No Service Tax Payable By National Co-Operative Consumers' Federation Of India For Selling Coal To End Consumers: CESTAT

The Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that whatever is charged by the coal companies for coal, the appellant, the National Co-Operative Consumers' Federation of India, is adding 5% margin money, collecting the sale price from the consumers, and paying the sales tax on the entire amount received from the end consumers; therefore, the revenue cannot charge any service tax.

The bench of Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) has observed that, as per the coal policy, the appellant is selling coal at a price whereby he is getting a profit margin of 5% on the base price. The resale price has been fixed by an agreement between the parties.

The appellant/assessee is a cooperative society, registered under the Multi State Co-operative Societies Act, 2002, where approximately 80% of the of the share capital is held by the Government of India. The appellant has been allocated coal by Coal India Limited2 for distribution among small, tiny consumers in the country. An intelligence was received that the appellant had been allocated the coal for which it had been receiving the commission of 5% in lieu of services provided by them to CIL, but they are not discharging their service tax liability under the category of BAS as defined under Section 65 (19) read with Section 65 (105)(zzb).

For the purpose of distributing coal to the tiny consumers in the non-core sector, the appellant had appointed M/s Pavan Coal Company, Kanpur, as their national handling and distribution agent, for which an agreement dated January 5, 2005 was entered between both parties.

The Ministry of Coal had allotted 2 million MT of coal per annum to the appellant, which was made available through the subsidiaries of CIL. The coal was lifted from the collieries by their authorized coal agent and is further supplied to the small/tiny consumers in the small sector industry.

In terms of the policy, the appellant is not permitted to collect over and above 5% of the basic value, and out of the 5% profit available to them, 1.5% is paid to the handling agent, and the balance of 3.5% is retained by them.

The main role of the handling agent was to lift the coal from the collieries of a coal company for rake or road movement and deliver the same to small, tiny consumers in the small-sector industry sector, as well as collect the payment thereof for depositing with the appellant from time to time.

A show cause notice was issued to the appellant as, according to the revenue, the appellant is engaged in the promotion, marketing, and sale of goods belonging to their clients, which is taxable under the category of BAS. The demand for service tax was made under the proviso to Section 73(i) along with interest and penalties under the Finance Act, 1994. On adjudication, the order confirming the demand was passed.

The appellant contended that the arrangement between the appellant and the coal companies was for the purchase of coal and resale to the coal consumers. The appellant is not acting as an agent of the coal companies and is not providing the service of promotion or marketing of the sale of goods purchased by the coal companies. The relationship between the appellant and the CIL was on a principal-to-principal basis, as they were paying the entire coal price to the coal companies on their own accounts before the supply.

The department contended that the relationship between the appellant and CIL is not on a principal-to-principal basis, as they are engaged in the sale and distribution of coal on behalf of CIL to the final consumers. The appellant is engaged in the promotion, marketing, and sale of goods belonging to CIL, and such services are taxable under the category of BAS and are liable to pay service tax.

The issue raised was whether the appellant is engaged in the promotion, marketing, and sale of goods belonging to CIL and is, therefore, liable to pay service tax under the category of BAS or whether the transaction between the appellant and CIL is one of sale or purchase.

The CESTAT held that the transaction is one of sale or purchase on a principal-to-principal basis, and the coal companies as well as the appellant are discharging the liability of sales tax or VAT. There is no element of service involved, and the appellant cannot be saddled with the liability of service tax. It is not necessary to go into the other issues as they do not survive.

Counsel For Appellant: P. K. Sahu

Counsel For Respondent: Manoj Kumar

Case Title: National Co-Operative Consumers' Federation Of India Ltd Versus Commissioner Of Central Excise Delhi Iii Commissionerate, Udyog

Case No.: Service Tax Appeal No. 56768 Of 2013

Click Here To Read The Order