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Principal-agent CNG outlet arrangements constitute taxable Business Auxiliary Service where supplier ownership, pricing control and sales supervision continue.
CNG outlet arrangements constitute a principal-agent relationship where the supplier retains ownership, price control, inspection rights and control over unsold stock, while outlet operators provide infrastructure, personnel and sales support. As title and risk in CNG do not pass to the operators, they facilitate sales to vehicle owners on the supplier's behalf rather than purchase CNG for resale. Payments linked to quantities sold, expressly characterised as commission or profit margin, are remuneration for agency services rather than trade discounts. Such promotion, marketing and sale of CNG for the supplier falls within taxable Business Auxiliary Service and the definition of a commission agent, creating service tax liability.
Business Auxiliary Service - sale of Compressed Natural Gas [“CNG”] to the consumers provided by Mahanagar Gas Limited [“MGL”] at and through the petrol pump outlets owned by the respondent-Corporations - passing of title in goods - Concept of Agency - Treatment as sale - commission agent - Principal-agent relationship in CNG distribution - marketing and sale of client's goods - Commission distinguished from trade discount - Whether the transaction between the respondent-Corporations and MGL in supply of CNG was in the capacity of “Seller and Buyer”? - HELD THAT: - This Court in Bharti Cellular Limited v. CIT [2024 (3) TMI 41 - SUPREME COURT] explained the concept of agency. In that case, the assessees were cellular mobile service providers. The issue involved was regarding the liability to deduct tax at source under Section 194H of the Income Tax Act, 1961 on the amount payable. As per the Revenue, the amount which was payable was the commission to an agent by the assessees under the Franchise/distributor agreements existed between the assessees and the franchise holders. The law of agency was discussed in the context of the expression “acting on behalf of another person”. After referring to the group of provisions of Section 182 and others of the Contract Act, the Court stated that the agency is a triangular relationship between the principal, the agent, and the third party. It was further observed that in order to comprehend what is required to be examined is an inter-se relationship between the principal and the third party on one hand and the agent and the third party on the other. ‘Sale’ and ‘Agency’ Distinguished - Sri Tirumala Venkateswara Timber and Bamboo [1967 (11) TMI 94 - SUPREME COURT] highlighted the distinction between the contract of sale and contract of agency. It was observed that the agent is authorized to sell or buy on behalf of the principal and account for either the sale proceeds or the goods. It was observed that the essence of the contract of sale is the transfer of title to the goods for the price paid or promised to be paid. The Agreements between the parties record, as previously stated, that the respondent Corporation concerned approached MGL telling it that they had the facility of outlets/online stations available at different sites in the city of Mumbai and elsewhere through which the respondent-Corporations could facilitate the sale of CNG to the consumers which may be supplied by MGL to them. This offer was agreed upon by MGL resulting into execution of the Agreements containing the terms as above. All the terms in the Agreements came to be accepted by the respondent-Corporations. The intention of parties was thus evidently reflected that MGL was to supply CNG which would be sold by the respondent-Corporations to the vehicle users by providing various services in the process, to complete the sale occurring from MGL to the vehicle owners. As the total effect of the Agreement and the terms thereof is required to be considered to understand the real nature and purport as well as intention of the parties, even if at some place in an isolated context, the word “sale” is mentioned or arrangement for serve limited aspect is described as “Principal-to-Principal”, it would not alter the real jural relationship revealing in substance from the Agreement read in totality. What is necessary for becoming the payment to be the trade discount is that such discount must be part of the terms of the trade or a condition in the transaction of sale of goods. Trade discount is something, the payment in the nature of which, is by established practice in trade. It is the allowance and the nature of discount known at or prior to the removal of the goods. The concept of trade discount is relevant where the sale is on “Principal-to-Principal” basis, which is indeed not the case here. The respondent Corporations are the commission agents rendering the services to the appellant in distributing CNG acting on the basis of terms and conditions of the Agreement, of course, they are free to perform the task which they are entrusted with by the appellant-principal as per the terms of the Agreements. They do the business as facilitator and promote to sell CNG for the appellant. The respondent Corporations may be enjoying certain “powers” but they do not have the authority to override the principal–appellant and to hold the goods with any titular authority. The commission is paid to the respondent Corporations for rendering such services. The respondent Corporations are covered within the ambit of “commission agent” as per Explanation (a) of the definition. The services rendered by the respondent Corporations are “taxable services” as defined and understood in Section 65(105) of the Finance Act. A sale requires transfer of property in goods for a price; the true relationship must be gathered from the agreement read as a whole, and not from isolated descriptions. Under the agreements, MGL retained control over the equipment, supply, retail price, inspection, unsold stock and its disposal on termination; the risk and title in CNG did not pass to the respondent-Corporations. The Corporations provided sites, infrastructure, utilities and trained personnel to facilitate MGL's sale of CNG to vehicle users, for remuneration linked to the quantity sold. The stipulated commission/profit margin, considered with the contractual terms, was remuneration for agency services and not a trade discount. The Corporations consequently acted as commission agents promoting and marketing CNG belonging to MGL, and their activities fell within Business Auxiliary Service. [Paras 8, 9, 10, 11, 12] The respondent-Corporations were liable to service tax on the commission received for rendering Business Auxiliary Service to MGL. Final Conclusion: The appeals were allowed. The CESTAT order was set aside and the service-tax demands as adjudicated against the respondent-Corporations were restored.
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