Supreme Court Mandates Service Tax on CNG Sales Commissions for BPCL and HPCL
The Supreme Court of India has delivered a significant ruling regarding the tax liabilities of Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL). In a recent judgment, the apex court has determined that these oil giants are required to pay service tax on commissions earned from selling compressed natural gas (CNG) on behalf of Mahanagar Gas Limited (MGL). This decision stems from the case of Commissioner of Service Tax Vs Bharat Petrol.
The bench, comprising Justices Aravind Kumar and NV Anjaria, concluded that BPCL and HPCL were providing “business auxiliary services” as per Section 65(19) of the Finance Act, 1994. The court’s decision has reinstated service tax demands totaling approximately ₹16.69 crore against the two corporations for the period from April 2005 to March 2011, along with applicable interest and penalties.
Justice Kumar and Justice Anjaria emphasized that the corporations could not evade their service tax obligations. The adjudicating authority’s determination of the amounts payable was deemed “eminently proper” by the court.
The legal dispute revolved around agreements where MGL supplied CNG through BPCL and HPCL outlets located in Mumbai, Thane, and surrounding regions. MGL provided the necessary equipment such as compressors and storage tanks, while BPCL and HPCL contributed infrastructure, utilities, and trained staff.
The service tax department argued that BPCL and HPCL were facilitating MGL’s CNG sales in exchange for commissions, classifying this as a business auxiliary service. The Supreme Court concurred, noting that MGL maintained control over the CNG, set retail prices, and retained ownership of the equipment, effectively making BPCL and HPCL facilitators in the transaction.
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The court highlighted that BPCL and HPCL never held title or ownership of the CNG, acting instead as agents for MGL. This characterization invalidated the companies’ claim that the commissions were merely trade discounts.
The case also involved a previous decision by the Customs, Excise and Service Tax Appellate Tribunal, which had overturned the tax demands, viewing the transactions as sales on a principal-to-principal basis. However, the Supreme Court’s judgment overturned this ruling, reaffirming the adjudicating authority’s stance.
Representing the Commissioner of Service Tax were Additional Solicitor General Raghavendra P Shankar and advocates Gurmeet Singh Makker, Karan Lahiri, Bhuvan Kapoor, Ishan Sharma, and Pallavi Mishra. BPCL and HPCL were represented by advocates MH Patil, Sandeep Narain, Manasi Patil, and Viraj Reshamwalla, instructed by S Narain & Co.
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[Read Judgment]
