2018 (2) TMI 1252 - AT - Service Tax

Transportation service through pipeline / conduit - Department took the view that delivery of naphtha from appellant s terminal to NFCL storage tanks through pipeline amounts to providing taxable services under the category transportation of goods through pipeline and that therefore the amount of ₹ 135/- per MT collected for this purpose will require to suffer service tax, for the period January 2005 to February 2006. Held that - There is an understanding that in case of any loss of goods during the transportation, it is the appellants who bear the loss and in fact have even paid excise duty on the loss quantity value, so also under the agreement, the sale by the appellant to NFCL is complete only when naphtha reaches the storage tanks. The appellant is not required to discharge excise duty liability on the sale of naphtha made to NFCL by availing N/N. 6/2002-CE. Just because there is no excise duty liability in respect of the impugned clearances, the attempt of the department to collect service tax in respect of throughput charges, in our opinion, will not pass muster. Reliance placed in the case of M/s. Grasim Industries Ltd. Versus C.C.E. Indore 2016 (5) TMI 87 - CESTAT NEW DELHI , where it was held that The transport of chlorine through pipeline is done by the appellant in their own account and the delivery on sale is made to the buyer. The transportation charges are included as a consideration for sale and to discharge central excise duty. Therefore, no justifiable legal basis found to sustain any service tax liability on the appellants.

Summary

Issues:
1. Whether the transportation of naphtha through a pipeline by the appellant amounts to providing taxable services under the category of transportation of goods through a pipeline, leading to service tax liability.
2. Whether the throughput charge collected by the appellant for the transportation of naphtha to a fertiliser plant owned by the appellant itself is subject to service tax.

Analysis:

Issue 1:
The case involved M/s Hindustan Petroleum Corporation Limited supplying naphtha to a fertiliser plant under a Fuel Supply Agreement. The dispute arose regarding the service tax liability on the throughput charge of ?135/- per MT collected by the appellant for transporting naphtha through a pipeline. The department contended that this activity constituted taxable services under transportation of goods through a pipeline. The original authority and Commissioner (Appeals) upheld the demand for service tax. However, the tribunal disagreed with this view. The tribunal noted that the naphtha was delivered to storage tanks owned by the appellant within the premises of the fertiliser plant. The tribunal held that since the appellant bore the risk of loss during transportation and the sale was completed only upon reaching the storage tanks, the service tax demand on the throughput charge was not justified.

Issue 2:
The appellant argued that since the storage tanks at the fertiliser plant were owned by them, the transportation of naphtha was essentially a service to oneself and not subject to service tax. The appellant relied on various case laws to support this argument. The department, however, contended that the transportation through a pipeline constituted a taxable service, and hence, the throughput charge was liable to service tax. The tribunal, after considering the facts and legal precedents, concluded that the transportation charges were included as a consideration for the sale of naphtha and to discharge central excise duty. Therefore, the tribunal held that there was no legal basis to impose service tax on the throughput charge. The tribunal relied on the decision in the case of Grasim Industries Limited vs. CCE, Indore to support its conclusion.

In conclusion, the tribunal set aside the impugned order and allowed the appeal, stating that the service tax liability on the throughput charge was not justified. The tribunal's decision was based on the ownership of storage tanks, the completion of sale upon delivery to the tanks, and the inclusion of transportation charges in the sale consideration for central excise duty purposes.