Pipeline transportation charges for natural gas supply were held to form part of sale, not a separate taxable service.

Pipeline transportation charges recovered for delivery of natural gas through the seller's own pipeline were not liable to service tax because the activity formed part of the sale transaction, not a separate service rendered to another person. Under the pre-negative list regime, the levy under Section 65(105)(zzz) required a taxable service for consideration, which was absent where gas was supplied under a sale contract and title and risk passed at the delivery point. Under the post-negative list regime, Section 66B continued to tax only services between distinct persons, while sale remained outside the definition of service. The charges were therefore incidental to sale and, if anything, includible in sale value, not taxable service consideration.

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Issues: Whether pipeline transportation charges recovered for supply of natural gas through the assessee's own pipeline were liable to service tax as a taxable service, both for the pre-negative list and post-negative list periods.

Analysis: The dispute turned on whether the amounts recovered as transportation charges represented consideration for a service rendered to another person, or merely formed part of the sale transaction of natural gas. The agreement showed that title and risk passed at the delivery point, the gas was delivered under a sale contract, and the pipeline was owned and operated by the assessee itself. In the pre-negative list regime, the levy under Section 65(105)(zzz) of the Finance Act, 1994 required a service rendered to another for consideration, which was absent because the activity was in the nature of delivery of the assessee's own gas pursuant to a sales contract. In the post-negative list regime also, Section 66B of the Finance Act, 1994 continued to tax only services provided by one person to another, while transfer by way of sale remained outside the definition of service. The transportation charges were held to be incidental to sale and includible, if at all, in the sale value and not a separate taxable service. The cited precedents relied upon by the Revenue were found inapplicable on facts.

Conclusion: The transportation charges were not exigible to service tax and the demand was unsustainable; the finding was in favour of the assessee.

Ratio Decidendi: Where natural gas is delivered under a sale contract through the seller's own pipeline and title passes at the delivery point, the transportation activity is part of the sale transaction and does not constitute a taxable service rendered by one person to another.

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