TaxTMI 
TaxTMI 
2026 (7) TMI 1282
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.... 9. View of CESTAT 3.7 to 3.7.4 10. Submissions of Appellant 4 to 4.1.1 11. Submissions of BPCL/HPCL 4.2 12. Crux of Controversy 5 to 5.1.2 13. Business Auxiliary Service 5.2 to 5.2.2 14. What is 'Sale' 5.3 to 5.3.6 15. Concept of Agency 5.4 to 5.4.7 16. 'Sale' and 'Agency' Distinguished 5.5 to 5.5.2 17. Clauses In Agreements 6 to 6.9.1 (a) Representation by BPCL/HPCL (b) Definitions (c) About Supply of CNG (d) Obligations of MGL (e) MGL's Right to Inspect etc. (f) Mode of Billing, Payments (g) BPCL/HPCL not liable for deficiency (h) MGL to be Indemnified (i) Right of MGL to Terminate (j) Sale to be Exclusive (k) Amended Clauses Compared 18. Decisive Aspects 7 to 7.1.9 (a) Providence of Services (b) As a Facilitator (c) Element of Control (d) Fixation of Price (e) MGL Is Regulator (f) Monitoring of Supply of Goods (g) The Risk Factor (h) Retention of Control Over Goods (i) Commission Agent (j) Title did not Pass 19. Under Domain of MGL 7.2 to 7.2.2 20. Evident Intention 7.3 t....
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.... MGL was paying central excise duty on the manufactured goods, namely CNG, at such online stations, retail outlets including the outlets of the respondent-Corporations. MGL used to supply natural gas through pipelines to different retail outlets of the respondent-Corporations. The manufacturing of CNG took place when the natural gas was compressed to the requisite pressure by using the compressors installed at the outlets of the respondent-Corporations. 3.1.1 It was a contractual arrangement between the parties for which MGL entered into an Agreement with BPCL on 30.03.1998. The Agreement was renewed on 10.06.2004 and further revised as per amendment Agreement dated 21.11.2008. Similar Agreement dated 01.06.1999 was executed by MGL with HPCL. The Agreements contained various clauses and conditions in respect of providing various services to the respondent-Corporations in connection with sale of CNG by MGL at the outlets of the respondent-Corporations. Claim of Department 3.2 It is the case of the appellant-Department that the respondent-Corporations were engaged in providing taxable services such as "Business Auxiliary Service", acting as manpower recruitment agency, provi....
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.....03.2011 to the tune of Rs. 1,21,11,933/- with interest and penalty was demanded. Findings In Orders-in-Original 3.4 The aforementioned show-cause notices issued to the respondent-Corporations were adjudicated by the Commissioner (TAR), Mumbai resulting into passing of Orders-in-Original dated 16.08.2012. It was observed that the respondent-Corporations had been providing site, manpower etc. for sale of CNG as vehicular fuel to be sold to the consumers and receiving commission/profit margin at prescribed rate. It was noticed that the respondent-Corporations had entered into an Agreement as amended by subsequent Agreements with MGL. 3.4.1 It was further noted by the competent authority that in the process, the respondent-Corporations contravened various provisions of the Finance Act such as, failed to make an application for registration with the Superintendent of Central Excise for payment of service tax under Section 66 of the Finance Act, which was leviable in respect of the transactions of CNG availed from MGL for selling it to the consumers from its outlets, did not determine the correct value of the "Business Auxiliary Service" provided by them to MGL, failed to pay t....
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.... noted that MGL compresses natural gas at 200 bar pressure to sell the resultant product of CNG directly to the ultimate consumers by delivery to vehicles through the outlets owned and operated by the respondent-Corporations and such other private parties who are appointed as agents providing services to MGL. The said outlets by the private parties act as agents to sell CNG to the consumers on behalf of MGL under the invoices/bills raised by, on behalf of and in the name of MGL and that there was a "Principal-Agent" relationship. 3.6.1 It was further stated that the price charged in the bills/invoices was the Maximum Retail Price ["MRP"] determined by MGL from time to time. These services, it was observed, are rendered against payment of service charges and the entire sale proceeds are remitted by the private party agents - the respondent-Corporations to MGL. 3.6.2 It was further noticed by the competent authority that the obligation of the service providers under the contract was to merely provide all facilities including shed, canopy and other infrastructure for supply and sale of CNG to motor vehicles, abiding by the terms and conditions of the contract entered into with M....
