Supreme Court Reinstates Service Tax on BPCL and HPCL for CNG Sales Facilitation, Apex Court rules BPCL and HPCL acted as agents for MGL, not as independent buyers, attracting service tax liability under Business Auxiliary Service.
In a landmark judgment delivered on July 20, 2026, the Supreme Court of India ruled in favor of the Commissioner of Service Tax, Mumbai, against Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL), reinstating the service tax liability on the two corporations. The judgment overturned the decision of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), which had earlier set aside the service tax demands on BPCL and HPCL.
The case centered on whether the activities of BPCL and HPCL in the sale of Compressed Natural Gas (CNG), supplied by Mahanagar Gas Limited (MGL), fell under the purview of "Business Auxiliary Service" as defined under Section 65(19) read with Section 65(105)(zzb) of the Finance Act, thus attracting service tax liability.
The Supreme Court, presided by Justices Aravind Kumar and N.V. Anjaria, clarified that BPCL and HPCL acted as marketing agents for MGL rather than independent buyers. The court held that the transactions between MGL and the respondent corporations were on a "Principal-Agent" basis, not on a "Principal-to-Principal" basis. Therefore, the services rendered by BPCL and HPCL were classified as "Business Auxiliary Service," making them liable for service tax.
The judgment emphasized that the respondent corporations were facilitators in the sale of CNG, providing infrastructure and manpower, while the control and ownership of the CNG remained with MGL throughout the transaction. The court noted that the commission received by BPCL and HPCL from MGL was remuneration for their services as agents and not trade discounts.
This ruling underscores the importance of understanding the nature of business relationships and the corresponding tax implications. It highlights that the classification of transactions as agency services or independent sales can significantly impact the tax liabilities of corporations.
The Supreme Court's decision mandates BPCL and HPCL to comply with the service tax demands as adjudicated by the Commissioner of Customs (TAR), Mumbai, and pay the service tax, including penalties and interest, for the period in question.
Bottom Line:
Supply of Compressed Natural Gas (CNG) by Mahanagar Gas Limited (MGL) through respondent Corporations was not a sale but a Business Auxiliary Service.
Statutory provision(s): Finance Act, 1994 Section 65(19), Section 65(105)(zzb); Sale of Goods Act, 1930 Section 4; Customs, Excise & Service Tax Appellate Tribunal (CESTAT) provisions.
