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2016 (9) TMI 782 - CESTAT MUMBAI

2016 (9) TMI 782 - CESTAT MUMBAI - TMI - Valuation - CNG - inclusion of services charges paid to private parties (PP) in the transaction valuation - whether price charged for sale of CNG to OMCs can be considered as transaction value for the purpose of payment of duty under Section 4(1)(a) of CEA - manufacture of Compressed Natural Gas from Natural Gas and distribution thereof and have integrated infrastructure for the same - all parameters like ownership of equipment, manner of production, prod .....

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e considered as service contracts. - The Appellants’ contention that OMCs, being bulk buyers, have been given higher discount also needs to be accepted in the absence of any allegation/ substantiation of mutuality of interest between Appellants and OMCs, as both are independent entities. We also find that there is a distinct difference in the transactions of the Appellants with PPs, wherein MGL supply CNG through the outlets owned and operated by PPs and CNG is directly supplied by PPs to th .....

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f Account of MGL and not in the Books of PPs, as there is no sale and purchase of CNG by PPs and PPs act only as an agent of MGL on commission basis. The entire sales proceeds are remitted by PPs to MGL on daily basis. The contracts between MGL and PPs are that of “principal” and “agent” as the PPs are merely service providers and not buyers of CNG from MGL. Their obligation under the contracts is merely to provide assistance for supply/sale of CNG to the vehicles by MGL. For acting as an agent .....

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sion/commission of OMCs. - It is also found that when CNG is supplied by MGL through PPs, there is no sale between MGL and PPs, as the sale takes place between MGL and the ultimate customers/vehicle users and the PPs act as agents of MGL; that the PPs were/are issuing cash memos/invoices/bills of MGL, when they supply CNG to customers/vehicle owners; that the PPs are acting as agents of MGL, for which they get specified service charges and the PPs are paying service tax on such amount; that, .....

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g different periods. Therefore, we are of the view that the Appellants’ case is squarely covered under new Section 4(1)(a) of CEA which essentially permit different transaction values, unlike normal sales price existed prior to 1.7.2000, which has also been explained by CBEC, vide its Circular No.354/81/2000-TRU dated 30.06.2000. Therefore, since the Appellants have a strong case on merits itself and are allowing the appeals on merits, we are not discussing the alternate propositions like non-ap .....

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for respondent ORDER These eleven appeals filed by the Appellants are directed against respective Orders-in-Original passed by Commissioners of Central Excise, Mumbai II & V, as Adjudicating Authorities. 2. Filtering out all unnecessary details, the brief facts of the case are that the Appellants (also referred as MGL ) are engaged in the manufacture of Compressed Natural Gas from Natural Gas and distribution thereof and have integrated infrastructure for the same. When the natural gas is c .....

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ply thereof takes place. MGL installed their own equipments for compression and dispensation of CNG at each of the outlet and electricity charges to operate those equipments is borne by them. MGL purchase natural gas from GAIL and the sale/purchase of natural gas takes place at a location known as City Gate Station situated at Sion. There are two streams of supply of natural gas by MGL, one supply of piped natural gas (PNG) which is used for cooking purpose by domestic, commercial and small indu .....

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at 230 bar pressure is also filled into cascades of cylinders mounted on light commercial vehicles (LCV) at MS and taken to DBS for recompression and supply to motor vehicles at 200 bar pressure. Online Stations are the outlets somewhat similar to MS, wherein also natural gas is compressed and stored in stationary cascades of cylinders at around 210 bars and supplied as CNG to the vehicles at 200 bars pressure. Filling of CNG into cascades of cylinders mounted on LCV does not take place at OS. T .....

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tlets of PPs, through which CNG is being sold for and on behalf of MGL, is same. Since PPs are selling CNG for and on behalf of MGL, certain service charges are given to those PPs. So far as sale of CNG to OMCs is concerned, since OMCs are purchasing and reselling CNG, the Appellants allow certain discount to them from the retail sales price, which is termed as commission/trade margin, etc. in the agreements. For the purpose of payment of duty on the CNG supplied through PPs, MGL considered the .....

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re issued alleging that the assessable value considered by the Appellants for sale of CNG directly through their own outlets or through outlets of PPs should be the assessable value for payment of duty for the CNG supplied to OMCs, as against the Appellants payment of duty on the net sales price charged to OMCs. The basis of the SCNs is that all parameters like ownership of equipment, manner of production, product, RSP, etc. remaining the same, assessable value for the purpose of payment of duty .....

