurement equipment; and measurement equipment
to its unit as per the proposal submitted by the Seller.”
(emphasis supplied)
D
Clause 5.4 provides that:
“5.4. Gas pipeline from nearest Distribution Mains to
the Measurement equipment shall be constructed and
maintained by the Seller at Buyer’s cost. The Buyer agrees
to let the Seller or his authorised representative to supply,
E
construct, install commission and maintain the supply pipeline
from main distribution line upto the Measurement Equipment
and Measurement Equipment in its premises.
(emphasis supplied)
The Buyer’s Facilities and Seller’s Facilities are defined to include F
the measurement equipment and pipelines and have been defined as
follows:
“ “Buyers Facilities” means plant, machinery, measurement
equipment and other equipment from the Delivery Point onwards
necessary to receive Gas under this Agreement.” G
“ “Seller’s Facilities” means the Seller’s pipelines, gas plants,
machinery, Measurement Equipment, other metering facilities and
other equipment necessary for flow control and the processing,
compression, measuring and testing of Gas to enable delivery of
Gas to the Buyer at the Delivery Point.” H
896 SUPREME COURT REPORTS [2020] 8 S.C.R.

A Further, the expression ‘Measurement Equipment’ is defined as
follows:
“ “Measurement equipment” means such main and subsidiary
meter, including apparatus, mains and pipes, as the Seller
considers necessary for the measurement and recording of
B the volume in SCM and pressure in Kg/cm2 of Gas delivered
at the Delivery Point and for the safe operation of the Buyer’s
Facilities.”
Ownership of the measurement equipment continues to vest with
the respondent as per clause 5.3. The buyer is required to provide land
C and a power connection, free of cost at its premises. The buyer has to
pay for providing a gas pipeline connection from the distribution mains
up to the measurement equipment.
Gas is transported from the ‘Measurement Equipment’ by means
of a pipeline provided by the buyer as stipulated in Clause 5.5:
D “5.5. Gas will be transported from the Measurement equipment
by means of a pipeline provided by the Buyer as per the
specifications and applicable standards provided by the Seller
and the same shall be maintained by the Buyer. The Seller
reserves the right to supply other Buyer’s before the upstream
E range of measurement equipment installed at its premises.”
Clause 5.6 clarifies that the buyer has no right to adjust, clean,
handle, replace, maintain, remove or modify the measurement equipment:
“5.6. The Buyer shall not have the right to adjust, clean, handler,
replace, maintain, remove or modify in any manner
F measurement equipment at any time during the currency of
the Contract.”
Under clause 5.7 the buyer cannot lease, sublet or sell the
measurement equipment:
“5.7. The Buyer under no circumstances shall sublet/lease/
G sell/create a charge over part or whole of measurement
equipment at any given time.”
Clause 5.10 provides that the seller has the right of entry to the
measurement equipment:

H
COMMISSIONER OF SERVICE TAX, AHMEDABAD v. M/S. ADANI 897
GAS LTD. [DR. DHANANJAYA Y. CHANDRACHUD, J.]

“5.10. The Seller or his authorized representative shall have A
right of entry at all hours to the Measurement Equipment, route
of pipeline upto all consumption points and gas consuming
facilities inside the Buyer’s premises.”
Under clause 7.1, ‘title and risk’ in the gas passes from the seller
to the buyer at the Delivery Point. Clause 8.1 defines the expression B
‘Daily Contract Quantity’15. Clause 9.2 of the agreement deals with
measurement and calibration:
“9.2 Measurement and Calibration
9.2.1 Quantity of Gas supplied under this Agreement shall be
measured at the Delivery Point in SCM. The C
measurement shall include all corrections in installation
practices recommended for accurate metering of Gas
by the American Gas Association (AGA) Gas
Measurement Committee report No. 3,7 and 8.
9.2.2 The Measurement Equipment shall be supplied, D
installed, owned and maintained by the Seller at
the Buyer’s cost.
9.2.3 Working of the Measurement Equipment shall be verified
periodically by the Parties.
E
9.2.4 If the Buyer has any doubt as to the accuracy of
the Measurement Equipment, it shall communicate
the same to the Seller in writing and request the
Seller to either check or re-calibrate the
Measurement Equipment. The Seller shall undertake
such check/re-calibration of the Measurement F
Equipment within fourteen (14) days of receipt of such
request. The cost of conducting the checks/re-calibration
shall be borne by the Buyer.
15
“8.1. Daily Contract Quantity
(a) “Daily Contract Quantity” or “DCQ” shall be equal to 100 SCM per day having
approximately Gross Calorific Value (GCV) of 9000 Kcal/scm.
G
(b) Provided further, if on any Day, the Buyer requires Gas in excess of Daily Contract
Quantity, the seller may supply the same subject to availability of gas with Seller
and Seller’s Operational Flexibility.
(c) Supplier subject to the operational flexibility and availability of the gas supply
the Daily Contract Quantity however the Seller shall have the freedom to curtail,
stop or interrupt the gas supply with prior notice to the Buyer. H
898 SUPREME COURT REPORTS [2020] 8 S.C.R.

