Custom, Excise & Service Tax Tribunal
Cce Mumbai - V vs Mahanagar Gas Ltd on 13 September, 2019
1 Appeal No. E/993/11
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL, MUMBAI
REGIONAL BENCH - COURT NO. I
Excise Appeal No. 993 of 2011
(Arising out of Order-in-Appeal No. SB(28)28/MV/2011 dated
11.03.2011 passed by the Commissioner of Central Excise
(Appeals), Mumbai-I).
Commissioner of Central Excise, Mumbai-V .... Appellant
5th Floor, Utpad Shjulk Bhavan, Plot No. C-24, Block -E,
Bandra-Kurla Complex, Bandra (E), Mumbai - 400051
Versus
M/s Mahanagar Gas Ltd. .... Respondent
MGL House, G-33, Bandra-Kurla Complex, Bandra (E), Mumbai - 400051 Appearance:
Shri Sanjay Hasija, Supdt. Auth. Representative for the Appellant Ms. Padmavati Patil, Advocate for the Respondent CORAM:
HON'BLE DR. D.M. MISRA, MEMBER (JUDICIAL) HON'BLE MR. P. ANJANI KUMAR, MEMBER (TECHNICAL) FINAL ORDER NO. A/86608/2019 Date of Hearing: 18.03.2019 Date of Decision: 13.09.2019 Per: Dr. D.M. Misra This is an appeal filed by the Revenue against the order- in-appeal No. SB(28)28/MV/2011 passed by Commissioner central excise (appeals), Mumbai.
2. Briefly stated the facts of the case are that the respondent are engaged in the production and distribution of compressed natural gas (CNG) falling under chapter 27 of Central Excise 2 Appeal No. E/993/11 Tariff Act, 1985. By an agreement dated 21/12/2006 with BEST the appellant agreed to supply CNG inside their depots and BEST in turn agreed to provide all facilities and necessary infrastructure for supply of CNG by the respondent. The respondent has also agreed to pass a trade discount of 0.60 Per KG from the price for actual quantity of CNG filled in BEST vehicles. Under the said agreement there was also a clause where under both parties agreed that the respondent could sell the CNG to outsiders. Subsequently, by an agreement dated 12th May 2008 the respondent was allowed to sell CNG to outside customers however, the respondent was required to pay a fixed monthly fee of ₹ 35,000/-per month to BEST in respect of each of premises where sale/supply of CNG commenced in respect of outside vehicles. The Respondents were also required to pay a variable fee @0.60/KG of CNG sold on daily sales quantity exceeding the threshold limit of 3000 kgs at the premises of BEST to outside vehicles. The Department, on the basis of EA 2000 audit report, issued a show cause notice to the appellant on 8th July 2010 demanding differential duty of ₹ 22,84,040/-for the period from June 2000 to April 2010 alleging that the discount passed by the respondent to BEST as per agreement dated 21.12.2006 (revised by the amendment agreement dated 21.12.2009 effective from 16.6.2009) @ 0.70 per kg is in the nature of additional consideration, hence recoverable with interest and penalty. On adjudication the demand was confirmed with interest and penalty. Aggrieved by the said order the respondent filed an appeal before the Ld. Commissioner 3 Appeal No. E/993/11 (Appeals) who in turn allowed their appeal. Hence, the revenue is in appeal.
3. The learned AR for the Revenue reiterating the grounds of appeal, has submitted that the respondent has been lowering the value of CNG sold to BEST under the guise of discount which was in lieu of various facilities extended by BEST, such as provision of land, construction and installation of CNG pumps and other facility provided at various premises by BEST to the respondent for supply of CNG to BEST buses. In respect of outside vehicles the respondent by the subsequent agreement dt.12.05.2008 paid a fixed fee of ₹35,000/-and a variable fee of rupees 0.60 per kg to BEST. It is his contention that if the respondent would have purchased/taken on lease any premises for supply of CNG to BEST, definitely they would have also incurred expenditure for the aforesaid service, as recovered by BEST for outside vehicles. It is a submission that such an arrangement is nothing but a clear case of undervaluation of CNG sold by respondent to BEST. Thus the discount allowed by respondent to BEST being in lieu of the facilities is nothing but additional consideration hence to be added to the assessable value of CNG sold. In support he has referred to the judgement of Hon'ble Supreme Court in the case of CCE, Nagpur Vs. Indo Rama Synthetics (I) Ltd. - 2015 (323) ELT 20 (SC).
