01Facts
Mahanagar Gas Limited (MGL) entered into agreements with respondent oil corporations (BPCL and HPCL) to sell Compressed Natural Gas (CNG) through petrol pump outlets owned by the respondents
¶ 3.1.1MGL installed the necessary equipment (compressors, dispensers) and retained ownership of the same
¶ 3.1, 5.1The Department issued show-cause notices demanding service tax, contending that the respondents provided "Business Auxiliary Service" (BAS) by acting as commission agents for MGL
¶ 3.3.1The Adjudicating Authority confirmed the demands, finding a "Principal-Agent" relationship
¶ 3.6However, the CESTAT set aside these orders, ruling the transactions were on a "Principal-to-Principal" basis involving the sale of goods, thereby exempt from service tax
¶ 3.7.1-3.7.402Issues
i.1. Whether the activity of the respondent-Corporations in facilitating the sale of CNG through their outlets constitutes "Business Auxiliary Service" under Section 65(19) of the Finance Act, 1994
¶ 2ii.2. Whether the jural relationship between MGL and the respondent-Corporations is that of "Seller and Buyer" or "Principal and Agent"
¶ 503Law Applied
Section 65(19) of the Finance Act, 1994, which defines "Business Auxiliary Service" to include the promotion, marketing, or sale of goods belonging to a client and services as a "commission agent"
¶ 5.2.1Section 4 of the Sale of Goods Act, 1930, to define 'sale' as the transfer of general property/ownership in goods for a price
¶ 5.3Section 182 of the Indian Contract Act, 1872, regarding the definition of an 'agent'
¶ 5.4Sri Tirumala Venkateswara Timber and Bamboo v. CTO to distinguish sale from agency
¶ 5.3.6Hafiz Din Mohd. Haji Abdulla v. State of Maharashtra regarding pricing control as an indicator of agency
¶ 8Bharti Cellular Limited v. CIT regarding the degree of control and fiduciary relationship in agency
¶ 5.4.7Provisions in the judgment · 12 · Linked ones open on LawLens
Central Excise Act, 1944 Section 2Section 4Section 35
Sale of Goods Act, 1930 Section 4
Indian Contract Act, 1872 Section 182Section 183Section 184Section 185Section 186Section 187Section 188Section 222
04Reasoning
The Court analyzed the contractual clauses to determine the "true relationship" beyond the nomenclature used by the parties
¶ 7Critically, it found that ownership of the CNG never passed to the respondents; per Clause 13.2.3, unsold stock was to be returned to MGL upon termination, indicating MGL retained "dominion" and "title"
¶ 7.1.7, 10.2The respondents had no control over the "Retail Price," which was fixed exclusively by MGL
¶ 7.1.3Furthermore, Clause 8.4 explicitly provided for "commission/profit margin" in consideration for "services provided," which the Court identified as remuneration for agency rather than a trade discount
¶ 9.2The Court noted that the respondents acted as "facilitators" providing infrastructure, manpower, and site access while MGL bore the risk and maintained the equipment
¶ 7.1.1, 7.1.6Since the respondents marketed and sold goods belonging to MGL for a commission, the Court concluded the arrangement satisfied the statutory definition of BAS and "commission agent"
¶ 12.1-12.205Holding
The Court answered that the relationship was one of "Principal and Agent" and the activities constituted taxable "Business Auxiliary Service"
¶ 11.2, 12.1It held that no 'sale' occurred between MGL and the respondents as the property in goods did not pass
¶ 10.1Consequently, the Supreme Court set aside the CESTAT order and restored the Orders-in-Original, upholding the service tax demand, interest, and penalties against BPCL and HPCL
¶ 13.1-14Original Court PDF
Commissioner Of Service Tax MumbaivsM/S Bharat Petroleum Corporation Ltd. Etc.
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