A 9.2.5 If the seller has any doubt about the proper working of
the Measurement Equipment, it may immediately check
the meter in presence of the Buyer’s representative. In
case it is established that the existing Measurement
Equipment is not working satisfactorily, the same shall
be replaced at the Buyer’s cost.
B
9.2.6 If on carrying out the check/re-calibration of the
Measurement Equipment as aforesaid it is discovered
that either the percentage of inaccuracy exceed – 2%
(Two per cent) or that the Measurement Equipment is
out of service, the following procedure in order of priority,
C whichever is feasible for arriving at the computation of
quantity of Gas during the period between the last
calibration and the present, shall be followed:
(a) by correcting the error if the percentage of
error is ascertainable by calibration, tests or
D mathematical calculation; or
(b) by estimating the volume of Gas delivered by
comparison with deliveries during the period
under similar conditions when the
Measurement Equipment was registering
E accurately.
9.2.7 If at the time of carrying out the check of the
Measurement Equipment as above, it is discovered that
the error in the readings of the Measurement Equipment
exceeds- 2.0% the Measurement Equipment shall be
F re-calibrated at Buyer’s cost.
9.2.8 Notwithstanding anything contained in this Agreement,
pending the result of any check/re- calibration, the Buyer
shall not withhold payments to the Seller under this
Agreement on this account. However, the Buyer shall
G be entitled to lodge his claim for refunds/adjustments, if
any, depending upon the final results of such check/re-
calibration within a period of fourteen (14) days of such
check/re-calibration. Such claim, if found correct by the
Seller, shall be adjusted against the subsequent invoice(s)
of supply of Gas.
H
COMMISSIONER OF SERVICE TAX, AHMEDABAD v. M/S. ADANI 899
GAS LTD. [DR. DHANANJAYA Y. CHANDRACHUD, J.]

9.2.9 Pending the resolution of any dispute, the Seller shall A
produce the invoices on the basis of self-verification.”
(emphasis supplied)
The provisions for billing and payment are contained in clause 12.
The relevant portion is extracted below:
“12. Billing and Payment B

12.1 Following the end of the Fortnight, the Seller shall render to
the Buyer a statement including the following details for each
Day of the previous Fortnight (hereinafter referred to as the
“Fortnightly Invoice”), which shall show in respect of the previous
Fortnight, along with the details of calculations: C

(i) the DCQ for each Day of that Fortnight in SCM;
(ii) the aggregate quantity of Gas delivered by the Seller in
such Fortnight, in SCM and Gross Calorific Value for the
same; D
(iii) the Weighted Average Gross Calorific Value (GCV) of such
Gas taken by the Buyer in such fortnight;
(iv) the amount payable by the Buyer to the Seller for the
quantifies of the Gas delivered during the Fortnight equal to
quantities of Gas delivered by the Seller in SCM/Kcal as E
determined in (ii) above multiplied by Contract Price
prevailing for the Fortnight.
12.2 The Buyer shall within seven (7) days of the receipt of the
fortnightly invoice from the seller, pay to the seller the amount
mentioned in such invoice in the manner to be specified by F
the Seller.
12.3. The Buyer agrees that, notwithstanding any dispute in relation
to any amount invoiced, it shall not be withhold payment in
accordance with the provisions of this Section 12 of any
amounts. After making full payment of such invoice, the G
Buyer shall lodge the claims with the Seller giving full
particulars within a period of fourteen (14) Days from the
date of making payment, and if such claims are found
correct, the Seller shall adjust the same against the next
invoice. It is further agreed that no interest will be payable
H
900 SUPREME COURT REPORTS [2020] 8 S.C.R.

A by the Seller on any such amount adjusted in the subsequent
invoices.”
Under clause 13, security for payment in the form of a cash deposit
is required to be maintained by the buyer equivalent to the DCQ16
multiplied by thirty and by the contract price. If the seller draws upon
B the payment security, the buyer has to make good the amount withdrawn.
Clause 14 of the Agreement further provides for the
representations and warranties of the buyer and seller. Clause 14.3 reads
as follows:
“14.3 Buyer’s Warranties and Undertakings
C
The Buyer warrants and undertakes to the Seller that throughout
the term of this Agreement:
a) the Buyer’s Facilities will be technically and operationally
compatible with the Seller’s Facilities at the Delivery Point
D and fit for purpose for off take of gas from the Delivery Point;
b) the Buyer’s Facilities will be maintained in good working order
and condition and so operated as to be compatible with the
fulfilment of the obligations of the Buyer under this
Agreement;…”
E Under the above clause 14.3, the buyer warrants to maintain the
“Buyer’s Facilities”, which includes the ‘measurement equipment’, in
good working order and condition and technically and operationally
compatible with the Seller’s Facilities.
Under clause 16.4, if the buyer fails (otherwise than as a
F consequence of force majeure or the seller’s default) to take fifty per
cent or more of the cumulative DCQ over 45 consecutive days, the
seller is entitled to terminate the agreement.
22. The GSA is an agreement between the respondent and its
purchaser for regulating the terms on which gas is sold by the respondent.
G 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
16
H “Daily Contract Quality”
COMMISSIONER OF SERVICE TAX, AHMEDABAD v. M/S. ADANI 901
GAS LTD. [DR. DHANANJAYA Y. CHANDRACHUD, J.]

