2025 (3) TMI 578 - AT - Service Tax

Natural gas pipeline transportation charges not taxable as service under Section 65B, deemed integral to goods sale

Principal Commissioner of CGST & Central Excise, Mumbai East Commissionerate Versus Oil and Natural Gas Corporation (ONGC) Limited

Principal Commissioner of CGST & Central Excise, Mumbai East Commissionerate Versus Oil and Natural Gas Corporation (ONGC) Limited - TMI ISSUES PRESENTED and CONSIDEREDThe core legal issue considered in this judgment is whether the transportation charges collected by the respondent-assessee for the transport of natural gas through their pipeline to M/s GAIL Trombay are subject to service tax under the Finance Act, 1994. Specifically, the tribunal examined whether these charges constitute a separate taxable service or are part of a sale transaction exempt from service tax.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe legal framework involves the interpretation of 'taxable service' under Section 65(105)(zzz) of the Finance Act, 1994, which pertains to the service of transporting goods through pipelines. The tribunal also considered the definition of 'service' under Section 65B of the Finance Act, 2012, which excludes activities constituting a transfer of title in goods.Precedents cited include:CMC Ltd. vs. Commissioner of Service Tax, KolkataOil India Ltd. v. Commissioner of C. Ex., KolkataGAIL India Ltd. v. Commissioner of Central Excise, DelhiKrishak Bharati Co-operative LimitedGrasim Industries v. Commissioner of Central Excise, IndoreCourt's Interpretation and ReasoningThe tribunal interpreted that the transportation charges are part of the sale transaction of natural gas and not a separate service. The tribunal reasoned that the ownership of the gas remains with the respondent until the delivery point, and the transportation is incidental to the sale, not a distinct service. The tribunal emphasized that service tax is applicable only when there is a service provided by one person to another, which was not the case here as the transportation was for the respondent's own goods.Key Evidence and FindingsThe tribunal examined the 'ONGC-GAIL Gas Supply Agreement' which stipulated that delivery occurs at the delivery point, where the title and risk transfer from the seller to the buyer. The agreement clarified that the transportation charges are part of the sale price, thus supporting the respondent's claim that these charges are not for a separate service.Application of Law to FactsThe tribunal applied the legal definitions and precedents to the facts, concluding that the transportation of natural gas by the respondent is part of the sale transaction. The tribunal found that the transportation charges are included in the sale price, making them subject to VAT, not service tax.Treatment of Competing ArgumentsThe appellants argued that the transportation charges should be taxed separately as a service. The tribunal rejected this, finding that the charges are part of the sale transaction. The tribunal cited precedents where similar cases were judged as sale transactions, not services.ConclusionsThe tribunal concluded that the transportation charges are part of the sale of natural gas and not subject to service tax. The tribunal upheld the adjudicating authority's decision to drop the service tax demands.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning'The transaction of supply of natural gas by the respondent-assessee is a simple transaction of 'sale of goods'... there is no element of service in the transaction of sale by the respondents-assessee.''Since, as the assessee have only supplied the goods, No Service is provided by the Assessee to GAIL in the present case. As such no Service Tax is demandable or payable by the Assessee.'Core Principles EstablishedThe tribunal established that transportation charges included in the sale price of goods are not subject to service tax when the transportation is incidental to the sale and there is no separate service provider-recipient relationship.Final Determinations on Each IssueThe tribunal determined that the transportation charges collected by the respondent-assessee are part of the sale transaction and not subject to service tax. The appeal by the appellants-department was dismissed, and the impugned order was upheld.