As per case facts, MGL was engaged in manufacturing and distributing CNG, supplied to respondent oil corporations (BPCL/HPCL) who operated retail outlets. The department claimed BPCL/HPCL were providing "Business Auxiliary ...
No Acts & Articles mentioned in this case
2026 INSC 723 Civil Appeal Nos. 2471-2473 of 2015 Page 1 of 81
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS. 2471-2473 OF 2015
COMMISSIONER OF SERVICE TAX MUMBAI
…APPELLANTS
VERSUS
M/S BHARAT PETROLEUM
CORPORATION LTD. ETC. …RESPONDENT S
J U D G M E N T
N.V. ANJARIA, J.
For the purpose of convenient reference, the contents
of this judgment are divided into heads and sub-heads,
mentioned with corresponding paragraphs, as under.
Table of Contents
Sl. No. Head and Sub-Heads Paragraph Nos.
1. Challenge in Appeals 1 to 1.1
2. Issue Involved 2
3. Attendant Facts 3 to 3.1.1
4. Claim of Department 3.2
Civil Appeal Nos. 2471-2473 of 2015 Page 2 of 81
5. Demand Raised 3.3 to 3.3.2
6. Findings In Orders-in-Original 3.4 to 3.4.2
7. Explanation By BPCL/HPCL 3.5 to 3.5.1
8. Conclusion By Adjudicating
Authority
3.6 to 3.6.5
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
(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
6 to 6.9.1
18. Decisive Aspects
(a) Providence of Services
(b) As a Facilitator
7 to 7.1.9
Civil Appeal Nos. 2471-2473 of 2015 Page 3 of 81
(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 to 7.3.1
21. Clauses Constituting Agency 8 to 8.2
22. Commission, Not Trade
Discount
9 to 9.1.2
23. Attribute of Agency 9.2 to 9.2.3
24. “Ownership” retained with MGL 10 to 10.3
25. Recipient Agent 11 to 11.3
26. Within Purview of Definition 12 to 12.2
27. Conclusion and Order 13 to 16
Challenge in Appeals
1. The present Appeals under Section 35L (b) of the
Central Excise Act, 1944
1 read with Section 83 of the
Finance Act, 1994 (as amended)
2, are preferred by the
1
Hereinafter, “Central Excise Act”
2
Hereinafter, “Finance Act”
Civil Appeal Nos. 2471-2473 of 2015 Page 4 of 81
Commissioner of Service Tax, Mumbai against common
order dated 04.06.2014 passed by the Customs, Excise &
Service Tax Appellate Tribunal, West Zonal Bench, Mumbai
3
in Appeal Nos.ST/778 and 779/12 & ST/85346/13 -Mum,
which were preferred by M/s Bharat Petroleum Corporation
Limited
4 and M/s Hindustan Petroleum Corporation
Limited
5, respondent Nos.1 and 2 herein
6 respectively.
1.1 CESTAT allowed the Appeals and set aside the
Orders-in-Original Nos. 03-04 and 05-06/ST/SB/2012-13
dated 16.08.2012, whereby the Commissioner of Customs
(TAR), Mumbai, confirmed the demand towards service tax
against the respondent-Corporations.
Issue Involved
2. The issue centripetal to the controversy in the
present appeals is whether the activities of the respondent-
Corporations in relation to sale of Compressed Natural Gas
7
to the consumers provided by Mahanagar Gas Limited
8 at
3
Hereinafter, “CESTAT”
4
Hereinafter, “BPCL”
5
Hereinafter, “HPCL”
6
Hereinafter, “the respondent-Corporations”
7
Hereinafter, “CNG”
8
Hereinafter, “MGL”
Civil Appeal Nos. 2471-2473 of 2015 Page 5 of 81
and through the petrol pump outlets owned by the
respondent-Corporations would fall within the purview of
“Business Auxiliary Service” as defined under Section 65(19)
read with Section 65(105)(zzb) of the Finance Act and
consequently whether it would attract the liability of
payment of service tax.
Attendant Facts
3. MGL was engaged in manufacturing and
distributing CNG, which is excisable good. MGL had been
receiving natural gas from Gas Authority of India Limited
9,
whereafter the natural gas was transported through gas
grids to the various retail outlets including those belonging
to the respondent-Corporations situated across the city of
Mumbai, Thane etc. The gas compressors, dispensers, air
compressors with air tank cascades, and various meters
were installed by MGL, which were used for compression of
natural gas into CNG.
3.1 It was stated that MGL was paying central excise
duty on the manufactured goods, namely CNG, at such
9
Hereinafter, “GAIL”
Civil Appeal Nos. 2471-2473 of 2015 Page 6 of 81
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
Civil Appeal Nos. 2471-2473 of 2015 Page 7 of 81
manpower recruitment agency, providing banking and
financial services, transport of goods by road, sponsorship
services, services relating to renting of immovable property,
and supply of tangible goods for use, and for such purposes,
they had obtained the service tax registration under the
provisions of the Finance Act. The appellant stated that the
services provided by the respondent-Corporations in
relation to the marketing of CNG received from MGL would
become “Business Auxiliary Service” within the scope and
ambit of Section 65(19) read with Section 65(105)(zzb) of the
Finance Act.
Demand Raised
3.3 From the intelligence input from the Director
General of Central Excise Intelligence, Mumbai Zone, it was
inter alia revealed that the respondent-Corporations had
been providing the site and manpower for sale of CNG as
vehicular fuel and further that as per the Agreements
entered into by the respondent-Corporations with MGL, the
respondent-Corporations had been receiving a
commission/profit margin at the prescribed rate from MGL
and that, they were liable to pay the service tax.
Civil Appeal Nos. 2471-2473 of 2015 Page 8 of 81
3.3.1 On the ground that the respondent-Corporations
had been rendering the “Business Auxiliary Service”, the
Additional Director General, DGCEI, MZU, Mumbai issued
a show-cause notice dated 18.10.2010 to BPCL. The said
notice, pertaining to the period from April 2005 to March
2010, stated that MGL was engaged in manufacturing and
distribution of CNG which were excisable goods, that MGL
had installed compressors, etc. and thus had been
discharging the liability of payment of central excise duty
on the said manufactured goods at the outlets, including
those of respondent-Corporations. It was further stated that
based on the actual quantity of CNG sold, the respondent-
Corporations received commission/profit margin. An
amount of Rs.7,20,78,037/- was demanded to be recovered
from BPCL. By another notice dated 19.10.2011, the
Department called upon BPCL to pay Rs.1,40,03,174/- with
interest and penalty in respect of the period from April 2010
to March 2011.
3.3.2 Similar demand notice came to be issued to HPCL
on 18.10.2010 by the competent authority. On the same set
of facts and premises, service tax of Rs.6,86,65,245/- for
Civil Appeal Nos. 2471-2473 of 2015 Page 9 of 81
the period from 01.04.2005 to 31.03.2010 was demanded
from HPCL. HPCL was served with another show -cause
notice dated 04.10.2011 in which service tax for the period
from 01.04.2010 to 31.03.2011 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
Civil Appeal Nos. 2471-2473 of 2015 Page 10 of 81
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 the service tax, failed to furnish the
accounts in relation to the service tax payable and had also
omitted to provide the particulars of the “Business Auxiliary
Service” and the correct value thereof.