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Appellants made various submissions inasmuch as that CNG is purchased by OMCs from MGL and the transaction is of sale-purchase and not of providing any service by OMCs to MGL; that various clauses of the agreements evidence that those are not agency agreements, but are for sale and purchase of CNG on principal to principal basis, which gets evidenced on a comparison of the clauses of agreements between MGL & OMCs and those between MGL & PPs; that on sale of CNG to OMCs, MGL raise period .....

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ss of MGL, as OMCs themselves are purchasers; that turnover each of the OMCs is more than two to five lakhs of crores of rupees, whereas turnover of MGL is about five hundred to one thousand crores of rupees; that, therefore, the OMCs would not have worked as an agent of MGL, as OMCs are not concerned with sale of MGL s products; that MGL may be interested in working as an agent of OMCs; that when CNG is supplied by MGL through PPs, there is no sale between MGL and PPs, as the sale takes place d .....

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MCs and OMCs sell CNG to their customers/vehicle users and issue their own cash memos/bills for the same and MGL do not have any role to play in such transactions; that even MGL wants to sell CNG at the outlets of OMCs directly to the vehicles, they have no legal right to do so; that service charges paid to PPs during different periods was/is ₹ 1.20/kg, ₹ 1.74/kg, ₹ 1.90/kg and ₹ 2.45/kg, whereas discount/trade profit given to OMCs was/is ₹ 1.20/kg, ₹ 1.40/kg, .....

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s, which were entered into much prior to introduction of central excise duty on CNG and, hence, the same has to be decided from the context in which such terms are used; that it is not the letter, but the spirit behind it has to be considered while interpreting the agreements; that discount offered by whatever name is admissible, based on judgments in the case of Perfect Circle Victor Ltd. v/s. UOI - 1992 (50) ELT 676 (SC), CCE v/s DCM Textiles - 2006 (195) ELT 129 (SC), Apar Industries Ltd. v/s .....

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67) ELT 482 (SC), CCE v/s India Dye Stuff - 2008 (224) ELT 255 (T), Reckitt Benckiser (India) - 2006 (205) ELT 422 (T), Ashok Leyland Ltd. - 2002 (146) ELT 503 (SC), Grasim Industries Ltd. - 2001 (138) ELT 570 (T); that transaction value similar to import parity price between MGL and OMCs has to be accepted because of contractual arrangement between them, based on judgments in the cases of HPCL - 2005 (187) ELT 479 (T), duly upheld by Apex Court, reported in 2006 (196) ELT A-72 (SC), IOCL - 2008 .....

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ods by both the parties, the question of payment of central excise duty on such discount, termed as commission/trade margin in agreements, does not arise; that first sale is taking place between MGL and OMCs and VAT is paid by MGL on the actual sales price to OMCs, and second sale is taking place between OMCs and their customers and OMCs also again pay VAT on their actual sales price to its customers; that VAT paid by OMCs on their sales price is higher than purchase price, on which MGL pay VAT; .....

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to vehicles, they cannot do so, as they do not have not legal right to sell CNG from the out of OMCs; that invoices are raised by MGL on OMCs for the mutually agreed price, which is the transaction value, which conclusively evidences that the transactions between MGL & OMCs are sale/purchase transactions; that OMCs are not rendering of any service; that on the so called commission , the Department demanded and confirmed service tax from OMCs, claiming that OMCs are providing the service of p .....

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ion between them is sale/purchase transaction and, hence, service tax was not payable; that ratio of the said judgment is squarely applicable to the present cases also, as the very same consideration has been held to be trade discount offered by MGL to BPCL/HPCL; that demand for the period June 2003 to May 2007 (out of total period of June 2003 to March 2008) covered under Appeal No.E/328/09 is barred by limitation, in the absence of any conscious or deliberate suppression, etc.; that for the sa .....

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(i.e. including the value addition). Similar compilation in respect of HPCL was also relied upon. Certain compilations of case-laws were also submitted in support of various submissions made on behalf of the Appellants. 4. The Learned Authorized Representative for the Department vehemently argued taking recourse to the reasoning of the Orders of Lower Authorities and claimed that the word commission referred to in agreements with OMCs is misconstrued as trade discount by the Appellants and, the .....

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P, etc. remaining the same, assessable value for the purpose of payment of duty should have been the same for discharge of duty for sale of CNG to OMCs; that if the terminologies used in the agreements entered in 1998 were defective, they could have very well used correct terminology in the agreements entered into after introduction of duty on CNG; that the sale of CNG by MGL through its own outlets and/or outlets of PPs is comparable to the outlets of OMCs; that dropping of demand of service ta .....

