No Service Tax liability on facility of selling CNG through Outlets of IGL by HP

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.

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