Coal trader's 5% margin transactions qualify as principal-to-principal sales, not taxable business auxiliary services

CESTAT New Delhi allowed the appeal, ruling that the transaction between appellant and coal companies constituted sale/purchase on principal-to-principal basis rather than taxable business auxiliary service. The Tribunal held that appellant was not acting as agent but purchasing coal for resale with 5% margin, paying VAT on entire sale amount. Following precedents from petroleum sector cases, the Tribunal found no service element existed to attract service tax liability, distinguishing this from agency arrangements covered under business auxiliary service provisions.

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Issues Involved:
1. Whether the appellant is engaged in promotion, marketing, and sale of goods belonging to Coal India Limited (CIL) and is liable to pay service tax under the category of Business Auxiliary Service (BAS).
2. Whether the transaction between the appellant and CIL is one of sale/purchase.

Summary of Judgment:

Issue 1: Engagement in Promotion, Marketing, and Sale of Goods

The appellant, a cooperative society registered under the Multi State Co-operative Societies Act, 2002, was allocated coal by Coal India Limited (CIL) for distribution among small consumers. The Commissioner of Central Excise confirmed the demand of service tax under the category of "Business Auxiliary Service" (BAS) as defined u/s 65(19) read with Section 65(105)(zzb) of the Finance Act, 1994. A show cause notice dated 02.12.2004 was issued, alleging that the appellant was engaged in promotion, marketing, and sale of goods belonging to CIL, thus liable to pay service tax. The appellant argued that the arrangement was for purchase and resale of coal on a principal-to-principal basis, not as an agent of CIL. The Tribunal considered precedents, including Bharat Petroleum Corporation Limited vs. CST, Mumbai-I and Mahanagar Gas Limited, concluding that the relationship was not of agency but of sale/purchase.

Issue 2: Transaction of Sale/Purchase

The Tribunal examined the coal distribution policy and the agreements between the appellant and CIL. It was noted that the appellant paid the entire price for coal upfront and charged sales tax/VAT on resale, indicating a sale/purchase transaction. The Tribunal referenced the Supreme Court's observations in Bhopal Sugar Industry Limited vs. STO, emphasizing that restrictions imposed by the seller do not alter the nature of the transaction from sale to agency. The Tribunal found that the appellant was not obligated to report sales proceeds back to CIL, reinforcing the principal-to-principal relationship. The Tribunal also noted that the appellant's profit margin of 5% did not constitute a service charge but was a part of the sale price, on which sales tax was duly paid.

Conclusion:

The Tribunal concluded that the transaction between the appellant and CIL was one of sale/purchase on a principal-to-principal basis, with no element of service involved that could be taxed under BAS. Consequently, the impugned order was set aside, and the appeal was allowed.

[Order pronounced on 10.05.2024]

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