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....ST/85346/13-Mum were preferred by respondent No.1-BPCL, whereas appeal No.ST/779/12-Mum was preferred by respondent No.2-HPCL. By common judgment and order dated 04.06.2014, CESTAT allowed the appeals. 3.7.1 After considering the case of both sides, CESTAT concluded that the respondent-Corporations were engaged in buying the goods from MGL and the question of rendering the services to MGL by them for marketing of goods did not arise. It was sought to be highlighted that the MGL was discharging VAT/sales tax liability while selling CNG to the respondent-Corporations. It was reasoned that merely because goods were sold at Retail Sales Price ["RSP"] fixed by MGL, it would not imply that the profit margin shall be treated as commission for rendering the service. 3.7.2 CESTAT, by its observations and findings in its Paragraph 11 in the impugned judgment, accepted the case and contentions of the appellants on the basis of its own appreciation of the provisions of the Agreements. The following was referred, "As per the said provisions, the service provider provides service to his client for marketing or promotion of the goods to third party. In these cases, appellants thems....
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....n the renewal Agreement. Even in the subsequent instruments of Agreement, the condition regarding payment of commission/profit margin was retained. (iii) The services provided by the respondent-Corporations to MGL in connection with the sale of CNG were in the nature of "Business Auxiliary Service" as defined in Section 65(19)(i) read with Section 65(105)(zzb) of the Finance Act. The respondent-Corporations were engaged in promotion or marketing of goods on behalf of the appellant, acting as a commission agent. (iv) Various provisions, terms and conditions agreed upon and reflected in the Agreements between MGL and the respondent-Corporations were highlighted to submit that in form as well as in substance there was no "sale" inasmuch as there was no transfer of "property in the goods-CNG". (v) The clauses of the Agreement revealed that neither the title nor the risk passed at any point of time from MGL to respondent-Corporations. The parties implemented the Agreement in the manner consistent with such understanding, which was confirmed by the statement of Mr. Saibal Chakraborthy, Senior Manager (R&RM) of MGL. (vi) The respondent-Corporations had ....
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....included transaction value under Section 4(1)(a) of the Central Excise Act for the purposes of computation of excise duty. (e) The ratio of Mahanagar Gas (supra) is that the commission/profit margin was not includable in the excisable value of the "manufacture" of CNG by MGL at the pumps of respondent-Corporations. This is of no relevance to the question involved in these Appeals, that is whether service tax is payable on such commission/profit margin. Submissions of BPCL/HPCL 4.2 On the other hand, the impugned order by CESTAT was strenuously supported by the respondent-Corporations. In addition to canvassing for what is held by CESTAT, following further submissions were made: (i) MGL had been selling CNG to respondent-Corporations and they subsequently sold CNG to actual users which arrangement stood substantiated from the following documents: (a) Summary statement of CNG sold by MGL to respondent-Corporations on daily basis during 01.01.2011 to 31.01.2011. (b) Central Excise invoices issued by respondent-Corporations for sale of CNG on daily basis on payment of duty, during 01.01.2011 to 31.01.2011. (c) Tax invoices of MGL on re....
