In a recent ruling, the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Mumbai provided major relief to Oil and Natural Gas Corporation (ONGC) Ltd., quashing a Rs. 4.56 crore service tax demand ruling that pipeline transportation charges levied were part of the sale price of natural gas and did not constitute a separate taxable service under the Finance Act, 1994.
The case originated from an audit conducted by the Central Excise Department, which found that the Oil and Natural Gas Corporation (ONGC) had ceased paying service tax on pipeline transportation charges from April 2009 onwards.
Plead Your IT Appeals Effectevely Using AI, Click Here
The corporation had previously paid service tax on these charges but later classified them as part of the sale price, subject to Value Added Tax (VAT) under the Maharashtra VAT Act, 2002. The tax department disputed this classification and issued two show-cause notices, demanding service tax for the period 2009-10 to 2014-15.
The Commissioner of Service Tax ruled that the transportation charges were part of the sale transaction and not a separate service. The department challenged this ruling before CESTAT, arguing that service tax was applicable to transportation of goods through pipelines, irrespective of whether the transporter owned the goods.
The corporation counsel countered this argument, asserting that the transportation charges were an integral part of the Gas Supply Agreement (GSA) with GAIL (India) Ltd. and not an independent service. They argued that ownership of the gas remained with ONGC until delivery at Trombay Terminal so the transportation of gas was not a service but part of the sale transaction.
Become PF & ESIC Pro: Basic to Advance Course – Enroll Today
The two-member comprising S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) examined the Gas Supply Agreement (GSA) and past judicial precedents, including the Gujarat High Court ruling in CIT (TDS) v. Krishak Bharati Co-operative Ltd. (2012), which held that transportation of gas as part of a sale transaction does not attract service tax.
The tribunal also referred to similar rulings in GAIL India Ltd. (2018) and Grasim Industries Ltd. (2016), where pipeline transportation charges were ruled to be part of the sale price, exempt from service tax. The tribunal upheld the Commissioner’s order and dismissed the department’s appeal.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
