M/s. Hindustan Petroleum Corporation Ltd. Vs. CCE (CESTAT Delhi)
These two appeals are on similar disputes with reference to service tax liability of the appellant under the category of “Business Auxiliary Service”.
2. The brief facts of the case are that the appellant is Government owned Public Sector Undertaking engaged in the business of refining and distribution of petroleum products through a network of depots/installations. The appellant entered into contractual arrangement with M/s. Indraprastha Gas Ltd.(IGL), who were engaged in the manufacture of Compressed Natural Gas (CNG) from natural gas and its further distribution in and around Delhi. IGL supplied CNG to various similarly placed Public Sector Undertakings Oil Companies including the appellant. The contracts envisaged the oil marketing companies in buying CNG in bulk on discount for sale. The appellant entered into one such agreement with IGL for giving facility of selling CNG through their outlets; accounting and selling of the said CNG. The appellant obtained certain considerations, which were claimed as discount, but the Revenue considered the same as a commission for promoting business of IGL. The Revenue entertained view that the considerations received by the appellant from IGL are in the nature of commission for rendering Business Auxiliary Service in terms of Section 65(19) of the Finance Act, 1994. Accordingly, proceedings were initiated against the appellant by way of issue of four show cause notices covering the period 10.09.2004 to 31 .03.2012. The cases were adjudicated confirming the service tax liability and also imposing penalties under Section 77 and 78 of the Finance Act, 1994.
3. Ld. Counsel appearing for the appellant submitted that the appellant has purchased CNG from IGL and they sold the same to the different buyers. A perusal of the agreement will clearly show that the amount, which is sought to be taxed, though termed as „commission‟is in reality only a discount from the price of gas payable by the appellant to the IGL. Such discounts on a sale transactions cannot be subjected to any service tax. The arrangement is such that the appellant allowed IGL to install necessary equipments for sale of CNG by the appellant. These are special equipments installed by IGL during the operation of the agreement. The supply of gas by IGL to the appellant is with appropriate payment of excise duty. The invoice raised will show the sales transactions. The CNG is sold by the appellant at a price fixed by IGL. The appellant is allowed a trade margin, which is termed as “commission” in the agreement. The name “commission” cannot be construed to understand the transaction as commission agent‟s work. The ld. Counsel relied on the decision of the Tribunal in the appellant‟s own case with reference to similar agreement in Bharat Petroleum Corporation Ltd. – 2014- TIOL-1114-CESTAT-MUM. He also relied on the decision, on an identical dispute, in the case of Indian Oil Corporation vide Final Order No.57596- 5757/2017 dated 6.10.2017. In this case, the Tribunal examined on an identical agreement of IGL with IOCL. The demand of service tax under “BAS” was set aside by Tribunal.
4. Ld.AR supported the findings of the lower authority. He submitted that the CNG supplied by the IGL continues to be the property of the IGL and there is no sale by the appellant to the retail customers. The sale of CNG is by IGL itself through the appellant. He submitted that the decisions of the Tribunal relied upon by the appellant did not examine the factual matrix of transactions between the appellant and the IGL.
5. We have heard both the sides and examined the case records.
6. We have also examined the terms of the agreement between the IGL and the appellant. At the outset, we note that similar set of facts in respect of appellant‟s own case in Mumbai and for IOCL with IGL has been a subject matter of decisions of this Tribunal. The said decisions relied upon by the appellant are relevant to decide the present case also. In the case of IOCL (supra), the Tribunal observed as under:-
“7. On careful consideration of the submissions made by both the sides, we find that on identical set of facts and on the basis of the identical agreement, a case was booked against M/s. Bharat Petroleum Corpn. Ltd. (supra), wherein this Tribunal observed as under:-
“11. As per the said provisions, the service provider provide service to his client for marketing or promotion of the goods to third party. In these cases, appellants themselves are buying goods from M/s. MGL. Therefore, the question of rendering the service to the client for marketing of the goods does not arise. We further find 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 commission on which VAT/ST has been paid would not evidence the fact of rendering service. The contention of the ld. AR that the private parties are paying Service Tax under the category of Business Auxiliary Service on the same activity, therefore, the appellants are required to pay Service Tax is not acceptable as in the case of private parties, the invoices on the customers were raised by M/s. MGL directly and the private parties are receiving commission and there is no transaction on principal to principal basis.”
8. We further find that as per the agreement, relationship between the parties had been defined in Clause 14.2 of the agreement, which is reproduced as under:-
“14.2 During the term of this agreement, IOCL shall not hold itself out as an agent of IGL. It is clearly understood that this agreement is on principal to principal basis and IGL shall not be liable for the acts of commission or omission of IOCL or its employees, personnel or representatives. “
9. As per the agreement, the transaction done between the parties is on principal to principal basis. Therefore, relying on the decision of this Tribunal in the case of Bharat Petroleum Corpn. (supra), we hold that the demands against the appellants are not sustainable under the category of “Business Auxiliary Service” for the amount received by the appellant as commission as all the transactions have been done between the appellant and IGL on principal to principal basis.”
7. In the present case, the facts are almost identical. The transaction between IGL and the appellant are on principal to principal basis. The appellant has been prohibited from holding himself as an agent of IGL. The agreement categorically states that the same is on principal to principal basis.
8. Considering the ratio of the decisions of the Tribunal referred to above, we find that service tax liability under BAS cannot be sustained against the appellant. Accordingly, the impugned orders are set aside. The appeals are allowed.
[Order pronounced on 12.02.2018]