No Service Tax for Selling Coal to End Consumers: CESTAT rules in Favour of NCCF [Read Order]

The Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) has ruled that service tax is not payable by the National Co-Operative Consumers' Federation of India,( NCCF ) since they are 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.

The appellant/assessee is a cooperative society, registered under the Multi State Co-operative Societies Act, 2002, where approximately 80% 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) of the act.

The appellant had appointed M/s Pavan Coal Company, Kanpur, as their national handling and distribution agent for the purpose of distributing coal to the tiny consumers in the non-core sector through an agreement.

As per the 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.

A show cause notice was issued to the appellant as the revenue argued that 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.

It was contended by the appellant 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 question before the bench 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 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 two member bench of Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) 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.

To Read the full text of the Order CLICK HERE

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