Oil Companies Selling MGL's CNG on Commission Are Agents, Not Buyers; Service Tax Payable: Supreme Court in Commissioner of Service Tax v. BPCL [2026 INSC 723]

In Commissioner of Service Tax, Mumbai v. M/s Bharat Petroleum Corporation Ltd. Etc. (2026 INSC 723), the Supreme Court held that, read in their totality, the agreements between MGL and the oil marketing companies created a "Principal and Agent" relationship and not one of seller and buyer: MGL fixed the retail price, owned the equipment, bore the risk, could take back unsold CNG on termination, and paid a commission on the quantity sold (paras 7–7.1.9, 9–10.3). A Bench of Justice Aravind Kumar and Justice N.V. Anjaria held that the Corporations were commission agents within Explanation (a) to Section 65(19) and were liable to service tax (paras 12–13.2).

Status: CESTAT, West Zonal Bench, Mumbai common order dated 04.06.2014 in Appeal Nos. ST/778 and 779/12 & ST/85346/13-Mum set aside; Orders-in-Original Nos. 03-04 and 05-06/ST/SB/2012-13 dated 16.08.2012 restored; Revenue's appeals allowed (paras 13.1–14).

Headnote: Service Tax on CNG Sold by Oil Companies for MGL

Finance Act, 1994 – Sections 65(19), 65(105)(zzb), 83 – Central Excise Act, 1944 – Section 35L(b) – Business Auxiliary Service – Commission agent – Sale of CNG at outlets of oil marketing companies – Sale versus agency – Sale of Goods Act, 1930 – Section 4 – Contract Act, 1872 – Section 182 – Passing of property – Commission versus trade discount.

Held: (i) Whether a transaction is a sale or an agency depends on the substance of the agreement read as a whole, not on the labels used; an isolated reference to "sale" or "Principal-to-Principal" does not alter the real relationship (paras 7, 8–8.2).

(ii) The Corporations were facilitators who provided site, sheds, utilities and trained staff so that MGL could sell CNG to vehicle owners; a facilitator cannot be a buyer (paras 7.1–7.1.1).

(iii) MGL retained control: it owned the equipment, fixed and revised the retail price, inspected the outlets, bore the risk and could recover unsold CNG on termination; title in the CNG never passed to the Corporations (paras 7.1.2–7.1.9, 7.2.2).

(iv) Passing of property is the litmus test; since no clause of the agreements passed property to the Corporations, they sold CNG as agents of MGL (paras 10–10.2).

(v) The commission/profit margin under Clause 8.4, payable on the quantity actually sold, was remuneration for agency services and not a trade discount, which is relevant only in a principal-to-principal sale (paras 9–9.2.3).

(vi) The Corporations were commission agents within Explanation (a) to Section 65(19); their services were Business Auxiliary Service and taxable under Section 65(105)(zzb) (paras 12–12.2).

(paras 7–13)

Case Details: Commissioner of Service Tax v. BPCL (2026 INSC 723)

Final Outcome: Appeals allowed; CESTAT order dated 04.06.2014 set aside; Orders-in-Original dated 16.08.2012 restored; Revenue entitled to enforce the service tax demand as adjudicated.

Case: Commissioner of Service Tax, Mumbai v. M/s Bharat Petroleum Corporation Ltd. Etc.

Neutral Citation: 2026 INSC 723

Case No.: Civil Appeal Nos. 2471-2473 of 2015

Court: Supreme Court of India (Civil Appellate Jurisdiction) – Reportable

Date of Decision: 20 July 2026

Bench: Justice Aravind Kumar and Justice N.V. Anjaria (author)

Relevant Acts & Sections: Finance Act, 1994 – Sections 65(19), 65(105)(zzb), 66 and 83; Central Excise Act, 1944 – Section 35L(b); Sale of Goods Act, 1930 – Section 4; Indian Contract Act, 1872 – Sections 182 to 188 and 222

