2026-VIL-66-SC-ST
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SERVICE TAX Supreme Court Cases

Service Tax – Scope of Business Auxiliary Service - Agency versus Sale of Goods – Appellant-Dept sought to recover service tax from Respondents-assessee for providing outlets and services for sale of CNG manufactured and supplied by Mahanagar Gas Limited (MGL) - Respondents contested the demand claiming they were purchasing CNG from MGL and reselling it on principal to principal basis and therefore no service tax was payable - Adjudicating Authority confirmed the demand treating the arrangement as one of agency. The CESTAT allowed the assessees appeals and set aside the demand - Whether the arrangement between MGL and Respondents for supply and sale of CNG through retail outlets owned by Respondents constitutes a contract of sale on principal to principal basis or a contract of agency whereby Respondents act as agents of MGL for rendering Business Auxiliary Service – HELD - The arrangement between the parties constitutes a principal-agent relationship and not a sale transaction. The essential test to determine the true nature of arrangement is the passing of property or ownership in goods from one party to another. When property does not pass, the arrangement is one of agency even though goods are delivered. All terms and conditions of the Agreements taken together establish that ownership of CNG remained with MGL at all times. MGL retained control over supply, fixed and revised prices which Respondents were bound to follow, MGL maintained all equipment and inspected operations, MGL was sole regulator of supply quantities, risk never transferred from MGL to Respondents, and upon termination all unsold CNG was to be returned to MGL – The Respondents were obliged to provide site, construct infrastructure, supply electricity and water, provide trained staff and promote sale on behalf of MGL. Clause 8.4 of Agreements expressly stipulated payment of commission to Respondents which is indicative of agent status not buyer status. Commission was payable only on actual quantity sold and was dependent on Government directives confirming it was remuneration for services not profit on purchase - The Respondents were facilitators acting as commission agents under Section 65(19) read with Section 65(105)(zzb) of Finance Act 1994 and were rendering taxable Business Auxiliary Service of promotion and marketing of goods belonging to MGL. No buying and selling occurred between the parties. Respondents were recipients of goods for sale on behalf of MGL not buyers for resale - The decision of CESTAT based on erroneous reasoning is set aside and the Adjudicating Authority's findings upholding the demand for service tax under BAS are confirmed - The appeals are allowed and the Orders-in-Original confirming the service tax demand against Respondents are restored – The Revenue’s appeals are allowed
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