Purchasing coal from coal companies for reselling to consumers is not taxable service under Finance Act,1994: CESTAT

CESTAT

Customs, Excise and Service Tax Appellate Tribunal, New Delhi: National Co-operative Consumers’ Federation of India Limited-Appellant was assailing the order dated 22-01-2023 (‘impugned order’), whereby the demand of service tax on the appellant under the category of Business Auxiliary Service was confirmed. The bench of Binu Tamta, Member (Judicial) and Hemambika R. Priya, Member (Technical) opined that under Section 65(19)(i) of the Finance Act, 1994 (‘the Act’), promotion, marketing or selling the goods of the client was taxable as business auxiliary service, only if the service provider was acting as the client’s agent. However, appellant was not acting as an agent of the coal companies, rather it was purchasing coal from the coal companies for reselling further to the coal consumers. Therefore, the Tribunal opined that the relationship of 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. Thus, the Tribunal opined that appellant could not be saddled with the liability of service tax, and accordingly set aside the impugned order.

Background

Appellant was a cooperative society, registered under the Multi State Co-operative Societies Act, 2002, where approximately 80% share capital was held by the Government of India. Appellant was allocated coal by Coal India Limited (‘CIL’) for distribution among small/tiny consumers in the country. An intelligence was received that appellant was allocated the coal for which it was receiving the commission of 5% in lieu of services provided by them to CIL, but they were not discharging their service tax liability under the category of Business Auxiliary Service as defined under section 65(19) read with Section 65(105)(zzb) of the Act.

Further, appellant appointed Pavan Coal Company, Kanpur as their National Handling and Distribution Agent, for distribution of coal to the tiny consumers of the non-core sector, and accordingly, an agreement dated 05-01-2005 was entered between both the parties. The Ministry of Coal allotted 2 million MTs of Coal per annum to appellant, which was made available through the subsidiaries of CIL. The coal was lifted from the collieries by their authorised coal agent and was supplied to the small/tiny consumers in the small sector industry.

In terms of the policy, appellant was not permitted to collect over and above 5% of the basic value and out of the 5% profit available to them, 1.5% was paid to the handling agent and the remaining 3.5% was retained by them. The main role of the handling agent was to lift the coal from the collieries of a coal company and deliver to small/tiny consumers in the small sector industries and also, collecting the payment for depositing with the appellant from time to time.

According to the Revenue, appellant was engaged in promotion, marketing and sale of goods belonging to CIL, which was taxable under the category of Business Auxiliary Service, therefore a show cause notice dated 02-12-2004 was issued to appellant. Consequently, the demand of service tax of Rs. 1,07,30,726 was made along with interest and penalty. On adjudication, the impugned order confirming the demand was passed. Thus, being aggrieved by the order, appellant filed the present appeal.

The issue which arose for the consideration before the Tribunal was whether appellant was engaged in promotion, marketing and sale of goods belonging to CIL and therefore, liable to pay service tax under the category of Business Auxiliary Service or whether the transaction between appellant and CIL was of sale/purchase.

Analysis, Law, and Decision

The Tribunal opined that as per the coal distribution policy, for allocation of coal to the agencies, price was charged from them as per the notified price. Appellant was paying entire price to the coal companies before procuring the coal, and appellant had also placed on record the letter received from the North-Eastern Coalfields and from Bharat Coking Coal Ltd, which showed that the excess amount paid to these companies was refunded to appellant. Therefore, the transaction was of sale/purchase, and this was further substantiated by the sample invoices placed on record by appellant issued by Western Coalfield Ltd, showing payment of sales tax/VAT. Similarly, on resale to the small consumers, the sale invoices issued by appellant showed the payment of VAT by them. The Tribunal opined that once the coal companies had charged sales tax/VAT at the appropriate rate on the sale of coal to appellant and in turn, appellant had charged sales tax/VAT to the consumers of coal, the transaction was of sale/purchase and not of rendering service.

The Tribunal opined that merely because the nomenclature in the coal policy referred to ‘agency’ did not mean that appellant was selling coal to the coal consumers on behalf of the coal companies as agent. Further, the fact that appellant was required to charge specified price and sell the coal to specified category of consumers, was not in the nature of restrictions and did not alter the nature of the transaction. Further, the Tribunal applied the principles laid down in Bhopal Sugar Industry Limited v. STO, (1977) 3 SCC 147, and opined that for determining the concept of agency, there had to be an element of indemnifying the agent in the event of any loss, by the principal, however, there was no such provision in the Coal Policy. Therefore, the appellant could not be treated as agent of the coal companies. Thus, the Tribunal opined that the arrangement between appellant and the coal companies was one for the purchase of coal for resale to coal consumers.

The Tribunal opined that under Section 65(19)(i) of the Act, promotion, marketing or selling the goods of the client was taxable as business auxiliary service, only if the service provider was acting as the client’s agent. However, appellant was not acting as an agent of the coal companies, rather it was purchasing coal from the coal companies for reselling further to the coal consumers. Thus, the Tribunal opined that the relationship of 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.

The Tribunal opined that the appellant was selling coal at a price whereby he was getting a profit margin of 5% on the base price, and the resale price was fixed by an agreement between the parties. Further, whatever was charged by the coal companies for coal, the appellant was adding 5% margin money and collecting the sale price from the consumers. Further, appellant was paying the sales tax on the entire amount received from the end consumers, therefore the Revenue could not charge any service tax.

The Tribunal opined that since the transaction was of sale/purchase on principal-to-principal basis and the coal companies and appellant was discharging the liability of sales tax/VAT, therefore, there was no element of service involved. Thus, the Tribunal opined that appellant could not be saddled with the liability of service tax, and accordingly set aside the impugned order.

[National Co-operative Consumers’ Federation of India Ltd. v. CCE, Service Tax Appeal No. 56768 of 2013, Order dated 10-05-2024]


Advocates who appeared in this case :

For the Appellant: P. K. Sahu, Advocate;

For the Respondent: Manoj Kumar, Authorised Representative.

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