OIO No:58/STC-AHD/ADC(MKR)/2011-12
Page 1 of 32
BRIEF FACT OF THE CASE
M/s Bikes Auto, Ahmedabad were engaged in providing Services
as Authorized Service Station and registered in Service Tax Department
having registration No AADFB4743NSTOO1. The said service provider
is registered under the category of Service of motor vehicle (SMV)
and Business Auxiliary Service (BAS) in Service Tax department and
filing ST 3 returns on periodical basis. Intelligence was gathered that
M/S. Bikes Auto, Ahmedabad (hereinafter referred to as the said service
provider”) were indulging in evasion of Service Tax in the Business
Auxiliary Services by way of providing the said taxable service without
having Service Tax registration and without paying Service Tax on the
amount received by them for providing taxable services. The said service
provider was engaged in the providing services to the Financial Institutes
/ banks under the Business Auxiliary Services. In other words, the said
unit was facilitating to the financial companies like ICICI, HDFC etc., to
place their counters/desks in their premises and providing the suitable
environment to them to boost up their business. In response, the said
financial companies were giving them a substantiated amount under the
head of Commission/incentive/remuneration etc. The said commission
amount is taxable under provision of sub section (19) of Section 65 of the
Finance Act, 1994 as amended under the category of Business Auxiliary
Service. Therefore, the service provider was liable to pay Service Tax on
collection of the said commission/incentive w.e.f. 01.07.03, but on
inquiry it was found that M/s Bikes Auto Motors ( P) Ltd was neither
registered under Business Auxiliary Service (upto the date of
recording the statement of the authorized person of the unit) nor
they had paid any Service Tax for the said services.
2.
Thereafter summons were issued to M/s. Bikes Auto. In response
to the summons, M/s. Bikes Auto had produced the required records
such as Month wise details of commission / incentive received, copy of
Balance Sheets etc., to the department and a Statement of Shri Naishadh
Bhupandrabhai Shah, Partner in M/s. Bikes Auto, Ahmedabad was
recorded on 23.02.2006 before the Superintendent of Service Tax,
Ahmedabad under Section 14 of the Central excise Act, 1994 read with
Section 83 of the Finance Act, 1994.
2.1.
In his statement Shri Naishadh Shah had stated that he was the
partner in M/s. Bikes Auto having their head office cum show room at
above address since last 16 years. Further, he stated that his wife
OIO No:58/STC-AHD/ADC(MKR)/2011-12
Page 2 of 32
Mrs. Gargi N. Shah is another partner in Bikes Auto; that there was
another branches / service station of M/s Bikes Auto. Located at (1) Nr.
Grand Bhagwati, S G Highway, Ahmedabad; that all the accounting and
financial activities have been carried out from their head office; that he
was the authorized person of the said firm and looking after Sales Tax,
Income Tax, and Service Tax etc., all the Government works; that they
were engaged in the Business of Selling of Hero Honda brand motorbikes
/ Scooter etc., and the authorized dealer of the said company; that they
were also registered with Service of Motor Vehicles ( SMV ) & Business
Auxiliary Service ( BAS ) since 25.06.03 having the PAN based Service Tax
Registration No. AADFB4743NST001 and were paying service tax
regularly and were filing ST-3 returns regularly.
2.2.
On being asked he stated that, they had provided facilities to the
different financial companies like ICICI, HDFC Bank etc., to place their
counters in their company; that the said financial companies were giving
Finance to different clients, who were intending to purchase the
motorbikes/scooter from their companies on loan bases; that for giving
these types of facilities to the said financial companies, M/S Bikes Auto
were getting incentive/commission in different slabs; that they had been
appointed as a Direct Selling Agent (Dealer/DSA) of ICICI Bank and
Direct Sales Associates (Dealer/DSA) of HDFC Bank since June -03 and
got the incentive/commission from the said banks for boosting up/
marketing their business.
2.3.
Further, he stated that the above stated incentives / remunerations
were not on the fixed rates but the same deferred from each other
amongst the said Financial Companies; that in other words they had
promoted or marketed the products on behalf of these Financial
Companies and got the remuneration/incentive on the same. He had
been shown the definition of Business Auxiliary Service given under the
clause (19) of Section 65 (effective from 01.07.03). He had been explained
about the Government Circular No. 59 dated 20.06.03 read with
explanation given in the Memorandum Explaining the provisions in the
Finance Bill 2003 (F.No. 334/1/2003-TRU dated 28.02.03)
2.4.
On being specifically asked he stated that they had not paid the
Service Tax on the amount of incentive / commission etc., received from
the said financial companies / banks for the period 01.07.03 to 31.12.05.
In other words, they had failed to fulfill the provisions of Service Tax
Rules framed under the Finance Act, 1994 as amended, by them and
OIO No:58/STC-AHD/ADC(MKR)/2011-12
Page 3 of 32
suppressed the facts from department to avoid the payment of Service
Tax, as and when payable by them.
2.5.
1.
Thereafter, he had produced the following documents
Month wise statement of incentive received form the financial
institutes like ICICI, HDFC Bank etc for the year 2003-04 to
2005-06 (upto December-05)
2.
Audited Balance Sheets for the F.Y. 2003-04 to 2004-05.
3.
