Case Note & Summary
The present civil appeals before the Supreme Court, filed by the Commissioner of Service Tax, Mumbai, under Section 35L(b) of the Central Excise Act, 1944, challenge a common order dated 04.06.2014 of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), West Zonal Bench, Mumbai. CESTAT had allowed appeals filed by M/s Bharat Petroleum Corporation Ltd. (BPCL) and M/s Hindustan Petroleum Corporation Ltd. (HPCL) and set aside the Orders-in-Original dated 16.08.2012 passed by the Commissioner of Customs (TAR), Mumbai, which had confirmed service tax demands against the two oil companies. The central question before the Court was whether the activities undertaken by BPCL and HPCL in connection with the sale of Compressed Natural Gas (CNG) to consumers, supplied by Mahanagar Gas Limited (MGL) at and through petrol pump outlets owned by the corporations, fell within the ambit of 'Business Auxiliary Service' under Section 65(19) read with Section 65(105)(zzb) of the Finance Act, 1994, thereby attracting service tax liability. MGL, a manufacturer and distributor of CNG, received natural gas from GAIL and transported it through gas grids to various retail outlets, including those of BPCL and HPCL in Mumbai and Thane. The compressors, dispensers, and other equipment were installed by MGL at these outlets, where natural gas was compressed to produce CNG. MGL and BPCL entered into an agreement on 30.03.1998, renewed and amended over time; a similar agreement was executed between MGL and HPCL on 01.06.1999. The Revenue's case was that by providing site, manpower, and infrastructure for the sale of CNG as vehicular fuel and receiving commission or profit margin from MGL at prescribed rates, the respondent-Corporations were rendering Business Auxiliary Service and were liable to pay service tax. Show-cause notices demanding service tax for different periods were issued: to BPCL on 18.10.2010 (Rs. 7,20,78,037 for 2005-2010) and 19.10.2011 (Rs. 1,40,03,174 for 2010-2011), and to HPCL on 18.10.2010 (Rs. 6,86,65,245 for 2005-2010) and 04.10.2011 (Rs. 1,21,11,933 for 2010-2011). The adjudicating authority, in its Orders-in-Original, held that the respondent-Corporations acted as agents for MGL, that CNG was sold directly by MGL to consumers through outlets operated by the corporations, that the price charged was the Maximum Retail Price fixed by MGL, and that the entire sale proceeds were remitted to MGL after deduction of service charges. The Commissioner also noted that similar arrangements existed with other private parties who were paid for providing identical services, reinforcing the principal-agent relationship. The authorities alleged contraventions of the Finance Act, including failure to register, pay tax, and furnish accurate particulars. In their defense, BPCL and HPCL, both Central Government Public Sector Undertakings engaged in refining and distributing petroleum products, contended that the transactions with MGL were in the nature of sale of goods. They argued that the manufacture of CNG took place at their retail outlets; that although the equipment was owned by MGL, they purchased CNG, bore the risks, paid sales tax/VAT to the State Government, and that the arrangement was not one of agency but of purchase and resale. CESTAT accepted the assessees' contentions and set aside the demands. The Revenue, aggrieved, approached the Supreme Court. The text of the judgment as provided does not include the Supreme Court's final analysis, reasoning, or decision.
Issue of Consideration
Whether the activities of BPCL/HPCL in selling CNG to consumers at their outlets, under agreements with MGL, constitute 'Business Auxiliary Service' as defined under Section 65(19) read with Section 65(105)(zzb) of the Finance Act, 1994, thereby attracting service tax.
Case Details
2026 LawText (SC) (07) 15
Civil Appeal Nos. 2471-2473 of 2015
Commissioner of Service Tax Mumbai
M/s Bharat Petroleum Corporation Ltd. & M/s Hindustan Petroleum Corporation Ltd.
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Nature of Litigation
Civil appeal filed by Revenue before Supreme Court against CESTAT order setting aside service tax demand on oil companies for provision of Business Auxiliary Service.
Remedy Sought
Revenue seeks to set aside the CESTAT order and confirm the service tax demand on BPCL and HPCL.
Filing Reason
Revenue contends that activities of BPCL/HPCL in selling CNG through their outlets on behalf of MGL constituted Business Auxiliary Service, and the companies failed to pay service tax.
Previous Decisions
CESTAT allowed the assessees' appeals and set aside the Orders-in-Original dated 16.08.2012, which had confirmed the service tax demands.
Issues
Whether the arrangement between BPCL/HPCL and MGL for sale of CNG constitutes Business Auxiliary Service under Section 65(19) read with Section 65(105)(zzb) of the Finance Act, 1994.
Whether the transaction between the respondent-Corporations and MGL is in the nature of sale of goods or service.
Whether principal-agent relationship exists between MGL and BPCL/HPCL.
Submissions/Arguments
Revenue: BPCL/HPCL provided site and manpower for CNG sale as vehicular fuel, received commission/profit margin from MGL, thus rendered Business Auxiliary Service.
BPCL/HPCL: Transactions with MGL were in nature of sale because manufacture occurred at their outlets, ownership of equipment remained with MGL, they paid sales tax/VAT, and similar arrangements existed with other parties.
Judgment Excerpts
The issue centripetal to the controversy in the present appeals is whether the activities of the respondent-Corporations in relation to sale of Compressed Natural Gas to the consumers provided by Mahanagar Gas Limited at and through the petrol pump outlets owned by the respondent-Corporations would fall within the purview of 'Business Auxiliary Service' as defined under Section 65(19) read with Section 65(105)(zzb) of the Finance Act and consequently whether it would attract the liability of payment of service tax.
It is the case of the appellant-Department that the respondent-Corporations were engaged in providing taxable services such as 'Business Auxiliary Service', acting as manpower recruitment agency, providing banking and financial services, transport of goods by road, sponsorship services, services relating to renting of immovable property, and supply of tangible goods for use, and for such purposes, they had obtained the service tax registration under the provisions of the Finance Act.
MGL compresses natural gas at 200 bar pressure to sell the resultant product of CNG directly to the ultimate consumers by delivery to vehicles through the outlets owned and operated by the respondent-Corporations and such other private parties who are appointed as agents providing services to MGL.
Procedural History
Director General of Central Excise Intelligence gathered intelligence that BPCL/HPCL were providing site and manpower for CNG sale and receiving commission. Show cause notices were issued to BPCL on 18.10.2010 and 19.10.2011, and to HPCL on 18.10.2010 and 04.10.2011, demanding service tax under the head 'Business Auxiliary Service'. The Commissioner (TAR), Mumbai, vide Orders-in-Original Nos. 03-04 and 05-06/ST/SB/2012-13 dated 16.08.2012, confirmed the demands, holding that the respondent-Corporations acted as agents of MGL. BPCL and HPCL appealed to CESTAT, West Zonal Bench, Mumbai, which by common order dated 04.06.2014 in Appeal Nos. ST/778-779/12 & ST/85346/13-Mum, allowed the appeals and set aside the demands. The Commissioner of Service Tax, Mumbai, then filed the present civil appeals before the Supreme Court under Section 35L(b) of the Central Excise Act, 1944.
Acts & Sections
- Finance Act, 1994: 65(19), 65(105)(zzb), 66
- Central Excise Act, 1944: 35L(b)
