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TMI Blog2016 (9) TMI 782X X X X Extracts X X X X X X X X Extracts X X X X ..... discount also needs to be accepted in the absence of any allegation/ substantiation of mutuality of interest between Appellants and OMCs, as both are independent entities. We also find that there is a distinct difference in the transactions of the Appellants with PPs, wherein MGL supply CNG through the outlets owned and operated by PPs and CNG is directly supplied by PPs to the ultimate consumers/vehicles users from their outlets for and on behalf of MGL, under the invoices/bills/cash memos of MGL and the price charged in those bills/invoices/cash memos are the retail sales price or maximum recommended price determined by MGL, from time to time. In a true sense, the customers/ vehicle users at the outlets of PPs are buying CNG from MGL, through the PPs. The privity of contract is between MGL and those buyers and those sales are directly recorded in the Books of Account of MGL and not in the Books of PPs, as there is no sale and purchase of CNG by PPs and PPs act only as an agent of MGL on commission basis. The entire sales proceeds are remitted by PPs to MGL on daily basis. The contracts between MGL and PPs are that of “principal” and “agent” as the PPs are merely service provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E/1681/12-MUM, E/1950/12-MUM, E/85518/13-MUM, E/87910/13-MUM, E/89868/13-MUM - A/89319-89329/16/EB - Dated:- 24-8-2016 - Mr. M.V. Ravindran, Member (Judicial) and Mr. C.J. Mathew, Member (Technical) Shri M.H. Patil, Advocate for appellant Shri Hitesh Shah, Commissioner (AR) for respondent ORDER These eleven appeals filed by the Appellants are directed against respective Orders-in-Original passed by Commissioners of Central Excise, Mumbai II V, as Adjudicating Authorities. 2. Filtering out all unnecessary details, the brief facts of the case are that the Appellants (also referred as MGL ) are engaged in the manufacture of Compressed Natural Gas from Natural Gas and distribution thereof and have integrated infrastructure for the same. When the natural gas is compressed at 200 bar pressure, it is known as compressed natural gas (CNG), which is used as a fuel to motor vehicles. Prior to 1.3.2001, compression of natural gas did not amount to manufacture. However, w.e.f. 1.3.2001, through a Note to Chapter 27, compression of natural gas amounts to manufacture. MGL are classifying the CNG under Tariff Item 2711 21 00 and are paying duty thereon, after having o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discount to them from the retail sales price, which is termed as commission/trade margin, etc. in the agreements. For the purpose of payment of duty on the CNG supplied through PPs, MGL considered the service charges paid to PPs also while arriving at the transaction value. However, for the sale of CNG to OMCs, the Appellants raised sales invoices for the value mutually agreed upon in consequence thereof, the trade profit/commission/discount given to OMCs get excluded from retail sales price, if backward calculation is done. In a nutshell, duty was paid on the sales price to OMCs, which is the transaction value. 4. Eleven Show Cause Notices, covering the period June, 2003 to December 2012, were issued alleging that the assessable value considered by the Appellants for sale of CNG directly through their own outlets or through outlets of PPs should be the assessable value for payment of duty for the CNG supplied to OMCs, as against the Appellants payment of duty on the net sales price charged to OMCs. The basis of the SCNs is that all parameters like ownership of equipment, manner of production, product, RSP, etc. remaining the same, assessable value for the purpose of payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concerned, sale of CNG drawn from stationary cascades takes place between MGL and OMCs at the outlets OMCs and OMCs sell CNG to their customers/vehicle users and issue their own cash memos/bills for the same and MGL do not have any role to play in such transactions; that even MGL wants to sell CNG at the outlets of OMCs directly to the vehicles, they have no legal right to do so; that service charges paid to PPs during different periods was/is ₹ 1.20/kg, ₹ 1.74/kg, ₹ 1.90/kg and ₹ 2.45/kg, whereas discount/trade profit given to OMCs was/is ₹ 1.20/kg, ₹ 1.40/kg, ₹ 2.42/kg, ₹ 2.62/kg and ₹ 2.74/kg; that since OMCs are bulk buyers of CNG from MGL, higher discount/trade profit was/is offered; PPs role is limited to sale of CNG through their outlets for and on behalf of MGL; that payment of services charges to PPs and discounts to OMCs would also prove that what was offered/paid to OMCs is trade discount/profit margin and not commission; that the nomenclature like discount, trade profit, commission, etc. were/are loosely used in agreements, which were entered into much prior to introduction of central excise duty on CNG and, hence, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y VAT; that in the case of sales through PPs, VAT is paid by MGL alone and PPs are not paying any VAT thereon, as PPs sell CNG on behalf of MGL, as their agents and PPs raise invoices/cash memo of MGL for sale of CNG from their outlets and the sale proceeds are collected and deposited in the name and account of MGL; that service charges are paid by MGL to PPs on which PPs are paying service tax, which is not the fact in the cases of OMCs, as even MGL wishes to sell CNG at the outlets of OMCs directly to vehicles, they cannot do so, as they do not have not legal right to sell CNG