Impugned Order: Common order dated 04.06.2014 of the Customs, Excise & Service Tax Appellate Tribunal, West Zonal Bench, Mumbai in Appeal Nos. ST/778 and 779/12 & ST/85346/13-Mum (paras 1–1.1)

Counsel: Mr. Raghavendra P Shankar, Additional Solicitor General, with Mr. Gurmeet Singh Makker for the appellant; Mr. M.H. Patil with M/s. S. Narain & Co. for the respondents (para 4)

Source: Supreme Court of India

Key Holdings of the Supreme Court

• The agreements, read in totality, show that the supply of CNG by MGL to BPCL/HPCL was not a sale (paras 7, 7.1.9).
• BPCL/HPCL acted as facilitators and agents of MGL, without real dominion over the goods (para 7.1.1).
• MGL fixed the retail price, owned the equipment, bore the risk and could take back unsold CNG on termination (paras 7.1.2–7.1.7).
• The commission/profit margin in Clause 8.4 was remuneration for agency services, not a trade discount (paras 9–9.2.3).
• Passing of property is the litmus test; title never passed to the Corporations (paras 10–10.2).
• The Corporations are commission agents rendering Business Auxiliary Service taxable under Section 65(105)(zzb) (paras 12–12.2).

Brief Facts of the Case

MGL manufactured and distributed CNG, an excisable good. Natural gas received from GAIL was carried by pipeline to retail outlets, including those of BPCL and HPCL in Mumbai and Thane, where MGL's compressors converted it into CNG. MGL paid central excise duty on the CNG (paras 3–3.1).

MGL entered into an agreement with BPCL on 30.03.1998, renewed on 10.06.2004 and amended on 21.11.2008, and a similar agreement with HPCL on 01.06.1999. The Corporations were paid a commission/profit margin per kg of CNG sold (paras 3.1.1, 6.8–6.9).

Show cause notices dated 18.10.2010 and 19.10.2011 demanded Rs. 7,20,78,037 and Rs. 1,40,03,174 from BPCL, and notices dated 18.10.2010 and 04.10.2011 demanded Rs. 6,86,65,245 and Rs. 1,21,11,933 from HPCL, as service tax on Business Auxiliary Service for April 2005 to March 2011. The Commissioner (TAR), Mumbai confirmed the demands with interest and penalty by Orders-in-Original dated 16.08.2012, finding a principal-agent relationship (paras 3.3–3.6.5).

CESTAT allowed the Corporations' appeals on 04.06.2014, holding that they bought CNG from MGL on a principal-to-principal basis, that MGL discharged VAT on the sale, and that the margin was not commission. The Commissioner of Service Tax appealed under Section 35L(b) of the Central Excise Act read with Section 83 of the Finance Act (paras 1, 3.7–3.7.4).

Issues Before the Supreme Court

1. Whether the supply of CNG by MGL to BPCL/HPCL was a sale between seller and buyer, or the Corporations acted as agents providing services to MGL (paras 2, 5–5.1).
2. Whether the commission/profit margin under Clause 8.4 was a trade discount or remuneration for agency services (paras 9–9.2.3).
3. Whether the Corporations' activities fall within Business Auxiliary Service under Section 65(19) read with Section 65(105)(zzb) of the Finance Act (paras 12–12.2).

Court's Findings and Reasoning

Sale and agency explained (paras 5.3–5.5.2): A sale requires transfer of property in goods for a price, with risk passing to the buyer. An agent sells goods not as its own property but as the property of the principal, who remains owner and to whom the agent must account. The terminology used by the parties is not decisive.

Services and facilitator role (paras 7.1–7.1.1): Under Clause 4, the Corporations had to make outlets available, build sheds and foundations, provide water, electricity and trained staff, and obtain statutory approvals. Their status was that of a facilitator who arranged and smoothened MGL's sale to vehicle owners.

Control, price and risk with MGL (paras 7.1.2–7.1.6): All equipment belonged to MGL; under Clause 2.4 MGL fixed and could revise the retail price; the Corporations had to give monthly forecasts; MGL could inspect the outlets; and the risk did not pass to the Corporations at any point. When risk was not transferred, title was also not transferred.

