Circular No. 9/2012 [F. No. 275/11/2012-IT(B)]
Representations have been received from various sections of the Industry on the
difficulties faced in the matter of Tax Deduction at Source on Gas Transportation
Charges paid by the purchasers of Natural gas to the sellers of gas.
2. The Hon'ble Gujarat High Court in the case of CIT (TDS) v. Krishak Bharati Cooperative
Limited in Tax Appeal No. 618 of 2010 vide order dated 12-7-2011, has held that
the question as to whether payment of Gas Transportation Charges by the purchasers
of Natural gas to the Gas Distribution Companies is covered under the provision
of Chapter XVII-B of Income -tax Act, 1961 (the Act) or not, can be ascertained
only on the basis of the terms of agreement between the Gas Distributing Company
and the purchaser of the Natural gas. In the operative part of the order, the Hon'ble
Court says that in the facts of the abovementioned case, the agreement is for purchase
and sale of gas. Transportation of gas is only a part of the entire sale transaction.
Laying down the pipeline and supplying gas through such pipeline were the steps
taken in furtherance of such a contract. There was a clear understanding of the
parties that the ownership of gas would pass on to the buyer at the delivery point
which clearly shows that transport of gas by the seller was a step towards execution
of contract for sale of gas and there was no contract for carriage of goods. The
Court added that Transportation of gas was only in furtherance of contract for sale
of gas. The Hon'ble High Court then decided that in such a case the supply of gas
is under a 'contract for sale' and not under a 'works contract' as envisaged under
section 194C of the Act and hence in such a case TDS provisions are not applicable.
3. The matter has been examined by the Board. The main stakeholders in this Industry
are the - Owners/Sellers of the gas (which could be a Gas Distribution Company);
Transporters of gas (which could be the Owners/Sellers of the gas or a third party/parties)
and the purchasers/ end-users of the gas. The Owner/Seller of the gas may transfer
the ownership of the gas to the purchaser either at the point of delivery at the
premises of the purchaser or at any intermediate point.
4. It is clarified that in case the Owner/Seller of the gas sells as well as transports
the gas to the purchaser till the point of delivery, where the ownership of gas
to the purchaser is simultaneously transferred, the manner of raising the sale bill
(whether the transportation charges are embedded in the cost of gas or shown separately)
does not alter the basic nature of such contract which remains essentially a 'contract
for sale' and not a 'works contract' as envisaged in section 194C of the Act. Hence
in such circumstances, provisions of Chapter XVII-B of the Act are not applicable
on the component of Gas Transportation Charges paid by the purchaser to the Owner/Seller
of the gas. The use of different modes of transportation of gas by Owner/Seller
will not alter the position.
5. It is needless to mention that transportation charges paid to a third party transporter
of gas, either by the Owner/Seller of the gas or purchaser of the gas or any other
person, shall continue to be governed by the appropriate provisions of the Act and
TDS shall be deductible on such payment to the third party at the applicable rates.