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Commissioner of Service Tax Mumbai v. M/S Bharat Petroleum Corporation Ltd. Etc.

Civil Appeal · 2026 INSC 723Decided 20 Jul 2026
Civil Appeal Nos. 2471-2473 of 2015
Justice Aravind Kumar · Justice N.V. Anjaria · Justice S.V.N. Bhatti

Background

Mahanagar Gas Limited (MGL) manufactured and distributed Compressed Natural Gas (CNG) in Mumbai and Thane, supplying it through retail outlets owned by Bharat Petroleum Corporation Ltd. (BPCL) and Hindustan Petroleum Corporation Ltd. (HPCL). MGL installed and owned all the compressors, dispensers, and meters at these outlets, and paid excise duty on the CNG. The tax department demanded service tax from BPCL/HPCL, treating their role in selling CNG to vehicle owners as a taxable "Business Auxiliary Service" rather than an outright sale, but the CESTAT tribunal had ruled in favour of the oil companies and set aside the demand.

Decision Breakdown

The Supreme Court examined the actual agreements between MGL and BPCL/HPCL in detail and held that the oil companies functioned as commission agents/marketing agents for MGL, not as independent sellers who had purchased and resold the gas. Key indicators included that MGL retained ownership and control of the CNG and equipment until the point of sale to the consumer, fixed the price, bore the commercial risk, and paid the oil companies a commission (not a trade discount) for promoting and facilitating sales. Since the relationship was one of principal (MGL) and agent (BPCL/HPCL), the promotional and marketing services rendered by the oil companies fell squarely within the definition of "Business Auxiliary Service" under Section 65(19) of the Finance Act, making them liable to service tax. The Court set aside the CESTAT order and restored the original demand raised by the tax department.

Lesson Learnt

Whether a commercial arrangement is a "sale" or an "agency" for tax purposes depends on the substance of the contract (who retains ownership, control, and risk over the goods) not merely on how the parties label the transaction or bill for it.

Official source (sci.gov.in)View Judgment (PDF)

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