Unsold stock and Snow White (paras 7.1.7, 7.2–7.2.2): On termination, unsold CNG was to be returned to MGL or disposed of as MGL directed. Following Snow White Industrial Corporation, the obligation to return unsold stock is an important indicator of agency.

Labels not decisive (paras 8–8.2): Relying on Hafiz Din Mohd. Haji Abdulla, where goods were sold at prices fixed by the supplier for a fixed remuneration, the Court held that even if the word "sale" or "Principal-to-Principal" appears in an isolated context, it does not change the relationship revealed by the agreement as a whole.

Commission, not trade discount (paras 9–9.2.3): Clause 8.4 described the payment as made in consideration of the services provided, payable on the quantity actually sold. A trade discount is relevant only in a principal-to-principal sale, which this was not. Clauses 8.5 and 8.6 confirmed that the payment was commission from principal to agent; Future Gaming Solutions notes that a pre-arranged commission on resale points to agency.

Ownership retained by MGL (paras 10–11.2): Dominion over the property is the litmus test. No clause showed property passing to the Corporations, who did not buy and resell CNG but were recipients of the goods acting as marketing promoters and agents of MGL.

Business Auxiliary Service (paras 11.3–12.2): K. Arumugam, where lottery tickets were not goods, was distinguished. Here the Corporations promoted and marketed goods belonging to MGL for a commission, which falls squarely within Section 65(19), and they are commission agents under Explanation (a).

Final Outcome and Directions

• The respondent-Corporations cannot escape payment of service tax; the adjudicating authority's view was proper (para 13).
• CESTAT common order dated 04.06.2014 in Appeal Nos. ST/778 and 779/12 & ST/85346/13-Mum set aside (para 13.1).
• Orders-in-Original Nos. 03-04 and 05-06/ST/SB/2012-13 dated 16.08.2012 to operate (para 13.1).
• The Revenue is entitled to enforce the service tax demand as adjudicated; all appeals allowed (paras 13.2–14).

Legal Principle Laid Down

Whether goods delivered to another are sold or handed over for sale as agent depends on the agreement read in its totality, the decisive test being whether property in the goods passes. Where the supplier fixes the resale price, retains ownership, risk and control over the stock, can take back unsold goods and pays a commission on quantity sold, the recipient is a commission agent, and its services in selling the goods are Business Auxiliary Service liable to service tax under Section 65(19) read with Section 65(105)(zzb) of the Finance Act, 1994 (paras 7, 8.2, 9–10, 12–12.2).

Precedents Relied Upon

• Sri Tirumala Venkateswara Timber and Bamboo v. Commercial Tax Officer, Rajahmundry, (1968) 21 STC 312 – Relied upon – essentials of sale and the distinction between sale and agency. Discussed at paras 5.3.6 and 5.5–5.5.2.
• Union of India v. Future Gaming Solutions (P) Ltd., (2025) 5 SCC 601 – Relied upon – concept of agency; commission on resale indicates an agent. Discussed at paras 5.4.2–5.4.4 and 9.2.3.
• Bharti Cellular Limited v. CIT, (2024) 8 SCC 608 – Relied upon – attributes of a principal-agent relationship. Discussed at paras 5.4.5–5.4.7.
• Snow White Industrial Corporation, Madras v. Collector of Central Excise, Madras, (1989) 3 SCC 351 – Relied upon – return of unsold stock as an indicator of agency. Discussed at paras 7.2–7.2.2.
• Hafiz Din Mohd. Haji Abdulla v. State of Maharashtra, 1962 SCC OnLine SC 208 – Relied upon – designation used by parties is of little consequence; price fixed by supplier and fixed remuneration indicate agency. Discussed at paras 8–8.1.4.
• Union of India v. Bombay Tyre International Ltd., (2005) 3 SCC 787 – Referred to – meaning of trade discount. Discussed at paras 9.1.1–9.1.2.
• Bhopal Sugar Industries Ltd. v. Sales Tax Officer, (1977) 3 SCC 147 – Relied upon – an agent taking delivery does not become owner of the goods. Discussed at para 10.1.
• K. Arumugam v. Union of India, (2024) 10 SCC 733 – Distinguished – lottery tickets not goods; no promotion or marketing on behalf of the State. Discussed at paras 11.3 and 12.

