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Informist, Monday, Jul. 20, 2026

 

NEW DELHI – The Supreme Court Monday held that oil marketing companies are liable to pay service tax on marketing of compressed natural gas received from natural gas distribution companies. The activity of providing promotional services for marketing and sale of goods belonging to the natural gas distribution companies falls under the definition of "business auxiliary service" of the Finance Act, 1994, hence liable for service tax payment, said the top court.

 

The top court ruled that oil marketing companies such as Bharat Petroleum Corp. Ltd. and Hindustan Petroleum Corp. Ltd. cannot escape the liability of payment of service tax on marketing CNG received from Mahanagar Gas Ltd. The top court said that Mahanagar Gas is the customer of services provided by the oil marketing companies and facilitated by such services, Mahanagar Gas sells CNG as marketed and promoted by these companies to the vehicle owners as per the arrangement. The commission is paid to the oil marketing companies for rendering such services, said the court.

 

BPCL and HPCL are covered within the ambit of "commission agent", said the court. The services rendered by these companies are "taxable services" as defined and understood in Section 65(105) of the Finance Act, it said. "...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," it added.

 

Mahanagar Gas is engaged in manufacturing and distributing CNG, which is an excisable good. Mahanagar Gas had been receiving natural gas from Gas Authority of India Ltd., whereafter natural gas was transported through gas grids to the various retail outlets including those belonging to the oil marketing companies situated across the city of Mumbai and Thane in Maharashtra.

 

Mahanagar Gas used to supply natural gas through pipelines to different retail outlets of the oil marketing companies. 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 oil marketing companies. 

 

The tax department said that the oil marketing companies were engaged in providing taxable services such as "business auxiliary service", acting as 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. As per the agreements entered into with Mahanagar Gas, the oil marketing companies had been receiving a commission or profit margin at the prescribed rate and they were liable to pay the service tax, said the department.  

 

Monday, shares of Bharat Petroleum Corp. ended 0.7% higher at INR 317.60 on the National Stock Exchange and those of Hindustan Petroleum Corp. ended 1.3% higher at INR 405.40. Shares of Mahanagar Gas ended 0.9% lower at INR 1,090.90 on the NSE.  End

 

Reported by Surya Tripathi

Edited by Akul Nishant Akhoury

 

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