2017 (9) TMI 554 - AT - Service Tax

Valuation - includibility - marketing margin charged by the appellant for the services of transportation of gas through pipeline in terms of Section 65(105) (zzz) - Held that - The marketing margin is considered as part of sales transaction value and subject to VAT. After the change of ownership of gas, there is no consideration attributable to any service from the seller to the buyer - any services or activity prior to actual sale of gas has no two persons identifiable as service provider and service recipient. The activities and services by the appellants prior to actual sale, are for self - Service Tax liability on the marketing margin set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Includability of marketing margin in the taxable value for transportation of gas services.
2. Service Tax liability on marketing margin charged by the appellant.

Analysis:
1. The appellant, engaged in trading and transportation of natural gas, contested the Service Tax demand on the marketing margin charged in their invoices for transportation services. The original authority upheld the demand, considering the marketing margin as part of the taxable value of transportation services. However, the appellant argued that the entire contract was for the sale of natural gas, with transportation being a part of the sale transaction. They contended that the marketing margin was solely related to the cost price of gas and not transportation charges. The appellant emphasized that the collection of marketing margin was industry practice approved by the Ministry of Petroleum and Natural Gas. The appellant also highlighted a similar decision by the Hon'ble High Court supporting their position.

2. The appellant further disputed the demand on the grounds of limitation, asserting that there was no suppression or willful misstatement. The appellant had sought the department's opinion on Service Tax liability, indicating their cooperation and transparency. On the other hand, the department argued that the marketing margin was a separate consideration shown in the invoices and should not be considered part of the sale price of natural gas. The department contended that the marketing margin was for services rendered in marketing gases to the buyer, distinct from the price of gas itself.

3. Upon examining the facts and agreements between the parties, the Tribunal found that the sale of gas was completed at the delivery point to the buyer, as per the contracts. The Tribunal noted that the Ministry of Petroleum and Natural Gas regulated the marketing margin charged by the appellant, which was specific to the sale of natural gas. The Tribunal observed that the marketing margin arose only in the context of the sale of gas and was not attributable to any service element in the transportation of gas. The Tribunal emphasized that the activities undertaken by the appellant before the actual sale of gas were self-serving and not independent services provided to the buyer.

4. In light of the above analysis, the Tribunal held that the impugned order was not legally sustainable concerning the Service Tax liability on the marketing margin. Therefore, the Tribunal set aside the order and allowed the appeal with reference to the contested Service Tax liability on the marketing margin charged by the appellant.