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....ioner of Service Tax - Delhi (2021) 47 GSTL 140 (T.LB) was pressed into service. (vii) Sale from MGL to the respondent-Corporations and further sale by these Corporations to ultimate consumers do not take place simultaneously, since the compressed gas was first stored in the stationary cascades wherein the meter reading would take place and CNG would be subjected to necessary pressure. (viii) Since the activity of compressing natural gas amounted to manufacture w.e.f. 01.03.2001, the exclusion clause under Section 65(19) would apply. (ix) Even if it is assumed that the respondent-Corporations were not having absolute control, still it would amount to purchase-sale transaction, as held by seven-Judge Constitution Bench of this Court in the case of Vishnu Agencies (Pvt.) Ltd. vs. Commissioner Tax Officer and Others (1978) 1 SCC 520. (x) Contractual obligations of MGL and respondent-Corporations' obligations under Article IV were for their mutual benefit. The same pertain to equipment and not pertain to sale of CNG. Crux of Controversy 5. The core issue that surfaces for consideration is whether the transaction between the respondent-Corporati....
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....9) "business auxiliary service" means any service in relation to- (i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or (ii) promotion or marketing of service provided by the client; or Explanation - For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, "service in relation to promotion or marketing of service provided by the client" includes any service provided in relation to promotion or marketing of games of change, organised, conducted or promoted by the client, in whatever form or by whatever name called, whether or not conducted online, including lottery, lotto, bingo; (iii) any customer care service provided on behalf of the client; or (iv) procurement of goods or services, which are inputs for the client; Explanation - For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, "inputs" means all goods or services intended for use by the client; (v) production or processing of goods for, or on behalf of, the client; or (vi) provision of service on behalf of the client; or (vii) a se....
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....property in the goods occurs at a future point of time, the contract will be in the nature of agreement to sell. 5.3.1 The "contract of sale" as defined in Section 4 of the Sale of Goods Act is similarly in its import to Section 2 of the English Sale of Goods Act, 1979. The emphasis is that, in a contract of sale of goods, the seller transfers or agrees to transfer "the general property in goods to the buyer for a price". 5.3.2 The essence of the transaction of sale is that it has the effect of transferring property in goods from one person to another that is from the buyer to seller. The necessary ingredients of the transaction are explained in the following words in Benjamin's Sale of Goods (4th Edn. 1992), "The seller must agree to transfer the property and the buyer to take it, and they must agree to do so in return for money which is paid and received as the price of the goods. Where the consent of the parties does not extend so far, or does not exist at all, there is no sale. Such transactions or events are sometimes termed as quasi-contracts of sale or implied contracts of sale; but there is no true analogy with a contract of sale properly so-called and the Sa....
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....d is to find out as to whether the relationship between the parties is one of "seller and buyer" or that of "Principal and Agent", who does the service for the Principal, it will be useful to consider the concept of agency as understood in law. Section 182 of the Contract Act, 1872 ["Contract Act"] defines "agent" and "principal". The Section is as under, "182. "Agent" and "principal" defined.-An "agent" is a person employed to do any act for another, or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the "principal"." 5.4.1 Section 183 of the Contract Act states who may employ an agent, whereas Section 184 mentions who may be an agent. No consideration is necessary to create an agency, as per Section 185. In view of Section 186, an agent's authority may be expressed or implied. Section 187 defines express authority and implied authority. An authority is said to be express when it is given by words spoken or written. The implied authority is one when it is to be inferred from the circumstances of the case and the things spoken or written. The extent of an agent's authority is defined ....
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....ed by the agent, are to be treated in certain respects as if they were acts of the principal. It is common to regard control by the principal as a defining characteristic of agency. Thus, agency is termed as acting on behalf of the principal and subject to principal's control." 5.4.5 This Court in Bharti Cellular Limited v. CIT (2024) 8 SCC 608, 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. 5.4.6 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 ....
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....ntract of sale is the transfer of title to the goods for a price paid or promised to be paid. The transferee in such a case is liable to the transferor as a debtor for the price to be paid and not as agent for the proceeds of the sale. The essence of agency to sell is the delivery of the goods to a person who is to sell them, not as his own property but as the property of the principal who continues to be the owner of the goods and will therefore be liable to account for the sale proceeds. The true relationship of the parties in each case has to be gathered from the nature of the contract, its terms and conditions, and the terminology used by the parties is not decisive of the legal relationship." (Unnumbered Paras) 5.5.2 It was further stated thus, "It is manifest that the question as to whether the transactions in the present case are sales or contracts of agency is a mixed question of fact and law and must be investigated with reference to the material which the appellant might be able to place before the appropriate authority. The question is not one which can properly be determined in an application for a writ under Article 226 of the Constitution." ....