3.4.2 The questions addressed by the competent authority
were whether the arrangement of sale of CNG between the
respondent-Corporations and MGL was for sale of goods,
and whether it would thence fall outside the ambit of
provisions of Chapter V of the Finance Act. Secondly,
whether the nature of activities would be covered under the
definition of “Business Auxiliary Service”. The thrust of the
defence raised by the noticee s – the respondent-
Corporations was that they had been purchasing CNG from
MGL and the transaction between them and MGL was in the
nature of sale of goods and would stand out of service tax
net.
Civil Appeal Nos. 2471-2473 of 2015 Page 11 of 81
Explanation By BPCL/HPCL
3.5 The respondent-Corporations proceeded to submit
explanation stating inter-alia that they were Central
Government Public Sector Undertakings engaged in the
business of refining and distributing the petroleum
products all over India through the network of Installations
and Depots under the Ministry of Petroleum and Natural
Gas having refinery known as Bombay Refinery at Mahul. It
was stated that MGL was engaged in the manufacture of
CNG which processes natural gas after purchasing from
GAIL and later the same was distributed through two
channels, one as Piped Natural Gas
10 to domestic and
commercial consumers as cooking fuel and the other as
CNG as fuel for vehicles after its conversion as CNG.
According to the respondent-Corporations, their outlets
were of three types namely Mother Stations, Online Stations
and Daughter Booster Stations at which the processing and
compression are carried out.
3.5.1 It was contended by the respondent-Corporations
that the transactions with MGL were in the nature of sale
10
Hereinafter, “PNG”
Civil Appeal Nos. 2471-2473 of 2015 Page 12 of 81
because (a) the manufacture of CNG takes place at retail
outlets of BPCL, (b) the sole ownership of equipments
installed at such outlets is of MGL, (c) similar arrangements
are made with other private parties who are paid by MGL
for providing similar services, (d) BPCL pays sales tax/VAT
to the State Government which amount is deducted by
BPCL from the sale proceeds of CNG remitted to MGL.
Conclusion By Adjudicating Authority
3.6 The competent adjudicating authority 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.
Civil Appeal Nos. 2471-2473 of 2015 Page 13 of 81
3.6.1 It was further stated that the price charged in the
bills/invoices was the Maximum Retail Price
11 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 MGL. The competent
authority noted that similar arrangement was made by MGL
with other private parties by entering into contracts with
them.
3.6.3 The competent authority concluded that the services
provided by the respondent-Corporations to MGL which
were “Business Auxiliary Service”, were covered within the
ambit of Section 65(19) to become taxable service under
11
Hereinafter, “MRP”
Civil Appeal Nos. 2471-2473 of 2015 Page 14 of 81
Section 65(105)(zzb) of the Finance Act. The following
services used to take place in course of the transactions
between the respondent-Corporations and MGL. (i) The
respondent-Corporations earmark the site for dispensing
CNG. (ii) Equipments are installed by MGL for the purposes
of dispensation of CNG. (iii) MGL recovers damages from the
respondent-Corporations. (iv) BPCL is obliged to give access
to MGL for inspection of site carried out by the officials of
MGL. (v) Manpower, shed, canopy is provided by BPCL.
3.6.4 The competent authority held that the transaction of
supply of CNG by MGL to BPCL was not on “Principal -to-
Principal” basis but was on “Principal-to-Agent” basis and
that the respondent-Corporations, as the case may be, had
been acting as an agent on behalf of MGL providing services,
finally selling the goods-CNG to the consumers on behalf of
MGL. While arriving at the above conclusion, the competent
authority also considered the statement of one Shri Sibal
Chakraborthy, Senior Manager (R&RJM) of MGL, who
inter-alia stated that the control and ownership of natural
gas as well as CNG manufactured at the respective
outlets/online stations whether or not owned by MGL, till
Civil Appeal Nos. 2471-2473 of 2015 Page 15 of 81
final dispensation of CNG to the vehicular users as fuel,
remained with MGL and that online stations have no claim
for the stocks of either natural gas or CNG.
3.6.5 The terms and conditions of the Agreements entered
into between BPCL and MGL were considered by the
competent authority and highlighting Clause 8.4 of the
Agreement, it viewed that the respondent-Corporations
were receiving the commission in respect of the services
provided. Finally, the competent authority confirmed the
demand of service tax against the respondent-Corporations
together with interest and penalties under the provisions of
the Finance Act.
View of CESTAT
3.7 The aggrieved respondent-Corporations challenged
the respective Orders-in-Original before CESTAT. Appeal
Nos.ST/778/12-Mum and 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 04.0 6.2014,
CESTAT allowed the appeals.
Civil Appeal Nos. 2471-2473 of 2015 Page 16 of 81
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
12 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 themselves are buying goods
from M/s. MGL. Therefore, the question of
rendering the service to the client for marketing of
the goods does not arise. We further find that MGL
is discharging VAT/ST liability while selling the
CNG to appellants. Although the RSP is fixed but it
does not mean that the profit margin shall be
1212
Hereinafter, “RSP”
Civil Appeal Nos. 2471-2473 of 2015 Page 17 of 81
constituted as commission for rendering the
service.”
3.7.3 It was reasoned further,
“…it is found that all the transactions shown by the
appellants are done on principal to principal basis.
Moreover, the appellants are selling these CNG on
payment of VAT/ST to the buyers. There is no
commission component that have been received by
the appellants from M/s. MGL. For e.g., if the
appellant is receiving goods from MGL at Rs. 100/-
per kg. including VAT but these, goods are sold by
the appellant to customers on RSP fixed at Rs.
102/- per kg., that does not mean that the
appellant are receiving commission of Rs. 2/- from
MGL.”
3.7.4 According to CESTAT, the transaction between the
parties was on “Principal-to-Principal” basis and that there
was no commission component. CESTAT thus accepted the
case of the private parties Corporations that they were not
rendering the services, therefore, not to become liable to pay
the service tax under the category of “Business Auxiliary
Service”.
Submissions of Appellant
4. Heard learned Additional Solicitor General Mr.
Raghavendra P Shankar with learned advocate-on-record
Mr. Gurmeet Singh Makker for the appellant and learned
Civil Appeal Nos. 2471-2473 of 2015 Page 18 of 81
counsel Mr. M.H. Patil with advocate-on-record M/s. S.
Narain & Co. with other assisting learned advocates for the
respondents at length.
4.1 Assailing the judgment of CESTAT, the following
submissions were advanced on behalf of the appellant:
(i) The respective Agreements between MGL and the
respondent-Corporations were pari materia
stipulating various services to be provided by the
respondent-Corporations to MGL with regard to
the sale of CNG by MGL at the outlets owned by
the respondent-Corporations and that towards
consideration of such services, the payment of
commission/profit margin was contemplated in
Clause 8.4 of the Agreement. The specific services
were provided as enumerated in Clause 4 of the
Agreement.
(ii) The commission/profit margin was to be paid to
the respondent-Corporations per Kg of CNG sold.
The rate initially fixed was modified in the renewal
Agreement. Even in the subsequent instruments
Civil Appeal Nos. 2471-2473 of 2015 Page 19 of 81
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
Civil Appeal Nos. 2471-2473 of 2015 Page 20 of 81
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 been acting as
“agents” for the sale of CNG by MGL to customers.
The decision of this Court in Hafiz Din
Mohammad Haji Abdulla vs. The State of
Maharashtra
13
, was relied on to submit that in
that case similar clauses were interpreted by a
three-Judge bench of this Court whereby the
pricing control was retained by the supplier of the
goods.