equipment’ in good working condition, in their respective capacities. The A
measurement equipment, as has been re-iterated by the respondent in
the course of their arguments, 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 the buyer’s facilities.
23. At the outset, it is clear from the provisions of the agreement, B
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 the ‘Measurement
Equipment’ is to be supplied, installed and maintained by the seller at the
cost of the buyer and that the ownership of the equipment will rest with C
the respondent forever. Clause 5.6 further clarifies that the buyer has no
right to adjust, clean, handle, replace, maintain, remove or modify the
measurement equipment. Clause 5.10 guarantees that the seller shall
have the right of entry at all hours to the Measurement Equipment and
associated apparatus at the Buyer’s premises. The pipelines are also D
part of the “Seller’s Facilities” under the agreement and are constructed
and maintained by the respondent at the cost of the customer. Thus, the
ingredient of not transferring the ownership, possession or effective
control of the goods under Section 65(105)(zzzzj) is satisfied.
24. The crux of the dispute is whether the supply of tangible goods E
– the SKID equipment - is for the use of the purchaser. In determining
as to whether the provisions of Section 65(105)(zzzzj) are attracted, it is
necessary to distinguish between the rights and obligations of the
respondent (as the seller of gas) and of their purchasers, from the issue
of whether the measurement equipment (SKID equipment) is supplied
for the use of the purchaser of gas, without transferring the right of F
possession and effective control.
25. The purchaser of gas has an interest in ensuring the accuracy
of billing and regulation of supply. The respondent is interested in ensuring
that it receives payment for the quantity of gas which is contracted to be
supplied to the purchaser. The ‘SKID’ consists of regulators, valves, G
filters and the metering equipment. The SKID equipment regulates and
records supply. Under the terms of the GSA, the obligation of the seller
is to deliver gas to the buyer at the Delivery Point. The gas pipeline from
the nearest distribution main to the buyers’ metering station is constructed
and maintained by the seller at the cost of the buyer. The measurement H
902 SUPREME COURT REPORTS [2020] 8 S.C.R.

A equipment is supplied, installed and maintained by the seller at the cost
of the buyer, inspite of ownership of the equipment resting with the
respondent as the seller. The Measurement Equipment is installed and
maintained exclusively by the seller. Clause 5.6 indicates that the buyer
has no right to adjust, clean, handle, replace, maintain, remove or modify
it in any manner. Clause 5.10 guarantees the seller’s access to the
B
Measurement Equipment at the buyer’s premises at all hours. Ownership,
control and possession of the measurement equipment is with the
respondent. The measurement equipment comprises not only of
electronic meters that are useful for determining the quantity of gas
supplied to the purchaser at the Delivery Point, but also of isolation
C valves, filters and regulators that are crucial for regulating the pressure
of gas and ensuring safe operation of the buyer’s facilities. In order to
maintain the sanctity of the equipment, the agreement casts the exclusive
responsibility to install and maintain it on the respondent as the seller.
The terms of the GSA would indicate that the quantity of gas supplied is
to be measured at the Delivery Point. For this purpose, the measurement
D
equipment is supplied, installed, owned and maintained by the seller at
the cost of the buyer. The working of the measurement equipment is
verified periodically by the parties to the agreement. If the buyer doubts
its accuracy, this has to be communicated in writing to the seller, who
alone is entitled to test, re-calibrate, remove or modify it. Similarly, if the
E seller has any doubt about the proper working of the measurement
equipment it is entitled to check the meter in the presence of the
representatives of the buyer. If according to the seller, the existing
measurement equipment is not working satisfactorily it would be replaced
at the cost of the buyer. These provisions indicate that the supply,
installation and maintenance of the measurement equipment is exclusively
F
carried out by the seller. The buyer has contractual remedies against the
seller in terms of the GSA. These remedies to the buyer as a purchaser
of gas are distinct from the issue as to whether the equipment for which
gas connection charges are recovered is used by the buyer.
26. Under Section 65(105)(zzzzj), the taxable service is provided
G or to be provided in relation to the supply of tangible goods for the use of
another, without transferring the right of possession and effective control.
The expression “use” has been defined in Black’s Law Dictionary:
“Use, n. Act of employing everything, or state of being employed;
application, as the use of a pen, or his machines are in use. Also
H
COMMISSIONER OF SERVICE TAX, AHMEDABAD v. M/S. ADANI 903
GAS LTD. [DR. DHANANJAYA Y. CHANDRACHUD, J.]