from the out of OMCs; that invoices are raised by MGL on OMCs for the mutually agreed price, which is the transaction value, which conclusively evidences that the transactions between MGL OMCs are sale/purchase transactions; that OMCs are not rendering of any service; that on the so called commission , the Department demanded and confirmed service tax from OMCs, claiming that OMCs are providing the service of promoting the business of MGL and such activity would fall under Business Auxiliary Service; the Hon ble Tribunal, vide Final Order No.A/828-830/14/CSTB/C-I dated 4.6.2014, reported in 2014-TIOL-111 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e same for discharge of duty for sale of CNG to OMCs; that if the terminologies used in the agreements entered in 1998 were defective, they could have very well used correct terminology in the agreements entered into after introduction of duty on CNG; that the sale of CNG by MGL through its own outlets and/or outlets of PPs is comparable to the outlets of OMCs; that dropping of demand of service tax under Business Auxiliary Service by Tribunal in the case of BPCL would not have relevance to the present case, as service tax is not demanded. Ld.AR has also relied upon various clauses of the agreements entered into between MGL and OMCs and claimed that MGL have mis-declared supply of Natural Gas to OMCs as supply of CNG to show that manufacture takes place at MGLs end. Ld.AR has also relied upon various case laws in support his propositions. 5. We have considered the rival submissions and perused the records. 5.1 We find that the common issue involved in the above appeals is whether price charged for sale of CNG to OMCs can be considered as transaction value for the purpose of payment of duty under Section 4(1)(a) of CEA. 5.2 We find that entire period covered in all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of BPCL/HPCL (supra), wherein the service tax demanded on the very same amount received by OMCs from MGL, claiming such amount as commission paid for rendering of services under Business Auxiliary Service for marketing of CNG manufactured by the Appellants, has been set aside holding that the OMCs themselves are buying the goods from MGL and MGL is charging VAT/sales tax while selling the CNG to BPCL/HPCL and BPCL/HPCL are also paying VAT/sales tax on the entire value, including the so called commission and, hence, the transaction between them is sale/purchase transaction and VAT/sales tax has been paid at both ends the same cannot be considered as service contracts. 5.3 We find that the Appellants contention that OMCs, being bulk buyers, have been given higher discount also needs to be accepted in the absence of any allegation/ substantiation of mutuality of interest between Appellants and OMCs, as both are independent entities. We also find that there is a distinct difference in the transactions of the Appellants with PPs, wherein MGL supply CNG through the outlets owned and operated by PPs and CNG is directly supplied by PPs to the ultimate consumers/vehicles users ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o principal basis and MGL shall not be liable for any of the acts of omission/commission of OMCs. We also find from record that when CNG is supplied by MGL through PPs, there is no sale between MGL and PPs, as the sale takes place between MGL and the ultimate customers/vehicle users and the PPs act as agents of MGL; that the PPs were/are issuing cash memos/invoices/bills of MGL, when they supply CNG to customers/vehicle owners; that the PPs are acting as agents of MGL, for which they get specified service charges and the PPs are paying service tax on such amount; that, in contrast, as far as OMCs are concerned, sale of CNG takes place between MGL and OMCs at OMCs outlets and OMCs issue their cash memos/bills/invoices to their customers/vehicle owners and MGL do not have any role to play in such transactions; that commission paid to PPs was ₹ 1.20/kg, ₹ 1.74/kg, ₹ 1.90/kg and ₹ 2.45/kg during different periods, whereas discount given to OMCs was ₹ 1.20/kg, ₹ 1.40/kg, ₹ 2.42/kg, ₹ 2.62/kg and ₹ 2.74/kg during different periods. From the above discussions, we are of the view that the Appellants case is squarely covered under new S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cture takes place at each of the compression station the Appellants are having centralized registration for each of the locations, which are the factories of MGL. 5.5 The Ld. AR s arguments that manufacture and sale is taking place simultaneously would not be correct, as CNG is drawn from stationary cascades and dispensed through dispenser. Further, even if the transaction of purchase and sale between the buyer and seller takes place simultaneously on account of peculiar nature of the product, such transaction has to be treated as sale on principal to principal basis based on the Hon ble Supreme Court judgment in the case of Bayyana Bhimayya, Alwaye Agencies etc. cited supra by the Appellants. 5.6 Since we are of the view that the Appellants have a strong case on merits itself and are allowing the appeals on merits, we are not discussing the alternate propositions like non-applicability of extended period, etc. The penalties imposed on the Appellants are also not sustainable. With the above discussions, we set aside the impugned Orders and allow the appeals with consequential relief, if any, in accordance with law. (Order pronounced in Court on 24.08.16) - - TaxTMI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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