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....der, "The Corporation shall perform the functions and provide the services in relation to sale of CNG as hereinafter mentioned." 6.2.2 In Clause 2.3, it was inter alia stated that the parties may, from time to time, agree upon additional locations or sites for the purpose of the sale of CNG from such additional outlets. Clause 2.4 stated as under, "The Retail Price of CNG shall be fixed by MGL and the Corporation shall sell the CNG only at the Retail Price, communicated by I MGL to the Corporation, from, time to time. MGL may, at any time, revise the Retail Price and such revised Retail Price shall be binding on the Corporation from the date of communication thereof to the Corporation. The current Retail Price of CNG as on the date of this Agreement will be the price specified in Annexure II, which Retail Price shall remain in force until revised by MGL." 6.2.3 As per Clause 2.5, it was stated that the corporation shall furnish to MGL monthly forecast of its requirements for CNG at the outlets in advance. (d) Obligations of MGL 6.3 The obligations of MGL under the Agreement were mentioned in Paragraph III, incorporated in Clauses 3.1 to 3.3, extracted ....
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....s from the competent authorities for opening the outlets, installation of equipments, power supply, etc., the taxes such as property tax and municipal tax would be payable by the Corporation. 6.3.3 Paragraph V is equally important. Clause 5.1 therein stipulated that the equipment shall be the absolute property of MGL and that BPCL should not claim any right of ownership in the equipment, whereas the site will be the property of the Corporation as per Clause 5.2. (e) MGL's Right to Inspect etc. 6.4 Paragraph VI of the Agreement was regarding the confirmations by the Corporation, in which, as per Clause 6.1, it was provided that the Corporation shall not be entitled to any compensation for the site and utilities provided. That the Corporation shall, at all times, permit the regional officers or other authorized representatives of MGL to enter upon the site for the purpose of taking meter readings to calculate CNG sales. 6.4.1 As per Clause 6.3, the Corporation shall permit the officers and representatives of MGL to inspect the equipment and verify the safety procedures, and the Corporation shall not have any right to adjust, repair, or clean any of the equipment. The equi....
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....ssion payable to the respondent-Corporations. As per Clause 8.6, in case of delay by respondent-Corporations in payment of the invoice value, delayed payment interest at the rate of 24% to be levied on the unpaid amount. (g) BPCL/HPCL not liable for deficiency 6.5.4 As per Clause 9.1 in Paragraph IX, it is contemplated that MGL shall be liable for the quantity of CNG supplied and that BPCL shall not be liable for any deficiency in quantity of CNG or any claims made by any owner of any vehicle in respect of such deficiency. The respondent-Corporations are held liable for safety and security of the equipment installed at the site as per Clause 9.2. Under Clause 9.3, respondent-Corporations agreed to indemnify MGL against any loss, damage, claim, action, proceeding, costs etc., that may be suffered by MGL on account of any damage or injury to the person or property of the third party. (h) MGL to be Indemnified 6.5.5 Similarly, under Clause 9.4, the respondent-Corporations agreed to indemnify MGL against any loss, damage, claim etc., suffered or incurred by MGL on account of any acts done or caused to be done by them, its employees, or agents. It is provided in Paragraph 9.....
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....ied by MGL. Paragraph XVI onwards deals with the aspects of prevalence of the Agreement, benefits of the Agreements, assignments and notices, costs and expenses, partial invalidity, future acts, etc. Paragraph XXIV was the arbitration clause. 6.8 The Agreement dated 01.06.1999 was executed between MGL and HPCL containing identical clauses of terms and stipulations. While the terms and conditions of the original Agreement dated 30.03.1998 remained the same, in the renewal dated 10.06.2004, Clauses 8.1 to 8.6 came to be modified. In the same way, in the renewal and amendment Agreement dated 21.11.2008, Clause 6.1 was inserted in place of Clause 8.4, which deals with commission/profit margin. (k) Amended Clauses Compared 6.9 Instead of reproducing the amendment Agreement, the following comparative part would make it clear as to the modification and the replacement in the conditions done by virtue of the renewal/amendment Agreements as above in comparison with the original Agreement dated 30.03.1998, Comparison of Agreements executed between M/s Mahanagar Gas ("MGL") and BPCL Agreement dated 30.03.1998 Renewal Agreement dated 10.06.2004 Renewal and Amendment Agreem....