the fact of being used or employed habitually; usage, as, the wear A
and tear resulting from ordinary use. Berry-Kofron Dental
Laboratory Co. v. Smith, 345 Mo. 922, 137 S.W. 2d 452, 454, 455,
456. The purpose served; a purpose, object or end for useful or
advantageous nature. Brown v. Kennedy, Ohio Appellant. 49
N.E.2d 417, 418. To put or bring into action or service; to employ
B
for or apply to a given purpose. Beggs v. Texas Dept. of Mental
Health and Mental Retardation, Tex. Civ. App., 496 S.W.2d 252,
254. To avail oneself of; to employ; to utilize; to carry out a purpose
or action by means of; to put into action or service, especially to
attain an end. State v Howard, 221 Kan. 51, 557 P.2d 1280, 1281.
Non-technical sense. The “use” of a thing means that one is to C
enjoy, hold, occupy or have some manner of benefit thereof. Use
also means usefulness, utility, advantage, productive of benefit.”
27. The expression “use” does not have a fixed meaning. The
content of the expression must be based on the context in which the
expression is adopted. The use of an article may or may not result in a D
visible change in its form or substance. Moreover, the nature of use is
conditioned by the kind of article which is put to use. Section 65(105) of
the Finance Act, 1994 envisages myriad interpretations of the expression
“use”, in a variety of services such as telecommunication,17 renting of
immovable property,18 and services related to art, entertainment, and E
marriage.19 In the case of some articles, use may be signified by a physical
operation of the article by the person who uses it. In such a case, actual
physical use is what is meant by the supply of the goods for the use of
another. In the case of others, the nature of the goods supplied impacts
the character of the use to which the goods can be put. As an illustration,
Section 65(105)(zzzze) of the Finance Act, 1994, seeks to tax services F
related to information technology and interprets the “right to use” to
include the “right to reproduce, distribute, sell, etc”.20 This understanding
of “use” differs from the supply of tangible goods under Section
65(105)(zzzzj) at hand, where effective control or possession is not ceded.
Thus, physical operation is not the only or invariable feature of use. As a G
corollary to the same, technical expertise over the goods in question is
not a sine qua non for determining the ability of the consumer to use
17
Section 65(105)(zzzzb), Finance Act, 1994.
18
Section 65(105)(zzz-z), Finance Act, 1994.
19
Section 65(105)(zzzzr), Finance Act, 1994.
20
Circular D.O.F. No.334/1/2008-TRU, dated 29 February, 2008. H
904 SUPREME COURT REPORTS [2020] 8 S.C.R.

A the good. Therefore, the expression “use” also signifies the application
of the goods for the purpose for which they have been supplied under
the terms of a contract.
28. The terms of the GSA indicate that the supply, installation,
maintenance and repair of the measurement equipment is exclusively
B entrusted to the respondent as the seller. These provisions have been
incorporated in the GSA to ensure that a buyer does not calibrate or
tinker with the equipment. It is an incident of ownership and control
being vested with the respondent. The purpose of the SKID equipment
and its utility, lie in its ability to regulate the supply and achieve an
accurate verification of that which is supplied; in the present case the
C supply of goods by the respondent to its buyers. This enures to the benefit
of the seller and the buyer. The seller is concerned with the precise
quantification of the gas which is supplied to the buyer. The buyer has
an interest in ensuring the safety of its facilities and that the billing is
based on the correct quantity of gas supplied and delivered under the
D GSA. To postulate, as did the Tribunal, that the measurement equipment
is only for the benefit of the seller in measuring the quantity of the gas
supplied would not be correct. The GSA is an agreement reflecting mutual
rights and obligations between the seller and the purchaser. Both have a
vital interest in ensuring the correct recording of the quantity of gas
supplied. Additionally, delivery of gas in a safe and regulated manner,
E enabled by the SKID equipment, is an essential component of the GSA.
The SKID equipment subserves the contractual rights of both the seller
and the purchaser of gas. Indeed, without the SKID equipment there
would be no gas supply agreement. In fact, in the GSA, the buyer has
also provided a warranty to ensure that the “Buyer’s Facilities” remain
F technically and operationally compatible with the “Seller’s Facilities”,
both of which include the ‘measurement equipment’. This warranty would
not have been provided if the measurement equipment was not of ‘use’
to the buyer. The equipment is thus a vital ingredient of the agreement
towards protecting the mutual rights of the parties and in ensuring the
fulfilment of their reciprocal obligations as seller and buyer in regulating
G the supply of gas. As an incident of regulating supply, it determines the
correct quantity of gas that is supplied. The obligation to supply, install
and maintain the equipment is cast upon the seller as an incident of
control and possession being with the seller.
Section 65(105)(zzzzj) applies precisely in a situation where the
H use of the goods by a person is not accompanied by control and possession.
COMMISSIONER OF SERVICE TAX, AHMEDABAD v. M/S. ADANI 905
GAS LTD. [DR. DHANANJAYA Y. CHANDRACHUD, J.]