(vii) The Order-in-Original dated 16.08.2012
considered in detail the relevant provisions of the
Agreements and the finding was correctly arrived
at it was that a service rendered by respondent-
Corporations to MGL. This position stood
reinforced by the fact that similar Agreements
13
1962 SCC OnLine SC 208
Civil Appeal Nos. 2471-2473 of 2015 Page 21 of 81
were entered into by MGL with other private
entities for using fuel pumps, which was treated
as services for the purpose of service tax liability
under Section 65(19) read with Section
65(105)(zzb) of the Finance Act.
4.1.1 It was further submitted that,
(a) The impugned order of CESTAT accepted the
factum that the respondent-Corporations were
themselves buying CNG from MGL on a
“Principal-to-Principal” basis. However, CESTAT
misdirected itself to subsequent record the finding
that “the question of rendering the service to the
client for marketing of the goods does not arise”.
(b) CESTAT misdirected itself to conclude that since
the invoices were raised by the respondent-
Corporations on the customers and the VAT was
charged in these invoices, there was no service
element.
(c) A manifest error was committed by CESTAT in the
impugned order in holding that the appellants
Civil Appeal Nos. 2471-2473 of 2015 Page 22 of 81
were not receiving any commission from MGL,
therefore, it could not be presumed that they were
rendering any service to MGL. The admitted
factual position is to the contrary.
(d) CESTAT relied on the decision of Mahanagar Gas
vs. Commissioner of Central Excise
14
, which
was a misplaced reliance because: (a) CESTAT
relied on the judgment of the co-ordinate bench
presently under Appeal in these proceedings and
cannot therefore cited as a basis for dismissing
the present Appeal; (b) The in limine dismissal by
this Court of the Civil Appeal does not transform
the judgment of CESTAT into a binding decision
rendered by this Court; (c) the matter in issue was
altogether different and concerned whether the
"commission/profit margin" paid by MGL to
respondent-Corporations could be included
transaction value under Section 4(1)(a) of the
14
2017 (348) ELT 175
Civil Appeal Nos. 2471-2473 of 2015 Page 23 of 81
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:
Civil Appeal Nos. 2471-2473 of 2015 Page 24 of 81
(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 respondent-
Corporations for sale of CNG, issued in the
month of January 2011 and paying VAT.
(d) Joint tickets for sale of CNG by respondent-
Corporations to one of the BPCL's outlets in
the month of January 2011.
(e) BPCL's invoices for sale of CNG to its
customers and paying VAT.
(f) There is a declaration in each invoice to the
effect of holding registration under VAT and
sale of CNG under the said Act.
Civil Appeal Nos. 2471-2473 of 2015 Page 25 of 81
(g) For delay in payment, interest is payable by
respondent-Corporations to MGL, as per
Clause 8.3 of the Agreement.
(h) Declaration in Form N-13A is required to be
given.
(ii) The commission received by the respondent-
Corporations was nothing but a discount. The
amount of discount used to change from time to
time. The nomenclature of commission was a
misnomer. The relevant clauses in the
Agreements have to be construed in that way
only. The transactions between MGL and
respondent-Corporations were of purchase and
sale to become “sale” under Section 4 of Sales of
Goods Act, 1930.
(iii) The property in goods-CNG was transferred from
MGL to respondent-Corporations before further
sale to the customers takes place.
(iv) Various clauses in the Agreement such as
Clauses 2.1, 2.3, 2.4, 2.5, 3.2, 4.1, 4.2, 4.6, 4.7,
Civil Appeal Nos. 2471-2473 of 2015 Page 26 of 81
5.1, 5.2, 7.1, 7.1(d), 8.1, 8.2, 8.3, 8.6 etc. were
relied on to contend that the parties had been
acting on “Principal-to-Principal” basis, and there
was neither an agency nor services rendered.
(v) The expression “commission” did not determine
the real nature of the payment. All clauses of the
Agreement have to be read together for their
conjoint effect. The decisions in Bhopal Sugar
Industries Ltd. vs. Sales Tax Officer
15
,
Commissioner of Central Excise, New Delhi vs.
DCM Textiles
16
, Moped India Ltd. vs. Asstt.
Collector of Central Excise, Nellore and
Others
17
, Union of India and Others vs. Future
Gaming Solutions (P) Ltd. and Another
18 were
relied on.
(vi) When the transaction is in the nature of purchase
and sale, the service tax is not payable, as held in
Future Gaming (supra). In order to constitute a
15
(1977) 3 SCC 147
16
(2006) 9 SCC 349
17
(1986) 1 SCC 125
18
(2025) 5 SCC 601
Civil Appeal Nos. 2471-2473 of 2015 Page 27 of 81
service on behalf of client to cover in the
“Business Auxiliary Service”, there should be
three parties. For this proposition, the decision in
Kafila Hospitality and Travels Pvt. Ltd. vs.
Commissioner of Service Tax - Delhi
19
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,
19
(2021) 47 GSTL 140 (T.LB)
Civil Appeal Nos. 2471-2473 of 2015 Page 28 of 81
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
20
.
(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 -
Corporations and MGL in supply of CNG was in the capacity
of “Seller and Buyer”, in other words whether MGL was a
seller of CNG which goods used to be purchased by the
respondent-Corporations to sell through their outlets to the
ultimate consumers. Or whether the respondent -
Corporations were only service providers to facilitate MGL
20
(1978) 1 SCC 520
Civil Appeal Nos. 2471-2473 of 2015 Page 29 of 81
to sell goods as CNG through their outlets to the
consumers/the vehicle owners.
5.1 The respondent-Corporations would contend that
the arrangement was on “Principal-to-Principal” basis and
the transaction was in the nature of “sale” as understood in
law by MGL in their favour. According to the appellant, on
the other hand, the arrangement between them was in the
nature of “Principal-Agent” relationship and the supply of
CNG to the respondent-Corporations was at “Principal-to-
Agent” basis and in no way could be treated as “sale”.
5.1.1 Since the arrangement between the parties was
documented in black and white governed under the
Agreement dated 30.03.1998 with respondent No.1 -BPCL
and Agreement dated 01.06.1999 with respondent No.2 -
HPCL renewed and amended subsequently , contain
identical terms, they would provide acid test to judge as to
whether the arrangement and the transactions thereunder
done between the parties were in the nature of outright sale
or there was a “Principal-Agent” relationship. It would be
useful to look into the conditions and stipulations of the
Civil Appeal Nos. 2471-2473 of 2015 Page 30 of 81
said Agreements, for, they in their nature and effect go to
suggest about the jural relationship between the parties.
5.1.2 Before judging the kind of legal arrangement
emanating from the Agreement between MGL and
respondent-Corporations and considering the nature of the
terms and conditions of the said agreements, it would be
useful to discuss the legal corners of sale and what are the
aspects that reveal jural relationship of “Principal and
Agent”, what the law perceives to make an agency.
Business Auxiliary Service
5.2 Since the purport and operational dimension of
definition of “Business Auxiliary Service” would inform the
discussion hereinafter and guide the conclusion as well as
the outcome of these Appeals, it would be apposite to engage
with the said definition at the outset.
5.2.1 Section 65 of the Finance Act deals with definitions.
Sub-section (19) of Section 65 contains the definition of
“Business Auxiliary Service”, which is as under,
(19) “business auxiliary service” means any
service in relation to—
Civil Appeal Nos. 2471-2473 of 2015 Page 31 of 81
(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 service incidental or auxiliary to any
activity specified in sub-clauses (i) to (vi),
such as billing, issue or collection or recovery
of cheques, payments, maintenance of
accounts and remittance, inventory
management, evaluation or development of
prospective customer or vendor, public
relation services, management or
supervision, and includes services as a
commission agent, but does not include any
activity that amounts to manufacture of
excisable goods.
