ST - There is no service element attributable to consideration received as marketing margin: CESTAT
By TIOL News Service
NEW DELHI, AUG 10, 2017: THE appellants are engaged in trading and transportation of natural gas and have entered into contracts for sale of natural gas with various clients. They have transported the gas for sale up to the point of delivery. In terms of agreement, the appellants indicated three charges in the invoices; the price of gas, marketing margin and transportation cost. They have paid VAT on the entire invoice value and paid Service Tax only on the transportation cost.
The dispute in the present appeal relates to the includability of marketing margin in the taxable value for the services of transportation of gas.
The original authority upheld the charges leveled in the SCN and resultantly confirmed a Service Tax demand of Rs.54,45,99,526/- along with equal penalty.
In appeal before the CESTAT, the appellant submitted that the entire contract is for sale of natural gas and the transportation undertaken is towards fulfillment of the said sale transaction;such activity (of transportation) is in the nature of service to the self and not service to any other person; that in any event, the ‘marketing margin' is an element completely attributable towards cost price of gas and it has nothing to do with transportation charges; thatthey did not charge any marketing margin where they undertake only transportation of gas; that collection of marketing margin is approved by the Ministry of Petroleum and Natural Gas. Reliance is placed on the decision in Krishak Bharti Cooperative Ltd, - 2012-TIOL-859-HC-AHM-IT. The demand is also challenged on the ground of limitation.
The AR while supporting the findings of the original authority emphasised that the marketing margin is over and above the gas price and accordingly cannot be considered as price of gas.
After examining the articles of agreement dated 16.04.2008, the Bench remarked that it does not subscribeto the proposition of the Revenue that marketing margin is relatable to the activity of transportation of gas.
It is further observed -
+ Admittedly, the appellants paid VAT on the full consideration of their invoice value.
+ Service Tax paid on transmission charges in respect of sold gases by itself cannot be the reason for holding the tax liability for marketing margin .
+ Admittedly, marketing margin is an approved consideration on sale of gas, by the Ministry of Petroleum and Natural Gas. We note that Ministry of Petroleum and Natural Gas fixes the marketing margin that should be charged from the customers by the company marketing the gas. Such marketing margin money will arise only in respect of natural gas sold.
+ As the same is at the delivery point of the customer and transportation of gas is at the risk of the appellant, we find that there is no service element attributable to the consideration received as marketing margin .
+ There is no service by the appellant to the buyer of gas, independent to the sale transaction , as the sale transaction and the delivery point has been clearly defined in terms of the contract.
+ The marketing margin is considered as part of sales transaction value and subject to VAT . After the change of ownership of gas, there is no consideration attributable to any service from the seller to the buyer. In other words, any services or activity prior to actual sale of gas has no two persons identifiable as service provider and service recipient. The activities and services by the appellants prior to actual sale, are for self.
+ In respect of appellant, in others jurisdiction, proceedings were initiated to demand Service Tax on various activities undertaken with reference to the natural gas before sale. 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.
The impugned order was set aside and the appeal was allowed.
(See 2017-TIOL-2877-CESTAT-DEL)