Important Paragraphs of the Judgment

Verbatim extracts from the judgment. For the full text, refer to the judgment PDF below.

Para 7.1.1: "A facilitator cannot be a buyer. It only acts on behalf of supplier-principal to become an agent."

Para 7.1.6: "When the risk was not transferred, it would suggest that the title would also not be transferred."

Para 9.1.2: "The concept of trade discount is relevant where the sale is on “Principal-to-Principal” basis, which is indeed not the case here."

Para 10: "Dominion over property and continuance thereof is a litmus test. In a sale transaction, the buyer becomes owner of the property and the seller ceases to have any vestige of title left in the property."

Para 12.1: "Their activity stands squarely covered under Section 65(19) as “Business Auxiliary Service”."

Para 13: "The respondent Corporations cannot escape the payment of service tax."

Practical Impact of the Ruling

• For oil marketing companies and dealers: Margins earned for selling a supplier's product at prices fixed by the supplier, without ownership or risk, may be treated as commission for taxable services (paras 9–10.3, 12.2).
• For drafting distribution agreements: Calling a transaction a sale or principal-to-principal will not help if clauses on price control, risk, ownership of stock and return on termination point to agency (paras 7, 8.2).
• For Revenue: Pending service tax disputes on CNG and similar agency-type arrangements for the pre-GST period may be decided by applying the passing-of-property test (paras 10, 13.2).
• For tribunals: The nature of a transaction must be decided on the agreement read as a whole, not on VAT invoices or nomenclature alone (paras 7, 13).

FAQs on Service Tax on CNG Commission

1. What did the Supreme Court decide in Commissioner of Service Tax v. BPCL?

It held that BPCL and HPCL sold MGL's CNG as MGL's commission agents and were liable to service tax on Business Auxiliary Service; the CESTAT order was set aside (paras 12–14).

2. Why was the supply of CNG not a sale to BPCL/HPCL?

Property in the CNG never passed: MGL fixed the price, owned the equipment, bore the risk and could take back unsold stock on termination (paras 7.1.2–7.1.9, 10–10.2).

3. Was the commission/profit margin a trade discount?

No. It was paid in consideration of services on the quantity sold; trade discount is relevant only in a principal-to-principal sale (paras 9–9.2.2).

4. Does the word "sale" or "principal to principal" in an agreement decide the issue?

No. The agreement must be read as a whole; isolated expressions do not change the real relationship (paras 8.1, 8.2).

5. Under which provisions is the service taxable?

Section 65(19), including Explanation (a) on commission agents, read with Section 65(105)(zzb) of the Finance Act, 1994 (paras 12.1–12.2).

Keywords: 2026 INSC 723, Commissioner of Service Tax v. BPCL, HPCL, Mahanagar Gas Limited, CNG, Business Auxiliary Service, Section 65(19) Finance Act 1994, Section 65(105)(zzb), commission agent, sale versus agency, passing of property, trade discount, principal to principal, Hafiz Din Mohd. Haji Abdulla, Snow White Industrial Corporation, Future Gaming Solutions, service tax, Justice N.V. Anjaria, Justice Aravind Kumar, Supreme Court judgment

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Download Judgment PDF – Commissioner of Service Tax v. BPCL

Judgment PDF: 2026 INSC 723 – Commissioner of Service Tax, Mumbai v. M/s Bharat Petroleum Corporation Ltd. Etc. (Civil Appeal Nos. 2471-2473 of 2015) – Download Judgment PDF

Source: Supreme Court of India (official website).