Civil Appeal Nos. 2471-2473 of 2015 Page 32 of 81
Explanation. — For the removal of doubts, it is
hereby declared that for the purposes of this clause,
—
(a) ”Commission Agent” means any person
who acts on behalf of another person and
causes sale or purchase of goods, or provision
or receipt of services, for a consideration, and
includes any person who, while acting on
behalf of another person —
(i) deals with goods or services or
documents of title to such goods or
services; or
(ii) collects payment of sale price of
such goods or services; or
(iii) guarantees for collection or payment
for such goods or services; or
(iv) undertakes any activities relating to
such sale or purchase of such goods or
services;
(b) “Excisable goods” has the meaning
assigned to it in clause (d) of section 2 of the
Central Excise Act, 1944(1 of 1944);
(c) “Manufacture” has the meaning assigned
to it in clause (f) of section 2 of the Central
(…)’
5.2.2 Similarly, Section 65(105) of the Finance Act defines
“taxable service”, which is as under,
(105) ‘taxable service’ means any service provided or
to be provided-
…
(zzb) Any service provided or to be provided to a client,
by any person in relation to business auxiliary
service;…’
Civil Appeal Nos. 2471-2473 of 2015 Page 33 of 81
What is ‘Sale’
5.3 In order to constitute a transaction to be “sale”, it
must satisfy certain essential characteristics. The Sale of
Goods Act, 1930
21 explains in Section 4 the “sale and the
agreement to sell”. As per sub-section (1) of Section 4 of the
Sale of Goods Act, “a contract of sale of goods is a contract
whereby the seller transfers or agrees to transfer the
property in goods to the buyer for a price”. Sub-section (3)
thereof mentions that “where under a contract of sale the
property in the goods is transferred from the seller to the
buyer, the contract is called a sale”. It adds to mention that
where the transfer of 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
21
Hereinafter, “Sale of Goods Act”
Civil Appeal Nos. 2471-2473 of 2015 Page 34 of 81
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 (4
th 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 Sale of Goods Act is not applicable to
them.”
5.3.3 The term “property” implies “ownership of goods”. In
other words, the ownership must be transferred to a buyer
from the seller in the transaction which becomes a sale
transaction. Whether the property or ownership in the goods
is transferred or not, is in its ultimate analysis, dependent
upon the intention of parties, which intent is to be gathered
from the terms and conditions of the Agreement and their
comprehensive effect.
Civil Appeal Nos. 2471-2473 of 2015 Page 35 of 81
5.3.4 When the transfer of property or ownership occurs,
it becomes a sale. It is obvious that such transaction of sale
makes the buyer the owner of the goods and he can exercise
in respect of the goods which has come in his possession by
way of sale, all the proprietary rights. It signifies buyer’s total
control over the disposition of the goods bought to his own
fullest discretion. The seller, in a transaction of sale, is
divested of such control once the sale transaction gets
complete.
5.3.5 The other attributary effect of a transaction of sale is
that risk of loss of goods travels and is on the buyer. One
more essential aspect attached to sale is that the transaction
involves payment of price by the buyer to the seller which
comes as corresponding obligation for transfer of ownership
of goods in favour of buyer. If the remuneration in
transaction cannot be termed as a price, it will remain
doubtful in law to treat the transaction to be sale. In the
circumstances where the element of price is not found, the
transaction may be anything other than sale.
Civil Appeal Nos. 2471-2473 of 2015 Page 36 of 81
5.3.6 This Court in Sri Tirumala Venkateswara Timber
and Bamboo vs. Commercial Tax Officer, Rajahmundry
22
,
referred to its own earlier judgment in State of Madras vs.
Gannon Dunkerley & Co. (Madras) Ltd.
23
and explained
what is “sale”,
“…It is a nomen juris, its essential ingredients
being an agreement to sell movables for a price and
property passing therein pursuant to that
agreement. In other words, it is necessary for
constituting a sale that there should be an
agreement between the parties for the purpose of
transferring title in the goods, that the agreement
must be supported by money consideration and
that as a result of the transaction the title to the
property must actually pass in the goods.”
(Unnumbered Paras)
Concept of Agency
5.4 Since the test to be applied 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
24 defines “agent” and “principal”. The
Section is as under,
22
(1968) 21 STC 312
23
(1958) 9 STC 353
24
Hereinafter, “Contract Act”
Civil Appeal Nos. 2471-2473 of 2015 Page 37 of 81
“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 under Section 188 of the Contract Act. An agent
has authority to do every lawful thing which is necessary in
order to do such act. An agent is to be indemnified, provides
Section 222 of the Act, against the consequences of lawful
acts.
5.4.2 In Future Gaming Solutions (P) Ltd. (supra), this
Court referred with approval to “Bowstead and Reynolds on
Civil Appeal Nos. 2471-2473 of 2015 Page 38 of 81
Agency”, 23
rd Edition to explain the idea of agency as
understood in law (para 62 of the decision),
“…agency is the fiduciary relationship which
exists between two persons, one of whom
expressly or impliedly manifests assent that the
other should act on his behalf so as to affect his
legal relations with third parties and the other
of whom similarly manifests assent so as to act
or so acts pursuant to the manifestation. Thus,
the one on whose behalf the act or acts have to
be done is called the principal and the other
who is to act is called the agent. Any person
other than the principal and the agent may be
referred to as the third party.”
5.4.3 It was further explained,
“The authority of the agent to act on behalf of
the principal constitutes a power to affect the
principal's legal relations with third parties.
Such authority could be called actual authority
or apparent authority. Thus, the essence of
agency is that a person acts on the principal's
behalf. Therefore, the term agency is used to
connote an authority or capacity in one person
to create legal relations between a person
occupying the position of principal and third
parties. Usually, the legal relations so created
will be contractual in nature.”
5.4.4 And the following was added,
“Conversely, the mere fact that a person does
something in order to benefit another and the
latter is relying on the former to do so or may
have requested or even contracted for
performance of the action, does not make the
former the agent of the latter. The centrality to
agency is the conferral of authority to alter legal
Civil Appeal Nos. 2471-2473 of 2015 Page 39 of 81
relations; as such in common law, being an
agent is not a status but a description of a
person, while and only so long as the person is
exercising such authority. Thus, where one
person (the principal), requests or authorises
the other (agent), to act on his behalf and the
other agrees to do so, the law recognises that
such agent has power to affect the principal's
legal position by acts which, though performed
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
25
,
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
25
(2024) 8 SCC 608
Civil Appeal Nos. 2471-2473 of 2015 Page 40 of 81
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.
5.4.7 It was highlighted that for creating a legal
relationship of “Principal and Agent”, certain decisive
considerations weigh,
“a. The essential characteristic of an agent is
the legal power vested with the agent to alter his
principal's legal relationship with a third party
and the principal's co-relative liability to have
his relations altered. [ F.E. Dowrick, “The
Relationship of Principal and Agent”, (1954) 17
Modern Law Review 24, 37.]
b. As the agent acts on behalf of the principal,
one of the prime elements of the relationship is
the exercise of a degree of control by the
principal over the conduct of the activities of the
agent. This degree of control is less than the
control exercised by the master on the servant,
and is different from the rights and obligations
in case of principal to principal and
independent contractor relationship.
c. The task entrusted by the principal to the
agent should result in a fiduciary relationship.
