By Vinay Jain, Chartered Accountant, & Sachin Mishra, Advocate

1. Whether service tax can be demanded on the discount received by the appellant on bulk purchase of CNGs for sale from a CNG manufacturing company?

Facts & Pleadings: M/s. Hindustan Petroleum Corporation Ltd. (hereinafter referred to as “the Appellants”) is a 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. (hereinafter referred to as ‘IGL’), who are engaged in the manufacture of Compressed Natural Gas (hereinafter referred to as ‘CNG’). The contract envisaged the appellant in buying CNG in bulk from IGL on discount, for sale.

According to the department, 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. Thus, as per the Revenue 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.

The appellants have argued that the amount in dispute, is merely a discount from the price of gas payable by the appellant to the IGL. Such discounts on a sale transaction cannot be subjected to any service tax. The supply of gas by IGL to the appellant is with payment of excise duty. In this regard, The appellant relied on the decision of the Tribunal in Bharat Petroleum Corporation Ltd. – 2014-TIOL-1114-CESTAT-MUM and Indian Oil Corporation Ltd. vide Final Order No. 57596-5757/2017 dated 6.10.2017.

Judgment: The Hon’ble CESTAT agreeing with the contentions of the Appellants has held that as the appellant is buying the CNG from IGL, there cannot be the question of rendering any service to the client for marketing of the goods. Further, by applying the ratio laid down in the decision of Indian Oil Corporation Ltd. case (supra), the Hon’ble Tribunal has held that the transaction between IGL and the appellant are on principal to principal basis. The Hon’ble CESTAT has further observed that the agreement categorically states that the appellant has been prohibited from holding himself as an agent of IGL. Thus, the discount received by the appellant from IGL cannot be considered as ‘commission’ for the purpose of making a demand under ‘Business Auxiliary Service’.

Hindustan Petroleum Corporation Ltd. appellants vs. CCE, Delhi-II, Gurugram, CESTAT, New Delhi decided on 12.02.2018 in Service Tax Appeal Nos. 59270/2013 and 53654/2014.

Hindustan Petroleum Corporation Ltd.

2. Whether the goods should be produced only using the raw materials supplied by the clients to avail the exemption under Notification No. 8/2005-ST dated 01/03/2005?

Facts & pleadings: M/s. Perfect Rubber Linings (hereinafter referred to as “Respondent”) is a proprietary firm and is engaged in the work of rubber lining and other parts thereof on job work basis for M/s. Grasim Industries Limited (hereinafter referred to as “GIL”). For the said activity, the semifinished goods were supplied by GIL. The respondents have not paid service tax by availing the exemption granted under Notification No. 8/2005-ST dated 01/03/2005 when the goods are produced on behalf of the client.

The Department has claimed that the respondent is not entitled to the exemption under Notification No.8/2005-ST dated 01/03/2005 as the respondent has used some of the rubber linings from their own account which was not supplied by GIL. Accordingly, the Department has taken the view that in terms of the proviso clause of the said Notification, since such goods are produced not exclusively using the raw material supplied by the client, the respondent will not be entitled to the benefit of notification exempting service tax.

Judgment: The Hon’ble CESTAT has observed that the proviso clause of the said Notification only states that the benefit has to be available, if the assessee is using the raw materials provided by the client. It does not specify that the goods should be produced only using the raw materials or semi-finished goods supplied by the clients. The Hon’ble CESTAT has held that in the present case, there is no dispute with regards to the fact that GIL is supplying the semi-finished goods to the respondent to carry on the activity of rubber lining. Hence, the respondent is entitled to the exemption under Notification No. 8/2005-ST dated 01/03/2005.

CCE & ST, Indore vs. M/s Perfect Rubber Linings, CESTAT, New Delhi, decided on 31.1.2018 in the Service Tax Appeal No. 50840 of 2014 with C.O. No. 53161 of 2014.

M/s Perfect Rubber Linings

Note: The Whole decisions can be downloaded from the CTC website under Knowledge Centre.

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