2024 (3) TMI 496 - AT - Service Tax

Levy of service tax - Transportation of Gas through Pipeline and Conduit Service - Business Auxiliary Service - receiving consideration in the form of Minimum Demand Charges (MDC) for gas transportation from their customers. Demand on extra consideration in the form of MDC for gas transportation - total consumption of gas is falls 90% of the yearly booked quantity of gas by the customers - HELD THAT - Aas the customer has failed to derive more than 90% through Pipeline, in that circumstances, the customer has to pay the penalty to the appellant. The amount received by the appellant by way of penalty, cannot be termed as the appellant has provided any service - the MDC received by the appellant, the appellant is not liable to pay service. Therefore, the demand confirmed in the impugned order quo minimum demand charges are set aside. Demand on realization of the sale value of gas on behalf of M/s Oil India Limited, Duliajan from the purchasers and from the consumers of gas along with royalty and marketing margin - HELD THAT - It is reported that the marketing margins were collected from the customers for supply of gas on behalf of M/s Oil India Limited, Duliajan, which are also a sale value of the gas on which VAT has been paid and the said issue has been dealt with by this Tribunal in the case of GAIL INDIA LTD VERSUS CCE, DELHI 2017 (9) TMI 554 - CESTAT NEW DELHI , wherein this Tribunal has held The jurisdictional authorities after examining the sale agreement, categorically held that the charges received by the appellant are part of sale of gas and cannot be subject to Service Tax. It was held that the value in dispute is included in the assessable value being part of the sale of gas and applicable VAT has been paid. Accordingly, the original authority dropped the demand for Service Tax. As the issue has been settled by this Tribunal in the case of GAIL India Limited, it is held that as on this marketing margin received by the appellant have already paid the VAT by M/s Oil India Limited, the appellant is not liable to pay the service tax thereon. In that circumstances, on marketing margin, the appellant is not liable to pay service tax. The impugned demands are not sustainable against the appellants and therefore, the same are set aside - Appeal allowed.

Summary

Issues involved:
The issues involved in the judgment are the liability to pay service tax on Minimum Demand Charges (MDC) for gas transportation and on marketing margins received by the appellant.

Issue 1: Liability on Minimum Demand Charges (MDC) for gas transportation:
The appellant was engaged in the transportation of gas through pipelines and paid service tax on this activity. The Revenue contended that the MDC received by the appellant for gas transportation when the total consumption of gas falls below 90% of the yearly booked quantity is taxable under "Transportation of Gas through Pipeline and Conduit Service." Various show-cause notices were issued, demanding service tax, interest, and penalties. The appellant argued that the MDC collected from customers, being a form of penalty for not utilizing the gas beyond 90% of the quantity, does not constitute a service provided by the appellant. The Tribunal held that the MDC received under such circumstances does not amount to a service provided by the appellant, and thus, the demand on MDC was set aside.

Issue 2: Liability on marketing margins received by the appellant:
The appellant realized the sale value of gas on behalf of M/s Oil India Limited, including royalty and marketing margins. The Revenue claimed that service tax was payable on these marketing margins under "Business Auxiliary Service." However, the Tribunal referred to a previous case involving GAIL India Limited where it was held that marketing margins received by the appellant, on which VAT had been paid, did not attract service tax. The Tribunal emphasized that the marketing margin was part of the sale transaction value and not a separate service provided by the appellant. Relying on the precedent, the Tribunal concluded that the appellant was not liable to pay service tax on the marketing margins received, and thus, set aside the demand on marketing margins.

Conclusion:
In conclusion, the Tribunal held that the demands raised against the appellant were not sustainable on both counts. The appeals were allowed, and the impugned orders were set aside, providing consequential relief to the appellant.