The Kolkata Bench of Customs, Excise, And Service Tax Appellate Tribunal ( CESTAT ) quashed the service tax demand order ruling that the marketing margin on gas sales are subject to Value Added Tax ( VAT ), not service tax.
Assam Gas Company Limited, the appellant was receiving “Minimum Demand Charges” (MDC) from their clients and also realized a “Marketing Margin” for gas transportation. The appellant received a show cause notice demanding service tax on these services
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After due process, the demand was confirmed by the Adjudicating Authority. The appellant challenged the demand order before the Kolkata bench of CESTAT.
The appellant’s counsel submitted that the marketing margin was claimed to be the sale value of gas collected on behalf of Oil India Limited, and therefore subject to VAT (Value Added Tax), not Service Tax.
The appellant’s counsel relied on a prior tribunal ruling in GAIL India Limited vs. Commissioner of Central Excise, Delhi to support their argument that marketing margin was part of the gas sale, not a service.
On the contrary, the Revenue counsel contended that the marketing margin was collected for the marketing of gas on behalf of Oil India Limited, qualifying as a taxable service under the “Business Auxiliary Service” category.
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The two-member bench comprising R. Muralidhar (Judicial Member) and K. Anpazhakan (Technical Member) observed both sides arguments. The tribunal noted that marketing margins were collected from the customers for the supply of gas on behalf of Oil India Limited, Duliajan, which are also a sale value of the gas on which VAT has been paid.
The tribunal referred to its previous ruling in similar cases, where it was noted that the margin relates to the sale with ownership transferring at the delivery point, and the appellant had already paid VAT on the total sale value including the marketing margin. Thus, the marketing margin on the sale of natural gas is part of the sale transaction and not subject to Service Tax.
In light of the above observation, the tribunal set aside the demands for Service Tax on the Marketing Margin and ruled that the appellant was not liable to pay Service Tax.
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