The fiduciary relationship is the manifestation
Civil Appeal Nos. 2471-2473 of 2015 Page 41 of 81
of consent by one person to another to act on
his or her behalf and subject to his or her
control, and the reciprocal consent by the other
to do so. [ Restatement (Third) of
Agency (American Law Institute Publishers,
2007).]
d. As the business done by the agent is on the
principal's account, the agent is liable to render
accounts thereof to the principal. An agent is
entitled to remuneration from the principal for
the work he performs for the principal.”
‘Sale’ and ‘Agency’ Distinguished
5.5 Sri Tirumala Venkateswara Timber and Bamboo
(supra) 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.
5.5.1 It was succinctly stated,
“…As a matter of law there is a distinction between
a contract of sale and a contract of agency by which
the agent is authorised to sell or buy on behalf of
the principal and make over either the sale
proceeds or the goods to the principal. The essence
of a contract 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
Civil Appeal Nos. 2471-2473 of 2015 Page 42 of 81
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.”
(Unnumbered Para)
Clauses In Agreements
(a) Representation by BPCL/HPCL
6. Having discussed the jurisprudential and judicially
propounded concepts of “sale” and “agency” and considered
the attributes of relationship between “Buyer and Seller” on
one hand and “Principal and Agent” on the other, noticing
in that light with some details the clauses in the Agreements
between MGL and respondent-Corporations, so as to
comprehend what type of relationship they manifest. The
Civil Appeal Nos. 2471-2473 of 2015 Page 43 of 81
various clauses are referred to from the Agreements by MGL
with BPCL, as the Agreement with HPCL contains identical
terms.
6.1 It was stated that MGL was a registered company
established for marketing, distribution, and supply of
natural gas in the city of Mumbai, and that part of its
business activity is to supply CNG to light motor vehicles
through its own outlets as well as the outlets of certain
public sector oil marketing companies, including those
belonging to the respondent-Corporations. It was stated in
the preface of the Agreement that the respondent-
Corporations had represented before MGL that they had the
requisite site to set up retail outlet for the supply and sale
of CNG at locations in the city and that MGL agreed to
permit them to open retail outlets for the sale of CNG to
motor vehicles.
(b) Definitions
6.1.1 In the definition section in paragraph 1.1, sub-
clause (b), “equipment” is defined to include gas
compressors, storage tank/cascade, meter and check
meter, dispenser, and other fixtures including pipeline and
Civil Appeal Nos. 2471-2473 of 2015 Page 44 of 81
all equipment and accessories required for filling of CNG in
vehicles. The “Outlet” in sub-clause (d) included the outlet
to be opened by the corporation. “Retail price” was defined
in sub-clause (f) to be charged by the corporation as
communicated by MGL from time to time. “Safety measures”
were contemplated in definition in sub-clause (g) to mean
the procedures, directions, guidelines and measures as
communicated by MGL to the corporation from time to time
for the purpose of safe storage and sale of CNG.
(c) About Supply of CNG
6.2 In Paragraph II, under the title “Supply and Sale of
CNG”, Clause 2.1 provided as under,
“MGL appoints the Corporation to open one or more
Outlets for sale of CNG to Vehicles, on· the terms
and conditions hereinafter contained and the
Corporation accepts such appointment.”
6.2.1 Clause 2.2 reads as under,
“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
Civil Appeal Nos. 2471-2473 of 2015 Page 45 of 81
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 hereinunder,
“3.1. MGL shall install on the Site, at its own cost,
the Equipment. The details of the Equipment to be
installed at the current· outlets are given in
Annexing I. MGL shall be responsible for
maintaining the Equipment in proper -· working
condition. All repairs to and replacement of any
defective Equipment shall be undertaken by MGL
at its own cost, save in the case of any damage to
the Equipment on account of negligence by the
Corporation or · any of its employees or agents in
which case the cost of repairs and replacement
shall be recoverable by MGL from the Corporation.
Civil Appeal Nos. 2471-2473 of 2015 Page 46 of 81
3.2. MGL shall supply CNG from the tap-off point
on its line to the intake line for Online station or
into the storage tanks/cascades for daughter
station on the Site to enable sale of CNG to Vehicles
by the Corporation. MGL shall endeavour that
adequate quantity of CNG is supplied to the
Corporation to enable the Corporation to meet the
demand therefore, provided that this obligation of
MGL is subject to the Corporation having provided
MGL with the monthly forecast, as hereinbefore
mentioned.
3.3. MGL shall obtain statutory approvals as
required from concerned authorities with respect to
the design and manufacturing aspect of the
Equipment to be supplied by them.”
6.3.1 On the other hand, Paragraph IV of the Agreement
sets out the obligations of the Corporation. Clauses 4.1 to
4.2 were as under,
“4.1. The Corporation shall ear mark that an
adequate area, as described in Annexure -I is
available at all times on the Site for installation of
the Equipment and for easy entry and exit of
Vehicles as and when the need arise.
4.2. The Corporation shall construct an appropriate
foundation, shed(s), trenches and boundary of a
chain fence or an RCC wall around the Site. The
corporation shall ensure that the Site is at all times
kept free from any encroachment.”
6.3.2 Clause 4.3 mentioned that the Corporation shall
make provision for continuous and adequate supply of
water, electricity and other utilities as may be required for
Civil Appeal Nos. 2471-2473 of 2015 Page 47 of 81
filling CNG at their own cost. As per Clause 4.4, the
Corporation would take care of the equipment and shall
ensure that the same are operated by properly trained staff,
whereas Clause 4.5 enjoined them to follow the safety
procedures as specified by MGL. The Corporation was
obliged to obtain all statutory approvals 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
Civil Appeal Nos. 2471-2473 of 2015 Page 48 of 81
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 equipment is provided to
be the property of MGL as per Clause 6.4, in which the
Corporation shall not claim any right.
6.4.2 Clause 6.5 contemplated that in case, any of the
outlets are to be operated by a third party, as dealer of the
Corporation, the responsibility and liability of the
Corporation shall continue for the acts of such third party.
Representations and warranties are mentioned in
paragraph VII. Clause 7.1 was with regard to
representations by the Corporation, whereas general
representations were mentioned in Clause 7.2.
(f) Mode of Billing, Payments
6.5 Clause 8.1 in Paragraph VIII titled as “Billing and
Payments” provided that the retail prices shall be paid by
Civil Appeal Nos. 2471-2473 of 2015 Page 49 of 81
the respondent-Corporations to the MGL after accounting
for sales tax and the amounts of commission/profit margin
for the actual quantity of CNG sold. The retail prices
applicable on the date of Agreement were specified in the
annexures to the Agreement. It was further stipulated that
the taxes, duties and cesses payable shall be collected by
the respondent-Corporations and to be paid by them under
the applicable laws.
6.5.1 Clause 8.2 mentioned that MGL shall, in the
beginning of the month, send to the respondent-
Corporations the invoices of the quantity of CNG sold during
the preceding month, which invoices shall be based on the
meter readings on CNG dispensers jointly taken by MGL
and respondent-Corporations. As per Clause 8.3, the
respondent-Corporations shall pay MGL the invoice values
for CNG as per the invoices.
6.5.2 Clause 8.4 noticeably reads as under,
“8.4. In consideration of the services provided by
the Corporation, MGL shall agree to pay to the
Corporation commission/profit margin as may be
agreed between the parties from time to time as per
the Government Directive, as may be applicable, in
the matter. Provided that such commission/profit
margin shall be payable on the actual Corporation.