‘Use’ in the context of SKID equipment postulates the utilization of the A
equipment for the purpose of fulfilling the purpose of the contract. Section
65(105)(zzzzj) does not require exclusivity of use. The SKID equipment
is an intrinsic element of the service which is provided by the respondent,
acting pursuant to the GSA, as a supplier of natural gas to its buyers.
29. While interpreting the term ‘use’, the Tribunal in the impugned B
judgment has relied on its decision in the case of Meru Cab Company
Pvt. Ltd. v. Commissioner of Central Excise, Mumbai21 (“Meru
Cab”). Meru Cab involved the transfer of a vehicle from a radio taxi
operator to the driver, in turn to provide a service to the passengers. We
find that the reliance placed on Meru Cab is misplaced as the factual
context of the ‘use’ in the two cases is substantially different. In present C
matter, the agreement to supply gas, and the measurement equipment
and pipelines only involves two parties - the respondent and the ultimate
customer. Having said that, we are not expressing any opinion on the
correctness of the decision in Meru Cab.
30. Thus, we are of the view that the supply of the pipelines and D
the measurement equipment (SKID equipment) by the respondent, was
of use to the customers and is taxable under Section 65(105)(zzzzj) of
the Finance Act 1994.
31. Another aspect of the matter which requires to be set out is
the contention of the respondent that the gas connection charges are E
mainly in the nature of a refundable security deposit which is returned
to the customers in the event of the connection being discontinued or
terminated, depending on their usage, and are not payment for a service
provided by the respondent.
32. In the Show Cause Notice, the appellant stated that based on F
an assessment of gas sale agreements and invoices, it found that the
“gas connection charges” were collected for “supply of pipes and
measurement equipment etc.”. The appellant also noted that the
respondent had not issued any deposit receipt for these charges nor had
it mentioned that these charges are a refundable amount in the invoices
G
issued.
33. The respondent, in their reply dated 29 December 2009, stated
that the purpose of the collection of these charges was for safe-keeping
of the meter by the customers and the expense towards charges incurred
21
2016 (41) STR (444) (Tri-Mum). H
906 SUPREME COURT REPORTS [2020] 8 S.C.R.

A on disconnection, if the customer disconnects immediately after
installation. The respondent stated that according to the company policy,
with respect to commercial and industrial consumers, an amount for
installation of equipment was collected depending on the pressure of the
gas and the size of the SKID equipment. Although these are reflected
as gas connection income, they are (according to the respondent) mainly
B
in the nature of refundable security deposits. In support of their argument
for industrial and commercial consumers, the respondent provided a copy
of an “internal note dated 13 July 2007” and a list of industrial customers
to whom the gas connection charges have been refunded. The internal
note is extracted below:
C “Today we are supplying gas to more than 200 Industrial customers
at Ahmedabad & Vadodara. We are collecting Gas Connection
Charge upfront from the customers before commencing gas
supplies based on the customer load profile (provided by customer).
Many of our customers have future expansion after commissioning
D of the unit which is not covered in existing meter connection.
Further, few of the customers have also requested for termination
of the GSAs due to various issues. In such cases, following
amount shall be deducted from the Gas Connection Charges
and balance shall be refundable.
E (1) Upgradation of Load:
In this case the percentage of amount to be deducted shall be as
follows: -
Period from Commencement % of Amount to be
deducted
Earlier New Revised
F
Upto 1 Year 10% 20%
Between 1st Year to 2nd Year 25% 50%
Between 2nd Year to 3rd Year 50% 75%
Between 3rd Year to 4th Year 75% 100%

G (2) Terminating of Agreement:
In this case the percentage of amount to be deducted shall be as
follows:

H
COMMISSIONER OF SERVICE TAX, AHMEDABAD v. M/S. ADANI 907
GAS LTD. [DR. DHANANJAYA Y. CHANDRACHUD, J.]

P e riod fr o m C o m m e nc e m e n t % of A m ou n t to b e A
de d uc te d
E a rlie r N e w R e v is e d
U pto 1 Y e a r 10% 25%

B e tw e e n 1s t Y ea r to 2nd Y ea r 85% 50%
B e tw e e n 2n d Y ea r to 3 rd Y e a r 95% 75% B

B e tw e e n 3 rd Y ea r to 4 t h Y e a r 95% 100 %

(emphasis supplied)
The tabulation of the refund given to the industrial customers of
C
the respondent for 2008-09 is as follows:

D

E

F

G

34. The above data indicates that, contrary to the assertion of the
respondent that the amount collected as gas connection charges is H
908 SUPREME COURT REPORTS [2020] 8 S.C.R.