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.... "It is hereby agreed between the Parties that for CNG sold [effective from January 01st 2006, 0600 hours, the Commission / Profit Margin payable by MGL to the Corporation as per Annexure III shall stand revised to Rs. 1.40/Kg (Rupees One and Paisa forty Only). It is agreed that the Commission/ Profit Margin is towards sale of CNG by MGL to the Corporation on principal to principal basis to enable the Corporation to maintain the uniform MRP at all the outlets in the given municipal area." 6.9.1 Even after and pursuant to amendment and additions in the Agreements, the original terms and conditions remained the same for their operation and effect. Decisive Aspects 7. It is trite that any written document, for its nature and effect, has to be construed through the terms and conditions incorporated therein. The stipulations have to be read in totality and collectively for comprehending the true purport and intent thereof. It is not the form but the substance of the conditions becoming operative in their totality, has to be considered. From various clauses in the Agreement entered into between MGL and the respondent Corporations for supply and sale of CNG, certain decisive ....
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....under the Agreements to sell CNG at the price fixed by MGL. Clause 2.4 mentioned that the retail price of CNG shall be fixed by MGL and that the respondent Corporations shall sell the goods only at such price communicated by MGL from time to time. The power to revise the retail price was also with MGL to remain binding on the respondent Corporations. The prices were mentioned in the Agreement itself. (e) MGL Is Regulator 7.1.4 The respondent Corporations were under obligation to furnish to MGL the monthly forecast of their requirements of the quantity of CNG at the outlets. This monthly assessment was to be given to MGL in advance. As per Clauses 3.1 to 3.3 of the Agreement, it was MGL which shall install at the site, at its own cost, the equipments. In the event of any damage to the equipment on account of negligence by the respondent-Corporations or by their employees or agents, MGL could recover the costs of repairs. Again, the repairs were to be undertaken by MGL itself. Right to inspection is with MGL, whose officers can enter the outlets as of right. (f) Monitoring of Supply of Goods 7.1.5 The supply of CNG by MGL from the tap-off point on its line to the intake l....
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....he title over the goods for all procedural and practical purposes. This is elaborated in succeeding paragraph 10. Under Domain of MGL 7.2 In M/s Snow White Industrial Corporation, Madras versus Collector of Central Excise, Madras (1989) 3 SCC 351, the appellant was engaged in manufacturing supercem waterproof cement paint in its factory at Madras which had entered into an agreement which was described as "agreement of sale" with Company named Gillanders Arbuthnot and Co. Ltd. which was described as "selling agent". While considering as to whether the agreement was an agreement for agency for the purpose of payability of the duty on the basis of the price at which the goods were sold by the Company, this Court looked at the terms and conditions in the agreement standing in the background. 7.2.1 The Court stated, "It is true that though the appellants described 'G' as selling agent, but that is not conclusive. It is also true that the difference of the prices between the transfer and the selling prices is suggestive of an outright sale. But in the instant case the most important fact suggesting agency was the clause which enjoined that the stocks left over u....
