Please refer to the decision of Hon’ble CESTAT in the matter of M/s BHARAT PETROLEUM CORPN. LTD & Others Vs CST, MUMBAI-I 2014 TIOL 1114 CESTAT MUM. The Hon’ble CESTAT held that profit margin cannot be constituted as commission for rendering the services.

In the given case, the Appellant was engaged in marketing of petroleum products. It purchased CNG from Mahanagar Gas Limited (“MGL”) and thereafter, sold the same to its dealers. The gas reached the sale outlets through sales pipeline which was not in the compressed form and, therefore, the gas was to be compressed before it was actually sold. In the various retail outlets of the Appellant, space was provided by Appellant to MGL to install their machinery, equipment etc. for compression and MGL sold the gas to the Appellant on payment of excise duty.

The department contended that the Appellant was marketing the goods of MGL. Therefore, it provided Business Auxiliary Services. Accordingly, demand notices were issued.

The Appellant submitted before the Hon’ble CESTAT that the goods were sold on RSP fixed by MGL. In lieu of this, the Appellant earned a margin which was reflected as commission/trade margin in the invoice. The Appellant placed reliance on the decision in Bhagyanagar Gas Ltd. 2013 TIOL 241 CESTAT BANG.

The Bench relying on the judgement of Bhagyanagar Gas Ltd. held that Appellant was buying goods from MGL and therefore, there was no rendering of service to the client for marketing of the goods. MGL was discharging VAT/ST liability while selling the CNG to Appellant. Moreover, the Appellant was selling this CNG on payment of VAT/ST to the buyers. There was no commission component that was received by the Appellant from MGL and all the transactions were done on principal to principal basis. Although RSP was fixed, it does not mean that the profit margin shall be constituted as commission for rendering the services.