Civil Appeal Nos. 2471-2473 of 2015 Page 50 of 81
quantity sold by the Commission/Profit margin
agreed at present is specified at Annexure III. It is
further agreed between the parties that MGL shall
raise the Invoice after adjusting such
commission/profit margin and reducing the Retail
Price by sales tax amount, as applicable from time
to time, 1n the manner specified in Annexure III.”
6.5.3 Clause 8.5 stated about the mechanism to be
adopted in the event of discrepancy in the invoice value or
the amount of commission 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,
Civil Appeal Nos. 2471-2473 of 2015 Page 51 of 81
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 9.5 that
the indemnity provision as above shall survive till the expiry
or termination of the Agreement. Paragraph X deals with the
aspect of ‘Force Majeure’, providing that neither of the
parties shall be liable in the eventualities of force majeure
for any delay or in respect of failure to discharge their
respective obligations, including the shutdown of gas
supply. Paragraph XI contains Clauses No.11.1 to 11.3,
dealing with the confidentiality about the information of
business transactions etc. Paragraph XII, in its Clauses
12.1 and 12.2, provides that the 5 years duration of the
Agreement unless terminated in the events mentioned
under the termination clause.
Civil Appeal Nos. 2471-2473 of 2015 Page 52 of 81
(i) Right of MGL to Terminate
6.6 Paragraph XIII of the Agreement contains Clause
Nos.13.1 to 13.2, which entitles MGL to terminate the
Agreement at any time by written notice. Sub-clauses (a) to
(j) enlist such circumstances which would entitle MGL to
terminate the Agreement. Similarly, Clause 13.1.3 mentions
the eventualities in clauses (a) to (g) under which the
respondent-Corporations may terminate the Agreement.
Paragraph 13.2 is about the effect of termination. The
termination would entail an obligation on the part of
respondent-Corporations to pay the retail prices to MGL
payable till the date of termination and as per Clause
13.2.2, the respondent-Corporations shall also pay MGL the
costs, charges, and expenses incurred by MGL on account
of the premature termination.
6.6.1 Clause 13.2.3 postulates that the termination of the
Agreement would result into three consequences (a) MGL
shall forthwith stop further supply of CNG (b) all unsold
CNG in the possession of the respondent-Corporations shall
be returned to MGL or shall be disposed of in accordance
with the directions of MGL (c) MGL shall become entitled to
Civil Appeal Nos. 2471-2473 of 2015 Page 53 of 81
remove the equipment from the site and to take back the
possession thereof, for which purposes the authorized
officers and the representatives of MGL shall enter the site
without any obstructions. Clause 13.2.4 says that once the
termination is effected, the respondent-Corporations shall
not sell CNG to any vehicles.
(j) Sale to be Exclusive
6.7 Clause 15.1 in Paragraph XV, dealing with
exclusivity, stated that the respondent-Corporations shall
not sell gas of any other supplier or manufacturer at the
outlet and that the outlet shall be exclusive for the purpose
of CNG supplied 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
Civil Appeal Nos. 2471-2473 of 2015 Page 54 of 81
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
Agreement
dated
21.11.2008
CLAUSE 8.4
"In consideration of
the services
provided by the
Corporation, MGL
shall agree to pay to
the Corporation
commission/profit
margin as may be
Clause 8.1-8.6 have
been modified by Clause
II (Billing and Payment)
as under,
"II. Billing and
Payments
2.1 Clauses 8.1 to 8.6
with regard to billing
After inquiries
began (see Pg. 251,
showing that
inquiry began as
far back as
23.08.2007),
Clause 6.1
(Commission /
Profit margin)
Civil Appeal Nos. 2471-2473 of 2015 Page 55 of 81
agreed between the
parties from time to
time as per the
Government
Directive, as may be
applicable, in the
matter. Provided
that such
commission/profit
margin shall be
payable on the
actual quantity sold
by the Corporation.
Commission/Profit
margin agreed at
present is specified
at Annexure III. It is
further agreed
between the parties
that MGL shall raise
the Invoice after
adjusting such
commission/profit
margin and
reducing the Retail
Price by sales tax
amount, as
applicable from time
to time, in the
and payment
contained in the said
Agreement shall stand
modified to the
following extent.
2.2 MGL shall raise
Invoice for the
quantity of CNG sold
by the Corporation on
or before 5th day of
each month. Such
Invoice shall be based
on the meter readings
on the CNG
dispensers jointly
taken by MGL and the
Corporation. Provided
further that
Corporation shall
ensure that its
authorized
representative is
deputed at the
(illegible) certify the
meter reading at the
time and the date as
may be notified by
MGL from time to
time. In case, where,
replaces Clause 8.4
of the Agreement
dated 30.03.1998 as
under,
"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
Civil Appeal Nos. 2471-2473 of 2015 Page 56 of 81
manner specified in
Annexure III."
authorized
representative is not
deputed as aforesaid
the meter reading
taken by MGL shall be
final and binding on
the parties.
2.3 The Corporation
shall pay to MGL the
Invoice value for CNG
sold as stated in the
Invoice ("Invoice
Value") along with
requisite Form
(presently Form N -
13A) as required by
the Bombay Sales Tax
Act/ other applicable
laws/rules within 7
(Seven) - days from
the date of receipt of
the Invoice;
2.4 In case of delay by
the Corporation in the
payment of any
Invoice Value, for the
period commencing
form April 1, 2003 the
Corporation shall pay
uniform MRP at all
the outlets in the
given municipal
area."
Civil Appeal Nos. 2471-2473 of 2015 Page 57 of 81
Delayed Payment
Charges "DPC") @16%
(Sixteen percent) P.A.
on the amount unpaid
from the due / date of
payment until the
payment / realization.
Such delayed
payment Charges
shall be compounded
monthly. "
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
Civil Appeal Nos. 2471-2473 of 2015 Page 58 of 81
features emerge, which go to establish that the supply of
CNG by MGL to the respondent-Corporations was not in the
nature of sale and in the transaction, there was no legal
attribute for creating the supply.
(a) Providence of Services
7.1 The Agreements were meant to provide services by
the respondent-Corporations to MGL for selling CNG on
behalf of MGL to the ultimate consumers. The respondent-
Corporations were obliged to extend and provide services as
expressly enumerated in Clause 4 of the Agreements as well
as those emanating from other clauses. At the cost of
repetition, the services to be provided by the respondent
Corporations included making available the outlets and
online stations, constructing sheds and laying the
foundation at the site, providing electricity, water and other
such requirements, and also to provide trained staff for the
purpose of operation of the equipments at the outlets. It was
incumbent upon the respondent-Corporations to obtain the
statutory approval.
Civil Appeal Nos. 2471-2473 of 2015 Page 59 of 81
(b) As a Facilitator
7.1.1 The whole status of the respondent-Corporations
becomes that of a facilitator, who by providing different kind
of agreed upon services, arrange and smoothen the sale by
MGL to the vehicle owners. The respondent-Corporations
acted in the process, in capacity of an agency without any
real and effectual dominion over the goods. Their task was
to promote the sale on behalf of MGL and make the
marketing of goods convenient. A facilitator cannot be a
buyer. It only acts on behalf of supplier-principal to become
an agent.
