BPCL, HPCL must pay service tax on commission from CNG sales: Supreme Court

The Supreme Court of India has ruled that Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum Corporation Limited (HPCL) are liable to pay service tax on commission received from Mahanagar Gas Limited (MGL) for selling compressed natural gas (CNG). The court held that the oil companies were providing 'business auxiliary services' under Section 65(19) of the Finance Act, 1994. This ruling revives service tax demands against the two public sector undertakings for a period between April 2005 and March 2011.

The Supreme Court's recent decision in Commissioner of Service Tax Vs Bharat Petrol has significant implications for BPCL and HPCL, two major oil companies operating in India. The court's ruling that the companies are liable to pay service tax on commission received from Mahanagar Gas Limited (MGL) for selling compressed natural gas (CNG) has revived service tax demands of approximately ₹16.69 crore against the two public sector undertakings. This article examines the background and implications of this decision.

The dispute between BPCL, HPCL, and MGL concerned agreements under which MGL supplied CNG through outlets owned by BPCL and HPCL in Mumbai, Thane, and other areas. MGL installed the compressors, storage tanks, dispensers, meters, pipelines, and other equipment required for selling CNG. BPCL and HPCL provided the site, infrastructure, electricity, water, and trained personnel. The service tax department maintained that the companies were facilitating the sale and marketing of MGL's CNG in return for a commission.

The revival of service tax demands against BPCL and HPCL also has practical implications for public sector undertakings operating in India. The companies will need to pay approximately ₹16.69 crore in service tax, along with interest and penalties. This decision serves as a reminder of the importance of compliance with service tax regulations and the potential consequences of non-compliance.

As the service tax regime continues to evolve in India, it is essential for companies to stay up-to-date with changes in legislation and case law. The Supreme Court's decision in Commissioner of Service Tax Vs Bharat Petrol serves as a reminder of the importance of accurate classification of services under the service tax regime.