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TMI Blog2024 (5) TMI 564X X X X Extracts X X X X X X X X Extracts X X X X ..... 018 (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 pric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Small Scale Industries Corporation (NSIC) etc.) or industries associations, as the State Govt. may deem appropriate. The agency so notified will continue to distribute coal until the State Govt. chooses to de-notify it. 4.2 The Agency/association so notified by the State Govt would be required to enter into Fuel Supply Agreement (FSA) with coal company to be designated by the Coal India Ltd The FSA will continue to remain in force till either the State Govt denotifies the agency/association or CIL shifts the obligation to some other coal company due to production, transportation, logistics etc. In the latter case, a fresh FSA would be signed with the new coal company. The FSA would be based on firm commitment and compensation for default in performance on either side. These State Govt/Central Govt. agencies would be free to device their own distribution mechanism. However, the said mechanism should inspire public confidence and should result in distribution of coal in a transparent manner. 4.3. The price charged to such agencies would be same notified price as applicable to other consumers entering into FSA . The agency would be entitled to charge actual freight and upto 5% margi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al companies and is not providing the service of promotion or marketing of sale of goods purchased by the coal companies. The relationship between the appellant and the CIL was on principal-to-principal basis, as they are paying the entire coal price to the coal companies on its own account before the supply. Learned counsel further submitted that invoices annexed with the memorandum of appeal clearly show that the appellant had paid sales tax/VAT on the amounts on which service tax is being levied. Learned counsel for the appellant has relied on the decision, enunciating the principle that service tax was not payable on the transactions on which the sales tax/VAT has been paid. 8. Learned authorised representative appearing for the department reiterated the findings of the adjudicating authority and submitted that the relationship between the appellant and CIL is not on principal-to-principal basis as they are engaged in sale and distribution of coal on behalf of CIL to the final consumers. The appellant is engaged in promotion, marketing and sale of goods belonging to CIL and such services are taxable under the category of BAS and are liable to pay service tax. 9. The issue which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind that MGL is discharging VAT/ST liability while selling the CNG to appellants. Although the RSP is fixed but it does not mean that the profit margin shall be constituted as commission for rendering the service. On examination, it is found that all the transactions shown by the appellants are done on principal to principal basis. Moreover, the appellants are selling these CNG on payment of VAT/ST to the buyers. There is no commission component that have been received by the appellants from M/s. MGL. FOR e.g., if the appellant is receiving goods from MGL at 100/- per kg. including VAT but these goods are sold by the appellant to customers on RSP fixed at 102/- per kg., that does not mean that the appellants are receiving commission of 2/- from MGL. In fact the appellants are also paying VAT on 2/- also. It is also a fact that the appellants are not receiving any commission from M/s. MGL. Therefore, it cannot be presumed that appellants are rendering any service to MGL. Moreover, the case law relied upon by the counsel in the case of Bhagyanagar Gas Ltd. (supra) also supports the cases in hand, wherein this Tribunal held that mere mention in the agreement the trade margin as commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e terms of the agreement, the court has to look to the substance rather than the form of it. The mere fact that the word agent or agency is used or the words buyer and seller are used to describe the status of the parties concerned is not sufficient to lead to the irresistible reference that the parties did in fact intend that the said status would be conferred. Thus, the mere formal description of a person as an agent of buyer is not conclusive, unless the context shows that the parties clearly intended to treat a buyer as a buyer and not as an agent. 14. The Fact that the appellant is required to charge specified price and sell the coal to specified category of consumers which are identified as per the policy of the State Government is not in the nature of restrictions and does not alter the nature of the transaction. In Bhopal Sugar Industry, the Apex Court categorically observed that the concept of sale having undergone a revolutionary change, the seller by virtue of an agreement impose various conditions on the buyer, however, that would not change the contract of sale to one of agency. The fact that appellant is under no obligation to report back to the coal companies about i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the society, which has made a departure from the doctrine of laissez faire including a transaction within the fold by virtue of an agreement, impose a folo of a sale even though the seller may by virtue of an agreement impose a number of restrictions on the buyer, e.g., fixation of price submission of accounts, selling in a particular area or territory and so on. These restrictions per se would not convert a contract of sale into one of agency, because in spite of these restrictions the transaction would still be a sale and subject to all the incident of a sale. A contract of agency, however, differs essentially from a contract of sale inasmuch as an agent after taking delivery of the property does not sell it as his own property but sells the same as the property of the principal and under his instructions and directions. Furthermore, since the agent is not the owner of the goods, if any loss is suffered by the agent he is to be indemnified by the principal. This is yet another dominant factor which distinguishes an agent from a buyer pure and simple . In Halsbury's Laws of England, Vol. 1, 4th Edn. in para 807 at p. 485, the following observations are made: The relation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow: Business Auxiliary Service means any service in relation to, (i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or (ii) promotion or marketing of service provided by the client; or 18. 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 as noted above 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. Here we find that 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. 19. We may now consider the allegation raised by the revenue regarding 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. As can be seen from the Coal Policy the appellant is selling coal at such p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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