(c) Element of Control
7.1.2 It could be gathered from the various conditions in
the Agreements that the control over the supply of CNG till
the subsequent sale by the respondent Corporations to the
vehicle owners, remained with MGL. The respondent -
Corporations facilitated to provide the site and the retail
outlets for the sale of CNG supplied by MGL to the
customers on behalf of MGL. All the equipments installed
such as gas compressors, storage tanks, check meters,
dispensers, and all such others including pipeline and
Civil Appeal Nos. 2471-2473 of 2015 Page 60 of 81
accessories for filling CNG in vehicles belong to MGL. They
were supplied by MGL. The safety measures mention ed in
sub-clause (g) in Clause 1.1 were to be ensured.
(d) Fixation of Price
7.1.3 The fixation of price and monitoring thereof was in
the hands of MGL. The respondent Corporations were
enjoined 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
Civil Appeal Nos. 2471-2473 of 2015 Page 61 of 81
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 line was to be facilitated by MGL to
enable selling of CNG to the vehicle owners by the
respondent-Corporations, which would act in the process on
behalf of MGL. Furthermore, MGL was to ensure the supply
of adequate quantity of CNG to the respondent-Corporations
which, in turn, were under corresponding obligation of
supplying the monthly forecast.
(g) The Risk Factor
7.1.6 The risk relating to supply and sale and other things
relevant thereto were to be the responsibility of MGL.
Handling of risk factors was an obligation of MGL. The risk
did not pass at any point of time from MGL to respondent-
Corporations from the starting point of supply of CNG till
Civil Appeal Nos. 2471-2473 of 2015 Page 62 of 81
CNG is dealt with and sold to the vehicle owners by the
respondent-Corporations. When the risk was not
transferred, it would suggest that the title would also not be
transferred.
(h) Retention of Control Over Goods
7.1.7 One of the important indicators of the fact that there
is no passing of title in goods in favour of the respondent
Corporations is the retention of right over the stocks. While
the responsibility to supply the goods-CNG in adequate
quantity rests on MGL, CNG never becomes the property of
the respondents in view of the terms of the Agreement. A
clear indication thereof is available from the clauses relating
to termination of the Agreement. One of the resultant
postulates, upon termination of the Agreement, the effect of
which is mentioned in Clause 13.2, is that all unused stock
of CNG in possession of the respondent Corporations shall
be returned to MGL or the same shall be disposed of as per
the directions given by MGL. MGL is entitled to remove or
take back the stock from the possession of the respondent-
Corporations. Not only that, for any such purpose, the
Civil Appeal Nos. 2471-2473 of 2015 Page 63 of 81
authorised officers of MGL are entitled to enter the site
without obstruction from the respondent Corporations.
(i) Commission Agent
7.1.8 The Agreements in terms stipulated about the
payment of commission by incorporating express clause in
form of Clause 8.4. The brooding ingredient of payment of
commission is elaborated separately in the succeeding
paragraph.
(j) Title did not Pass
7.1.9 All the terms and conditions of the Agreement taken
together in their operation invariably suggest that the title
or ownership in the goods did not pass at any point of time
to the respondent Corporations. MGL continued to hold the
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
26
, the
appellant was engaged in manufacturing s upercem
26
(1989) 3 SCC 351
Civil Appeal Nos. 2471-2473 of 2015 Page 64 of 81
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 unsold
beyond two years from their receipt could be
returned to the appellants who were bound to
replace these. This should be considered with the
fact that the appellants were to prefer all claims for
recovery of damages from the carriers and any
reduction in price during the currency of the
agreement was to be duly reflected in the price of
stock lying unsold with 'G' and the obligation that
on the termination of the contract by either the
appellant or 'G', unsold stocks lying with the latter
were to be returned to the former. Therefore, the
Tribunal was right in considering this agreement as
the agreement for sole selling agency and not as an
outright sale.”
(Paras 7 and 10)
Civil Appeal Nos. 2471-2473 of 2015 Page 65 of 81
7.2.2 Thus, M/s Snow White Industrial Corporation,
Madras (supra) highlighted the important facet which would
suggest the creation of agency which was the clause which
enjoined that the stocks left over or remaining unsold would
be returned to the appellant. In the present case also, the
domain over the stock of CNG continues to remain with
MGL.
Evident Intention
7.3 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.
7.3.1 The intention of parties was thus evidently reflected
that MGL was to supply CNG which would be sold by the
Civil Appeal Nos. 2471-2473 of 2015 Page 66 of 81
respondent-Corporations to the vehicle users by providing
various services in the process, to complete the sale
occurring from MGL to the vehicle owners.
Clauses Constituting Agency
8. In Hafiz Din Mohd. Haji Abdulla v s. State of
Maharashtra
27
, the agreement in question contained
conditions of the similar nature as envisaged in the present
case. This Court addressed the question as to whether the
agreement between the appellant-Hafiz Din-the assessees-
the bidi merchants, who was used to dispatch the bidis to
other merchants at the diverse places in India upon licence
issued by the Government 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.
27
1962 SCC OnLine SC 208.
Civil Appeal Nos. 2471-2473 of 2015 Page 67 of 81
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 agreement which contemplated the transfer and
supply of bidis by the appellant-assessees to the merchants,
to come to conclusion on the basis thereof that the
relationship between the parties was that of “principal and
agent” and not of “vendor and purchaser”.
8.1.2 The clauses in the contract were highlighted to
elaborate,
“By clause (3) of the agreement, the merchant
receiving the bidis has agreed to sell them at the
rates fixed by the assessees: he is only entitled to
add to the rate fixed by the assessees the expenses
incurred. By clause (6) the merchant is entitled to
Rs. 3-3-0 as commission per box. That
remuneration is expressly stated to be in lieu of
"labour". By clause (7) the assessees are given the
right to increase or reduce the rate of bidis; even in
respect of goods which are in stock with the
Civil Appeal Nos. 2471-2473 of 2015 Page 68 of 81
merchant the rate may be increased or decreased
and on such alteration of the rate there is an
obligation to make necessary adjustment in the
accounts (see clause 8). By clause (9) if the
merchant is found acting in contravention of the
conditions, the assessees have the right to cancel
the agency and have the right to make
arrangements for the sale of bidis (remaining on
hand) as they think best. Clause (9) therefore
contemplates that if after the bidis have been
despatched and before they are sold, "the agency"
of the merchant is cancelled the assessees would
have the right to arrange for sale of the bidis
remaining in stock. These clauses clearly indicate
that the bidis even in the hands of the merchants
to whom they were despatched remained the
property of the assessees. By clauses (3) and (9)
these bidis in the hands of the merchants are
expressly referred to as "your bidis"…” (Para 9)
8.1.3 It was further enumerated,
“Clause (4) emphasizes that the property in the
bidis despatched to the merchants remained with
the assessees. By that clause the merchant
undertakes to remit "money towards goods" after
sales are effected. Therefore under the agreement
between the parties the goods are to be sold at a
price fixed by the supplier, the prices are liable to
be altered at the instance of the supplier, the
person to whom the goods are supplied is to receive
a fixed remuneration for his exertion, and is liable
to remit the price only after the sale is effected.
These are clear indications that the relation is of
principals and agent and not 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)
Civil Appeal Nos. 2471-2473 of 2015 Page 69 of 81
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, 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.
Commission, Not Trade Discount
9. Clause 8.4 of the Agreement expressly contemplated
that the respondent Corporations would receive
commission/profit margin from MGL. This stipulation about
Civil Appeal Nos. 2471-2473 of 2015 Page 70 of 81
the payment of commission or profit margin, standing in
forefront, suggests that the jural relationship between MGL
and the respondent Corporations is one of “Principal and
Agent”, and that the supply of CNG by MGL to the
respondent-Corporations was not in the nature of “sale”.