4. Per contra, the Ld. Advocate for the respondent has submitted that the respondent are engaged in the 4 Appeal No. E/993/11 manufacture of CNG and distribute the same in two streams, one for supply of PNG(piped natural gas) for domestic consumers, commercial and small industrial consumers and the second stream is supply of CNG for use as fuel for vehicles. The CNG is dispensed to vehicles through dispensers which is the capital equipment installed by the respondents along with compressor at various delivery stations known as filling stations. BEST had approached the respondent to provide CNG filling facility inside its depots in order to avoid dry run of its buses and accordingly they entered into an agreement dated 21st Dec. 2006 with BEST for sale of CNG for captive consumption exclusively for Best buses. As per clause 2.11 of the said agreement it is agreed that both parties would examine the feasibility of filling CNG to outside vehicles (other than BEST vehicles) and wherever found feasible BEST would give consent to the same. Further he has submitted that as per clause 8.5 of the agreement the respondent agreed to allow trade discount @ rupees 0.60 per kg of the actual quantity of CNG filled into the BEST buses considering the fact that BEST is the bulk/wholesale buyer of CNG from respondents. Pursuant to clause 2.11 of the agreement dt. 21st Dec. 2006, another agreement dated 12.05.2008 was entered with BEST under which certain premises of BEST was taken on lease basis by the respondents for setting up CNG filling stations for supply of CNG vehicles other than that of BEST.
5. It is contention of the Ld. Advocate is that the aforesaid agreements were for effecting two different and independent 5 Appeal No. E/993/11 commercial transactions and have no connection with each other in as much as trade discount offered to BEST is only because of purchase by them and does not have any nexus to the fixed and variable charges paid by the respondents for premises of BEST taken on lease for supply of CNG to outside vehicles, hence, the revenue's allegation that granting of trade discount is an additional consideration for providing premises by BEST to the Respondent is incorrect. During the period in dispute, the quantum of supplies made to BEST buses in comparison to the supplies made to outside vehicles from the leased premises was quite substantial. Further rebutting the revenue's contention that supply of CNG to outside vehicles was made since the first agreement dated 21.12.2006, she has submitted that the said allegation is without any basis since the demand has been raised for the period from June 2009 to April 2010, that is much after the said agreement.
6. She has further submitted that similar trade discounts given by the respondent to oil marketing companies (OMC) had been disallowed by the Department as a deduction in arriving at the assessable value. However, when Respondent challenged the same, this Tribunal vide judgment dated 24.8.2016 reported as 2017 (348) ELT 175(T) held that the transaction between the respondent and the OMCs are on principal to principal basis and since the OMCs were bulk buyers, accordingly given higher discounts and in absence of any allegation of mutual interest between the respondent and OMCs, the discounts are admissible. The said judgement of the 6 Appeal No. E/993/11 Tribunal has been upheld by the Supreme Court by order dated 3.11.2017 reported as 2018 (360) ELT A133 (SC).