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....ernment of the Central Provinces for the manufacture and sale of bidis in and outside the State of Madhya Pradesh, created a relation of principal and agent or vendor and purchaser between the assessees and the merchants to whom the bidis were dispatched. It was observed that relationship between the parties has manifestly to be ascertained in the light of the terms incorporated in the letter and the attendant circumstances. 8.1 It was explained thus, "...The designation which a party chooses to give to the relation, especially in cases of liability to pay tax, is of little consequence. The Court has in each case, having regard to the terms and the attendant circumstances, to ascertain the true relation between the parties without giving undue importance to the special expressions used by them. It is true that in commercial usage, especially in modern contracts, the expression "agents" or "agency" has acquired an extended meaning: often the so-called agent is merely a buyer who has been given favourable terms in a particular area to sell the manufacturer's or supplier's goods..." (Para 9) 8.1.1 The Court thereafter considered various covenants in the agreemen....
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....t of vendors and purchaser. The terms of clause (1) imposing an obligation upon the assessees to meet the demands of bidis of the merchants in the areas assigned to them further emphasizes that character of the relation between the parties..." (Para 9) 8.1.4 The Court proceeded and stated, "It is true that by clause (5), for damages or risk to the goods during transit or in the shop of the merchant, the latter is responsible, but that does not alter the true nature of the right in which he holds the goods. It is open to an agent to undertake a liability in respect of goods after they are delivered to him even though the property in goods does not pass to him. Clause (2) providing for giving delivery at the town where the merchant resides has no special significance. The diverse clauses of the agreement, in our judgment, create a relationship of principals and agent and not of vendors and purchaser between the assessees and the merchants to whom the bidis were despatched." (Para 9) 8.2 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, ....
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....t 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. Attribute of Agency 9.2 The commission contemplated in Clause 8.4 was a payment for the agency services. MGL was to pay, under the Agreement, to the respondent Corporations the commission or profit margin as agreed upon between the parties from time to time as per the directives of the Government, made applicable. The amount of commission is made dependent upon the actual quantity sold to the consumers on behalf of MGL by the respondent Corporations. The extent of the commission is specified in the annexures to the Agreements. The invoices are to be raised by MGL after adjusting the commission amount and further by reducing the retail price towards the sales tax amount. 9.2.1 Clause 8.5, when considered, inter alia provides that in case of any discrepancy in the invoice value or the amount of commission payable to the respondent-Corporations concerned, it will be possible for the respondent Corporation concerned to lodge a claim with the regional office ....
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.... its own property but sells the same as the property of principal as per the instructions and directions of the principal. The agent does not become owner of the goods. If any loss is suffered by the agent, he will be liable to be indemnified by the principal. All the terms and conditions in the Agreements between MGL and the respondent Corporations confirm that the arrangement flowing from the Agreement is one of "Principal and Agent". They conform to the concept of agency as legally understood. The respondent Corporations sell CNG to the vehicle users acting on behalf of MGL. In Bhopal Sugar Industries Ltd. vs. Sales Tax Officer (1977) 3 SCC 147, it was observed that the agent upon taking delivery of the goods does not become owner thereof, nor does he sell the goods as its own property. 10.2 The Agreements dated 30.03.1998 and 01.06.1999 between the parties in the present case do suggest that the supply of CNG by the appellant did not involve passing of property to the other side, namely BPCL/HPCL, who act only in capacity of agents to deal with the goods to be supplied to the consumers as middlemen acting on behalf of the appellant and by obeying the terms and conditions pre....
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...."Principal and Agent", stands ruled out. 11.3 In K. Arumugam vs. Union of India (2024) 10 SCC 733., explained with reverse logic what is "Business Auxiliary Service". In that case, the appellants were carrying out buying and selling of lottery tickets which they used to purchase from the State Government, and in turn, sell them in various other states. The Central Government sought to levy the tax on the premise that the activities of the appellant were "Business Auxiliary Service" chargeable to service tax. The Supreme Court held that the lottery tickets would not fall within the meaning of the expression "goods". Therefore, the lottery selling transaction would not attract the concept of "Business Auxiliary Service". However, in the decision the Court indicated certain essential aspects which when present would make the activity a "Business Auxiliary Service". Within Purview of Definition 12. It was stated that the activity for promotion of sales or marketing services rendered by the assessees would fall within Clause 65(19) of the Finance Act where the party acts as a promoter of the business and is a marketing agent, the relationship between the parties would be princi....