A refunded at the time of discontinuation of the connection, the percentage
which has been refunded to the industrial customers has varied from
case to case ranging from 25 per cent to 100 per cent. The Adjudicating
Authority observed:
“…the gas connection charges are refunded, based on the number
B of years of gas supply, when the gas connection contract is
discontinued. This clearly evidences that gas connection charges
in most of the cases are not refunded completely. The said noticee
not only earns interest on the gas connection charges but also
earns income by retaining some portion of the gas connection
charges at the time of discontinuance of the contract. This is a
C very strange kind of security deposit which is not only devoid of
interest but also on maturity the principal amount gets reduced.
Moreover, in reality it may never be refunded if the gas connection
is not discontinued. I have also seen the “Internal Note dated
13.7.2007” submitted by the said noticee along with his written
D submission as “Annexure-A” and I find that the amount to be
deducted is 100% when there is “upgradation of load” or
“termination of agreement” between 3rd year to 4th year. This
clearly establishes that the liability of the said noticee to refund
the said “Gas Connection Charges” is only upto a period of three
years, after that no amount is to be refunded and it eventually
E becomes income of the said noticee. Moreover, till the time the
said amount is partially refunded it remains with the said noticee
who is at liberty of using the same in whatever manner he wants
to. I have seen the Annexure-B annexed with the written
submission dated 4.1.2010 and find that the gas connection charges
F are refunded to only 13 customers during the year 2008-09. This
indicates that effectively, the gas connection charges once
recovered from the customers remain with the said noticee and in
cases where it is refunded then also some amount is retained by
the said notice.”
G 35. With respect to the domestic consumers, the respondent, in
their reply to the Show Cause Notice, argued that under the PNGRB
Network Tariff Regulations 2008, entities such as the respondent are
required to collect refundable interest-free security deposits towards
safe-keeping of the meter and are to be refunded in full to the domestic
PNG customer in case of a disconnection. The respondent argued that
H
COMMISSIONER OF SERVICE TAX, AHMEDABAD v. M/S. ADANI 909
GAS LTD. [DR. DHANANJAYA Y. CHANDRACHUD, J.]

the PNGRB Network Tariff Regulations 2008 further provide that the A
amount collected as interest-free refundable security deposit is to exist
as a liability in their books of account. In support of their contention, the
respondent provided their Annual Report for the financial year 2008-09
which depicts the performance in terms of income and profitability. An
extract of the report is provided below:
B
Performance Highlights:
During the year under review, your Company has shown resilience
in the times of global economic show down and has shown
impressive performance in terms of Income and Profitability, which
is summarized as under: C

D

E

F

G

H
910 SUPREME COURT REPORTS [2020] 8 S.C.R.

A

B

36. The above report provides that the respondent has treated an
amount of Rs. 5000/- per domestic consumer as refundable interest-
free security deposit amounting to Rs. 883.34 lacs. In assessing these
C rival contentions, the Adjudicating Authority held that:
“…I find that the attempt of the said notice to align the Finance
Act, 1994, with the Petroleum and Natural Gas Regulatory Board
Regulations 2008, to determine the taxability of a taxable event is
not acceptable and goes in vain. Taxability of a service is governed
D under Section 65(105) of the Finance Act, 1994 and is not
determined under any other Act or Regulations, unless and until
the same is specifically provided in the definition given under Section
65(105) of the Finance Act, 1994. The taxability of a service is
also not determined by the manner in which the Books of Accounts
are maintained….”
E
37. We find ourselves in agreement with the findings of the
Adjudicating Authority. The extent of the refund of gas connection
charges collected from industrial, commercial and domestic consumers
by the respondent depends on their usage. From the internal note dated
F 13 July 2007 and the tabulation of customers provided above, it is evident
that the percentage of funds refunded varies from customer to customer,
while the remaining amount is retained by the respondent. In any case,
as regards the domestic customers, no deposit receipts have been
provided and instead, the respondent has relied on the tabulation of the
refund of deposit to industrial consumers to support their contention.
G Thus, the argument of the respondent that these gas connection charges
collected from industrial, commercial and domestic consumers constitute
a refundable security deposit is rejected.

38. Thus construed, we are of the view that the Adjudicating
Authority was correct in concluding that the buyer of gas is as interested
H
COMMISSIONER OF SERVICE TAX, AHMEDABAD v. M/S. ADANI 911
GAS LTD. [DR. DHANANJAYA Y. CHANDRACHUD, J.]

as the seller in ensuring and verifying the correct quantity of the gas A
supplied through the instrumentality of the measurement equipment and
the pipelines. Additionally, the role of regulating pressure and ensuring
the safety of supply of gas performed by the measurement equipment is
an essential aspect for the ‘use’ of the consumer. The SKID equipment
fulfils the description in Section 65(105)(zzzzj) of a taxable service:
B
service in relation “tangible goods” where the recipient of the service
has use (without possession or effective control) of the goods.

39. For the above reasons, we are of the view that the Tribunal
was in error in interfering with the findings and order of the Adjudicating
Authority. The judgment of the Tribunal shall accordingly stand set aside. C
The order of the Adjudicating Authority is restored. The appeal is allowed
in the above terms.
40. Pending application(s), if any, stands disposed of.