9.1 There may be a spacious argument that the
nomenclature as “commission” would not be determinative,
however, in the instant case, read in conjunction with other
stipulations in the Agreements and the nature of the
Agreements considered in wholesome manner which are for
providing services and for marketing and promotion of sale,
the stipulation of commission in Clause 4 in the nature of
remuneration paid to the agent rendering services by the
Principal. It, in no other way, could be construed. The word
“commission” here has the intake of its true sense.
9.1.1 The respondent Corporations harped that what was
contemplated in Clause 4 was not a commission but a trade
discount. In Union of India vs. Bombay Tyre
Civil Appeal Nos. 2471-2473 of 2015 Page 71 of 81
International Ltd.
28
, the concept of trade discounts was
explained by this Court as under,
“(i) Trade discounts.—Discounts allowed in
the trade (by whatever name such discount is
described) should be allowed to be deducted from
the sale price having regard to the nature of the
goods, if established under agreements or under
terms of sale or by established practice, the
allowance and the nature of the discount being
known at or prior to the removal of the goods. Such
trade discounts shall not be disallowed only
because they are not payable at the time of each
invoice or deducted from the invoice price.” (Para 3)
9.1.2 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.
28
(2005) 3 SCC 787
Civil Appeal Nos. 2471-2473 of 2015 Page 72 of 81
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 within
stipulated time. MGL may accept such claim to the extent it
deems fit and shall issue a credit note in favour of the
Civil Appeal Nos. 2471-2473 of 2015 Page 73 of 81
respondent Corporation. Such amount of credit note will be
adjusted in the invoice value for the following month.
9.2.2 What is stipulated in Clause 8.5 either about closing
of the claim for discrepancy and the discretion on the part of
MGL to accept the claim to the extent deemed fit by MGL.
This aspect as well as the stipulation about the adjustment
of such amount in the invoice of the following month, and
the condition in Clause 8.6 cements the factum that the
commission mentioned in Clause 8.4 is a commission
payable by the principal-MGL to the agents-the respondent
Corporations for rendering services.
9.2.3 The payment of commission as an attribute of the
principal-agent relationship or for the creation of an agency
was recognized by this Court in Future Gaming Solutions
(P.) Ltd. (supra) in the following observations,
“…The distinction between an agent and the buyer
for resale normally turns on whether the person
concerned acts personally to make such profit as
can be made, or is remunerated by pre-arranged
commission. A supplier who fixes the resale price is
likely to be a buyer for resale. If a party takes a
profit on the resale, it will make him a seller. On the
other hand, if a commission is paid on the resale,
then, he is likely to be an agent.”
(Para 64)
Civil Appeal Nos. 2471-2473 of 2015 Page 74 of 81
“Ownership” retained with MGL
10. As discussed hereinbefore, the clinching
consideration as to whether the relationship which exists is
that of “Buyer and Seller” or the relationship of “Principal
and Agent” is created, would be the element of passing of
property in goods from one party to another. It would become
decisive as to whether the property in goods or title over
goods is retained or travels to another party. If the property
passes, it will become contract of sale. If the title in the goods
does not pass, it would be conclusive factor to suggest that
the arrangement is one of agency, even though the goods
may have been delivered. 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.
10.1 On the other hand, the agent, after taking delivery of
the property of the goods, does not sell it as 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
Civil Appeal Nos. 2471-2473 of 2015 Page 75 of 81
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
29
, 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
prescribed by the appellant. It would be seen that no clause
or condition of the contract is indicative of an element of
29
(1977) 3 SCC 147
Civil Appeal Nos. 2471-2473 of 2015 Page 76 of 81
passing of property in favour of the respondent
Corporations.
10.3 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.
Recipient Agent
11. In the facts of the case, there is no gainsaying that
no buying and selling takes place between the parties under
the Agreement. As could be noticed from the arrangement
flowing from the Agreements, the respondent Corporations
do not take the goods with the authority to be able to resell
to earn the profit out of the sale, as if LPG belongs to them.
The respondent Corporations are not the buyers. MGL is not
the seller. MGL sells LPG through the agency of respondent
Civil Appeal Nos. 2471-2473 of 2015 Page 77 of 81
Corporations to the vehicle users, at a price charged which
is fixed by MGL. The relationship born out is that of
“Principal and Agent”. The respondent Corporations do not
buy CNG and do not resell the same. The respondent
Corporations are the “recipients” of the goods-CNG supplied
by MGL.
11.1 In Benjamin’s Sale of Goods,11
th Edition, Sweet &
Maxwell, the author mentions distinguishing the sale from a
contract of agency inter alia that when goods are delivered to
another for sale to a third party, the recipient may be an
outright buyer or he may take the goods on sale or return or
may merely be the supplier’s agent to sell the goods or an
agent of a del credere commission, that is, an agent who
guarantees to the principal that the buyer will duly pay the
price.
11.2 In light of the delineation, the respondent
Corporations which act as marketing promoters can claim
the status of agents only. As buying and selling does not take
place and the terms and conditions of the Agreement go to
show that agency services are provided by the respondent
Corporations to MGL, any other relationship between the
Civil Appeal Nos. 2471-2473 of 2015 Page 78 of 81
parties except that of “Principal and Agent”, stands ruled
out.
11.3 In K. Arumugam vs. Union of India
30
, 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”.
30
(2024) 10 SCC 733.
Civil Appeal Nos. 2471-2473 of 2015 Page 79 of 81
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 principal and
agent. Since in K. Arumugam (supra), there was no
promotion or marketing of service on behalf of the State,
therefore, it would fall outside the purview of service within
the meaning of the Finance Act. The present case is a
precise case where the respondent Corporations act as
marketing agents and promoters of sale for MGL.
12.1 The agent Corporations provide promotion al
services for marketing and sale of goods belonging to the
MGL. Their activity stands squarely covered under Section
65(19) as “Business Auxiliary Service”. MGL is the customer
of services provided by the respondent Corporations and
facilitated by such services, MGL sells the goods-CNG as
marketed and promoted by the respondent Corporations to
the vehicle owners as per the arrangement in the
Agreements.
Civil Appeal Nos. 2471-2473 of 2015 Page 80 of 81
12.2 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.
Conclusion and Order
13. The respondent Corporations cannot escape the
payment of service tax. The view taken by the adjudicating
authority in determining the amounts payable towards
service tax by the respondent Corporations, and the reasons
recorded therefor, were eminently proper. The order of
CESTAT reversing the same cannot stand valid.
13.1 Resultantly, the impugned common order of the
Customs, Excise & Service Tax Appellate Tribunal, West
Zonal Bench, Mumbai dated 04.06.2014 allowing the
Appeal Nos. ST/778 and 779/12 & ST/85346/13 -Mum is
hereby set aside. The Orders-in-Original Nos. 03-04 and 05-
06/ST/SB/2012-13 dated 16.08.2012 passed by the
Civil Appeal Nos. 2471-2473 of 2015 Page 81 of 81
Commissioner of Customs (TAR), Mumbai, would stands to
operate.
13.2 The appellant is entitled to enforce the demand
towards the service tax against the respondent
Corporations and for the demand of service tax as
adjudicated.
14. All the appeals are allowed.
Any interlocutory application(s), as may be pending,
shall not survive in view of disposal of the Appeals as above.
.………………………...J.
[ARAVIND KUMAR]
………………………….J.
[N.V. ANJARIA]
NEW DELHI;
JULY 20, 2026.
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