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erused the records. 5.1 We find that the common issue involved in the above appeals is whether price charged for sale of CNG to OMCs can be considered as transaction value for the purpose of payment of duty under Section 4(1)(a) of CEA. 5.2 We find that entire period covered in all the appeals is post July, 2000, governed by amended Section 4. The new Section 4 essentially seeks to accept different transaction value, which may be charged by the assessee to different customers, for assessment pur .....

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MGL s sales price from their own outlets and/or the outlets of PPs and the sales price of MGL to OMCs, treating the difference as the charges for the services rendered by OMCs to MGL and the Department also claims that sale is not taking place between the Appellants and OMCs. We have perused the copies of central excise invoices issued by MGL to OMCs on daily basis for dispensing CNG from 6.00 am to 6.00 am showing the quantity supplied, assessable value, duty paid/payable, etc. We also find tha .....

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to be made by OMCs and for any delay in payment, interest is also payable by OMCs. The Appellants have paid VAT/sales tax on their sale of CNG to OMCs, as evidenced from the invoices. Further, sales invoices of OMCs for resale of CNG to ultimate buyers, VAT/sales tax is paid by them on their sales price. In nutshell, the Appellants are paying VAT on its sales price to OMCs and OMCs are also paying VAT on their sales price to their customers. This clearly evidences that the ARs arguments that sa .....

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s are buying the goods from MGL and MGL is charging VAT/sales tax while selling the CNG to BPCL/HPCL and BPCL/HPCL are also paying VAT/sales tax on the entire value, including the so called commission and, hence, the transaction between them is sale/purchase transaction and VAT/sales tax has been paid at both ends the same cannot be considered as service contracts. 5.3 We find that the Appellants contention that OMCs, being bulk buyers, have been given higher discount also needs to be accepted i .....

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lls/invoices/cash memos are the retail sales price or maximum recommended price determined by MGL, from time to time. In a true sense, the customers/ vehicle users at the outlets of PPs are buying CNG from MGL, through the PPs. The privity of contract is between MGL and those buyers and those sales are directly recorded in the Books of Account of MGL and not in the Books of PPs, as there is no sale and purchase of CNG by PPs and PPs act only as an agent of MGL on commission basis. The entire sal .....

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er their activity as Business Auxiliary Service and pay service tax on the commission received from MGL. We find that sale of CNG by the Appellants to OMCs is on principal to principal basis, which is clear from various terms/covenants of the agreements between MGL and OMCs, i.e. retail sales price is the price at which CNG is to be sold to vehicles by the OMC as communicated by MGL to OMCs, from time to time; OMC shall sell CNG at the outlets situated at the site; Retail Price of CNG shall be f .....

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invoice within ten days from the date of invoices; it is specifically stated in the agreements between OMCs and MGL that during the term of the agreements OMCs shall not hold out to be as agents of MGL and it is clearly understood that this agreement is on principal to principal basis and MGL shall not be liable for any of the acts of omission/commission of OMCs. We also find from record that when CNG is supplied by MGL through PPs, there is no sale between MGL and PPs, as the sale takes place .....

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heir customers/vehicle owners and MGL do not have any role to play in such transactions; that commission paid to PPs was ₹ 1.20/kg, ₹ 1.74/kg, ₹ 1.90/kg and ₹ 2.45/kg during different periods, whereas discount given to OMCs was ₹ 1.20/kg, ₹ 1.40/kg, ₹ 2.42/kg, ₹ 2.62/kg and ₹ 2.74/kg during different periods. From the above discussions, we are of the view that the Appellants case is squarely covered under new Section 4(1)(a) of CEA which esse .....

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create hassle at a future date from central excise point of view and also there would not have been any inducement to use any expression in the agreement with an intent to evade payment duty. The nomenclature like commission/profit margin used in the agreements when read with invoices raised by the Appellants upon OMCs, it is clear that it was the sale transaction on principal to principal basis and, hence, as held by Hon ble Supreme Court in Perfect Circle Victor - 1992 (60) ELT 676 (SC) and D .....

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l necessity, the supply of CNG could have been done in the manner in which the Appellants have done, as natural gas by the process of compression amounts to manufacture for the purpose of marketing as CNG for use as fuel which has been done at the time of dispensing. Inasmuch as NG is compressed at 210 bars pressure in Mother Stations and Online Stations and got stored in stationary cascades and dispensed by bringing the pressure to 200 bars to vehicles. Likewise, NG is compressed and filled at .....

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