D

Kalpana K. Tripathy Appeals allowed.

E

F

G

H
912 [2020]REPORTS
SUPREME COURT 8 S.C.R. 912 [2020] 8 S.C.R.

A THE STATE OF MADHYA PRADESH & ORS.
v.
BHERULAL
(Special Leave Petition (Civil) Diary No. 9217 of 2020)
B OCTOBER 15, 2020

Limitation:
Delay – In filing SLP – By Government-litigant – Held:
C Supreme Court cannot be a place for the Governments to walk-in,
ignoring the period of limitation – Despite strong deprecation by
the Court for such practice, there is no improvement – In matters
where there are inordinate delay, the State Authorities must pay for
wastage of judicial time – In the present case in view of the period
of delays and the manner in which the application seeking
D
condonation of delay has been worded, cost of Rs. 25,000/- is
imposed, which would be recoverable from the officers responsible
– On failure to deposit the cost in time, contempt proceedings to be
initiated against the Chief Secretary.
Dismissing the petition as time barred, the Court
E
HELD: 1. The Supreme Court of India cannot be a place
for the Governments to walk in when they choose, ignoring the
period of limitation prescribed. If the Government machinery is
so inefficient and incapable of filing appeals/petitions in time, the
solution may lie in requesting the Legislature to expand the time
F period for filing limitation for Government authorities because of
their gross incompetence. That is not so. Till the Statute subsists,
the appeals/petitions have to be filed as per the Statutes
prescribed. [Para 2][914-C-D]
2. A preposterous proposition is sought to be propounded
G that if there is some merit in the case, the period of delay is to be
given a go-by. This does not, take away the jurisdiction of the
Court in an appropriate case to condone the delay. The object
appears to be to obtain a certificate of dismissal from the Supreme
Court to put a quietus to the issue and thus, say that nothing
H could be done because the highest Court has dismissed the appeal.
912
STATE OF MADHYA PRADESH & ORS. v. BHERULAL 913

It is to complete this formality and save the skin of officers who A
may be at default that such a process is followed. The purpose of
coming to this Court is not to obtain such certificates and if the
Government suffers losses, it is time when the concerned officer
responsible for the same bears the consequences. The irony is
that in none of the cases any action is taken against the officers,
B
who sit on the files and do nothing.[Paras 5 and 6][915-G-H; 916-
A-C]
3. The reason for inordinate delay in the present case is
stated to be only “due to unavailability of the documents and the
process of arranging the documents”. In all matters, where there
are such inordinate delays that the Government or State C
authorities coming before this Court, must pay for wastage of
judicial time which has its own value. Such costs can be recovered
from the officers responsible. Looking to the period of delay and
the casual manner in which the application has been worded, it
would be appropriate to impose costs on the petitioner-State of D
Rs.25,000/- (Rupees twenty five thousand) to be deposited with
the Mediation and Conciliation Project Committee. The amount
be deposited in four weeks. [Paras 4 and 7, 8][915-F; 916-D-F]
4. If the aforesaid order is not complied within time, the
Court will be constrained to initiate contempt proceedings against E
the Chief Secretary. [Para 10][916-G]
Collector, Land Acquisition, Anantnag & Anr vs. Mst.
Katiji & Ors. (1987) 2 SCC 107 : [1987] 2 SCR 387;
Office of the Chief Post Master General & Ors. v. Living
Media India Ltd. & Anr. (2012) 3 SCC 563 : [2012] 1 F
SCR 1045 – referred to.
Case Law Reference
[1987] 2 SCR 387 referred to Para 3
[2012] 1 SCR 1045 referred to Para 3
G
CIVIL APPELLATE JURISDICTION: Special Leave Petition
(C) Diary No. 9217 of 2020.
From the Judgment and Order dated 12.02.2018 of the High Court
of Madhya Pradesh, Indore in Second Appeal No. 65 of 2001.
H
914 SUPREME COURT REPORTS [2020] 8 S.C.R.