7. Heard both sides and perused the records. The short issue involved in the present appeal for determination is whether the discount passed by the respondent @0.70 per kg to BEST during the relevant period June 2009 to April 2010 is admissible or be added to the value as an additional consideration for the CNG sold. It is not in dispute that by an agreement dated 21.12.2006 with BEST, the respondent agreed to sale/supply CNG at various bus depots of BEST and it is also agreed that necessary infrastructure was to be provided by BEST. Also, there was a clause in the said agreement which enabled the respondent to sale CNG to outside vehicles on the terms and conditions to be mutually agreed between the parties. Pursuant to the said clause, the respondent entered into a separate agreement with BEST on 12th May 2008. Under the later agreement, the respondent was allowed to sale CNG to outside vehicles from the premises of BEST, however, on payment of a fixed fee of ₹ 35,000/- and variable fees of Rs.0.60 per kg of CNG sold. The revenue's contention is that the revise discount @0.70/- per kg of CNG passed during the period June 2009 to April 2010 to BEST is not admissible being an additional consideration received from BEST in lieu of facilities to dispense the CNG extended by BEST to the respondent. We do not find merit in the allegation of the Department in as much by the previous agreement dated 21.12.2006, both sides agreed that the respondent 7 Appeal No. E/993/11 would pass a discount @0.60/-to BEST, which the Department never disputed even though under the said agreement necessary infrastructure for dispensing CNG at the premises of BEST had been provided to the respondent by BEST. The revenue disputed the correctness of the said discount only after the agreement dated 12.05.2008 was executed allowing the respondent to sale CNG to outside vehicles. In our opinion, the second agreement dated 12th May 2008 is a separate transaction between the respondent and BEST for allowing outside vehicles to fill CNG at various filling stations installed by the respondent in the premises of BEST on payment of certain fees by the respondent to BEST. No investigation has been conducted by the revenue to establish the allegation that the discount offered by the respondent to BEST was in lieu of all infrastructural facilities extended by BEST to the respondent. Analyzing the evidences the Ld. Commissioner (Appeals) recorded its finding on the issue as follows: -
"16. I find that the respondent in the impugned order, at para 39, observed that - 'the cumulative reading of the above facts, showed that the short charging of Rs.0.70 per kg from the MRP or retail sale price of the CNG by the appellants to BEST was not a case of legitimate trade discount and that additional consideration, agreed, inter se, under the agreement dated 21.12.2006, flowed to them', and then at para 42, further held that - 'Thus, came to the fore, the agreement dated 21.12.2006, whereby the true nature of the alleged stated discount of Rs.0.70 per kg in these sales to the BEST was found to be actually a case of corresponding the back of the additional consideration, at least equivalent to the said amounts, in the form of the facilities extended under the agreement dated 21.12.2006, by the BEST to the appellants, free of cost'. It appear from the reading of these lines that it has been implied that - (i) BEST provided certain facilities for setting up CNG stations in their premises, (ii) as per agreement dated 21.12.2006, these were provided free of cost,
(iii) however, actually for this, the appellants allowed a trade discount of Rs.0.70 per kg to BEST. It is not clear whether the respondent meant the giving of discount as a flow back of additional consideration or the providing of facilities by BEST 8 Appeal No. E/993/11 was an additional consideration, received by the appellants.
Taking up the 'conclusions' of the resp0ondent the discussion, I find that as already discussed above the agreement dated 21.12.20006, was for setting up dispensing stations, within BEST premises, for filling up BEST vehicles exclusively, for which the facilities were provided by BEST< free of cost. Even accepting the department's stand for academic discussion, that this given discount was, actually a 'financial flow back' received (?) by the appellant, it can be seen that for receiving the facilities 'free of cost', they have given a discount in the sale price, thereby accepting a lesser sale amount, which mean there is a 'quid pro quo', and it cannot be said that the facilities were received 'free of cost'. This argument, therefore, does not stand. As far as the situation after 12.5.2008 is concerned, I find that the agreement dated 12.5.2008, clearly provides for payment of fixed and variable fees by the appellants to BEST, since in this case, the supplies were to outside vehicles. 'other than of BEST', and hence the question of receiving facilities from BEST, free of cost, does not arise. At the most, the department could have had some basis if they had examined the possibility of considering the amounts received by the appellants by way of the fixed and variable fees, from BEST, as flow back, though, in view of the agreement dated 12.5.2008, it also appears to be legitimate commercial transaction."
We do not find any reason to interfere with the aforesaid finding of the Commissioner (Appeals) as in their appeal before this forum also, no contrary evidence has been placed by revenue. Consequently, the impugned Order is upheld and the revenue's appeal being devoid of merit, accordingly dismissed.
(Pronounced in open court on 13.09.2019) (Dr. D.M. Misra) Member (Judicial) (P. Anjani Kumar) Member (Technical) Sinha