2024 (5) TMI 564 - AT - Service Tax

Nature of activity - sale or service - Business Auxiliary Service or not - appellant is engaged in promotion, marketing and sale of goods belonging to CIL or the transaction between the appellant and CIL is one of sale/purchase? - HELD THAT - In BHARAT PETROLEUM CORPN. LTD AND HINDUSTAN PETROLEUM CORPN. LTD VERSUS COMMISSIONER OF SERVICE TAX 2014 (7) TMI 159 - CESTAT MUMBAI , the Tribunal considered the issue in identical situation where the BPCL and HPCL being public sector undertaking were engaged in marketing of petroleum products. They purchased the compressed natural gas (CNG) from Mahanagar Gas Limited and sold the same to their dealers. The revenue took the view that services rendered by the appellant to MGL are in relation to marketing of the goods of MGL and, therefore, constitutes service under BAS. In similar situation in CCE, MUMBAI-V VERSUS MAHANAGAR GAS LTD. 2018 (6) TMI 1297 - SC ORDER , the controversy related to was that CNG purchased by oil marketing companies (OMCs) from MGL is a transaction of sale/purchase and not for providing of any service by OMS to MGL. Considering the various clauses of the agreement, it was held that those are not agency agreements but are for sale purchase of CNG on principal-to-principal basis for which MGL paid VAT on sale of CNG and OMCs also paid VAT on re-sale of CNG. Under sub clause (i) of section 65(19) promotion, marketing or selling the goods of the client is taxable as business auxiliary service, only if the service provider is acting as an agent of the client, however, the appellant is not acting as an agent of the coal companies but is purchasing coal from the coal companies for reselling further to the coal consumers - the relationship of the appellant with the coal companies was on principle to principal basis and there was no element of service which could be taxed under the category of business auxiliary service. Fixed remuneration of 5% on the base price of coal charged by the appellant from the coal companies as service charge and the limitation that the appellant cannot charge any price higher than 105% of the base coal price - HELD THAT - As can be seen from the Coal Policy the appellant is selling coal at such price whereby he is getting a profit margin of 5% on the base price. The resale price has been fixed by an agreement between the parties. Whatever is charged by the coal companies for coal, the appellant is adding 5% margin money and collecting the sale price from the consumers and is paying the sales tax on the entire amount received from the end consumers, therefore the revenue cannot charge any service tax. Having decided the issue that the transaction is one of sale/purchase on principal-to-principal basis and the coal companies as well as the appellant is discharging the liability of sales tax/VAT, there is no element of service involved, the appellant cannot be saddled with the liabltity of service tax, it is not necessary to go into the other issues as they do not survive. The impugned order, therefore, deserves to be set aside - Appeal allowed.

Summary

Issues Involved:
1. Whether the appellant is engaged in promotion, marketing, and sale of goods belonging to Coal India Limited (CIL) and is liable to pay service tax under the category of Business Auxiliary Service (BAS).
2. Whether the transaction between the appellant and CIL is one of sale/purchase.

Summary of Judgment:

Issue 1: Engagement in Promotion, Marketing, and Sale of Goods

The appellant, a cooperative society registered under the Multi State Co-operative Societies Act, 2002, was allocated coal by Coal India Limited (CIL) for distribution among small consumers. The Commissioner of Central Excise confirmed the demand of service tax under the category of "Business Auxiliary Service" (BAS) as defined u/s 65(19) read with Section 65(105)(zzb) of the Finance Act, 1994. A show cause notice dated 02.12.2004 was issued, alleging that the appellant was engaged in promotion, marketing, and sale of goods belonging to CIL, thus liable to pay service tax. The appellant argued that the arrangement was for purchase and resale of coal on a principal-to-principal basis, not as an agent of CIL. The Tribunal considered precedents, including Bharat Petroleum Corporation Limited vs. CST, Mumbai-I and Mahanagar Gas Limited, concluding that the relationship was not of agency but of sale/purchase.

Issue 2: Transaction of Sale/Purchase

The Tribunal examined the coal distribution policy and the agreements between the appellant and CIL. It was noted that the appellant paid the entire price for coal upfront and charged sales tax/VAT on resale, indicating a sale/purchase transaction. The Tribunal referenced the Supreme Court's observations in Bhopal Sugar Industry Limited vs. STO, emphasizing that restrictions imposed by the seller do not alter the nature of the transaction from sale to agency. The Tribunal found that the appellant was not obligated to report sales proceeds back to CIL, reinforcing the principal-to-principal relationship. The Tribunal also noted that the appellant's profit margin of 5% did not constitute a service charge but was a part of the sale price, on which sales tax was duly paid.

Conclusion:

The Tribunal concluded that the transaction between the appellant and CIL was one of sale/purchase on a principal-to-principal basis, with no element of service involved that could be taxed under BAS. Consequently, the impugned order was set aside, and the appeal was allowed.

[Order pronounced on 10.05.2024]