A V.V.V.M.B.N.S. Pattabhiram, Dy. AG, Arjun Garg, Ms. Shrutika
Garg, Advs. for the appearing parties.
The Judgment of the Court was delivered by
SANJAY KISHAN KAUL, J.
B IA No.62372/2020-CONDONATION OF DELAY IN FILING
1. The Special Leave Petition has been filed with a delay of 663
days! The explanation given in the application for condonation of delay
is set out in paragraphs 3 and 4.
2. We are constrained to pen down a detailed order as it appears
C that all our counseling to Government and Government authorities have
fallen on deaf ears i.e., the Supreme Court of India cannot be a place for
the Governments to walk in when they choose ignoring the period of
limitation prescribed. We have raised the issue that if the Government
machinery is so inefficient and incapable of filing appeals/petitions in
D time, the solution may lie in requesting the Legislature to expand the
time period for filing limitation for Government authorities because of
their gross incompetence. That is not so. Till the Statute subsists, the
appeals/petitions have to be filed as per the Statues prescribed.
3. No doubt, some leeway is given for the Government
inefficiencies but the sad part is that the authorities keep on relying on
E
judicial pronouncements for a period of time when technology had not
advanced and a greater leeway was given to the Government (Collector,
Land Acquisition, Anantnag & Anr vs. Mst. Katiji & Ors. (1987) 2
SCC 107). This position is more than elucidated by the judgment of this
Court in Office of the Chief Post Master General & Ors. v. Living
F Media India Ltd. & Anr. (2012) 3 SCC 563 where the Court observed
as under:
“12) It is not in dispute that the person(s) concerned were well
aware or conversant with the issues involved including the
prescribed period of limitation for taking up the matter by way of
G filing a special leave petition in this Court. They cannot claim that
they have a separate period of limitation when the Department
was possessed with competent persons familiar with court
proceedings. In the absence of plausible and acceptable
explanation, we are posing a question why the delay is to be
condoned mechanically merely because the Government or a wing
H of the Government is a party before us.
STATE OF MADHYA PRADESH & ORS. v. BHERULAL 915
[SANJAY KISHAN KAUL, J.]

Though we are conscious of the fact that in a matter of condonation A
of delay when there was no gross negligence or deliberate inaction
or lack of bonafide, a liberal concession has to be adopted to
advance substantial justice, we are of the view that in the facts
and circumstances, the Department cannot take advantage of
various earlier decisions. The claim on account of impersonal
B
machinery and inherited bureaucratic methodology of making
several notes cannot be accepted in view of the modern
technologies being used and available. The law of limitation
undoubtedly binds everybody including the Government.
13) In our view, it is the right time to inform all the government
bodies, their agencies and instrumentalities that unless they have C
reasonable and acceptable explanation for the delay and there
was bonafide effort, there is no need to accept the usual
explanation that the file was kept pending for several months/
years due to considerable degree of procedural red-tape in the
process. The government departments are under a special D
obligation to ensure that they perform their duties with diligence
and commitment. Condonation of delay is an exception and should
not be used as an anticipated benefit for government departments.
The law shelters everyone under the same light and should not be
swirled for the benefit of a few. Considering the fact that there
was no proper explanation offered by the Department for the E
delay except mentioning of various dates, according to us, the
Department has miserably failed to give any acceptable and cogent
reasons sufficient to condone such a huge delay.”
Eight years hence the judgment is still unheeded!
F
4. A reading of the aforesaid application shows that the reason
for such an inordinate delay is stated to be only “due to unavailability
of the documents and the process of arranging the documents”. In
paragraph 4 a reference has been made to “bureaucratic process
works, it is inadvertent that delay occurs”.
G
5. A preposterous proposition is sought to be propounded that if
there is some merit in the case, the period of delay is to be given a go-by.
If a case is good on merits, it will succeed in any case. It is really a bar
of limitation which can even shut out good cases. This does not, of course,
take away the jurisdiction of the Court in an appropriate case to condone
the delay. H
916 SUPREME COURT REPORTS [2020] 8 S.C.R.

A 6. We are also of the view that the aforesaid approach is being
adopted in what we have categorized earlier as “certificate cases”.
The object appears to be to obtain a certificate of dismissal from the
Supreme Court to put a quietus to the issue and thus, say that nothing
could be done because the highest Court has dismissed the appeal. It is
to complete this formality and save the skin of officers who may be at
B
default that such a process is followed. We have on earlier occasions
also strongly deprecated such a practice and process. There seems to
be no improvement. The purpose of coming to this Court is not to obtain
such certificates and if the Government suffers losses, it is time when
the concerned officer responsible for the same bears the consequences.
C The irony is that in none of the cases any action is taken against the
officers, who sit on the files and do nothing. It is presumed that this
Court will condone the delay and even in making submissions, straight
away counsels appear to address on merits without referring even to the
aspect of limitation as happened in this case till we pointed out to the
counsel that he must first address us on the question of limitation.
D
7. We are thus, constrained to send a signal and we propose to do
in all matters today, where there are such inordinate delays that the
Government or State authorities coming before us must pay for wastage
of judicial time which has its own value. Such costs can be recovered
from the officers responsible.
E 8. Looking to the period of delay and the casual manner in which
the application has been worded, we consider appropriate to impose
costs on the petitioner-State of Rs. 25,000/- (Rupees twenty five
thousand) to be deposited with the Mediation and Conciliation Project
Committee. The amount be deposited in four weeks. The amount be
F recovered from the officers responsible for the delay in filing the special
leave petition and a certificate of recovery of the said amount be also
filed in this Court within the said period of time.
9. The special leave petition is dismissed as time barred in terms
aforesaid.
G 10. We make it clear that if the aforesaid order is not complied
within time, we will be constrained to initiate contempt proceedings against
the Chief Secretary.
11. A copy of the order be placed before the Chief Secretary,
State of Madhya Pradesh.
H Kalpana K. Tripathy Petition dismissed.