Copy of last ST 3 return, filed by them for the period October-04
to Spetember-05.
4.
3.
Copy of the Service Tax Registration Certificate
Based upon the records available / submitted by M/s Bikes Auto, a
worksheet was prepared as Annexure - A showing the details of month
wise incentives received / collected by the said service provider and
calculation of service tax thereon at appropriate rate of service tax during
the material time period from 01.07.03 to 31.12.05. As per the worksheet
the total amount of Service tax liabilities of M/s Bikes Auto was worked
out which comes to Rs.7,53,621/- and an interest of Rs.2,03,514/- was
also payable by the said service provider.
3.1.
On the basis of the above stated incentives, they prepared one
comprehensive Annexure and as per the said Annexure they had received
the amount of Rs.2,00,84,185/- gross amount as incentives from the
above financial companies for the period 01.07.03 to 31.12.05; that out of
the said amount the total service tax payable by their company comes to
Rs.17,07,060/-. But they had already paid the total service tax for the
period of ( 01.03.05 to 31.12.05 ) Rs.8,71,359/- (inclusive the availment
of CENVAT). After the calculation of all these payments, the outstanding
service tax liability comes to Rs.7,53,621/- and they had not paid any
service tax. The interest on the said amount has also been calculated by
them which comes to Rs.2,03,514/-, that they accepted the said service
tax liabilities on their company & produced a cheque of Rs.4,54,114/dated 05.03.2006 (Service Tax + Interest as calculated for the period of
01.07.03 to 31.12.05) voluntarily towards the outstanding service tax
liabilities on his company that confirmed that they will pay the balance
amount on or before 25.03.06 voluntarily without fail & will produce the
proof of such payment.
4.
Thereafter, M/s Bikes Auto had submitted the Copy of TR-6 challan
No:1/2005-06, dated 06.03.06 and dated 29.03.06 for Rs.4,54,114/- &
OIO No:58/STC-AHD/ADC(MKR)/2011-12
Page 4 of 32
dated 31.03.2006 for Rs.4,79,569/- which shows the details of payment
made and credited to the Central Government Account against their
service tax liability on the basis of total amount collected & recovered
from the customers during the period from 01.07.03 to 31.12.05.
5.
As per the provisions of Section 65 (19) of the Finance Act, 1994
the terms ‘Business Auxiliary Service’ has been defined as means any
service in relation to —
(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
(iii)
Any customer care service provided on behalf of the client; or
(iv)
Procurement of goods or services, which are inputs for the
client of 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 of 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 of 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 service, management or supervision.
5.1.
In view of the above facts and the statement of Shri Naishadh
Shah, Partner of M/s Bikes Auto, it appeared that the activities of said
service provider were defined under the category of “Business Auxiliary
Service” under Section 65 (19) i.e. of chapter V of the Finance Act, 1994
(as amended) and the services provided to the clients by the said service
provider was a taxable service. It was further observed that the said
service provider had neither obtained Service Tax Registration as required
under Section 69 of the Finance Act, 1994 nor discharged their Service
Tax liabilities.
6.
Thus, it appeared that the said service provider had contravened
the provision of;
i)
Section 68 of the Finance Act, 1994 read with Rule 6 of the
Service Tax rules 1994 in as-much-as they have failed to
make
the
payment
of
Service
Tax
amounting
to
OIO No:58/STC-AHD/ADC(MKR)/2011-12
Page 5 of 32
Rs.7,53,621/- + Interest of Rs.2,03,514/- as explained in
foregoing para for the period from 01.07.03 to 31.12.05 to
the credit of the Government within the stipulated time limit;
ii)
Section 69 of the Finance Act, 1994 read with Rule 4 of the
Service Tax Rules, 1994 in as-much-as they failed to get
registered with Service tax Department; and
iii)
Section 70 of the Finance Act, 1994 (32 of 1994) read with
Rule 7 of the Service Tax Rules 1994 in as-much-as they
failed to self assess and failed to file prescribed quarterly /
half yearly ST 3 returns within stipulated time limit.
7.
All the above acts of contravention on the part of the said service
provider appeared to have been committed deliberately by way of
suppression of facts with an intent to evade payment of service tax and,
therefore, the service tax not paid was required to be demanded and
recovered from them under the proviso to Section 73 (1) of the Finance
Act, 1994. All these acts of contravention of the provisions of Section 68,
69 & 70 of the Finance Act, 1994 read with rules 6, 4 & 7 of the Service
Tax Rules, 1994 appeared to be punishable under the provisions of the
erstwhile Section 75 A of the Finance act, 2001 and Section 76, 77 and
78 of the Finance Act, 1994.
8.
The failure on the part of the said service provider in payment of
service tax attracts penalty under Section 76 in addition to the interest
payable under Sec. 75 of the Finance Act, 1994. Therefore, the said firm
had failed to disclose the value of taxable services of the Business
Auxiliary Service and also failed to make a return under section 70 of the
Finance Act, 1994 for the period referred.
9.
Moreover,
in
addition
to
the
contravention,
omission
and
commissions occurred on the part of the said service provider as stated in
the foregoing paras, it appeared that, they willfully suppressed the facts,
nature and value of service provided by them with an intent to evade the
payment of Service Tax, rendering themselves liable for penalty under
Section 78 of the Finance Act, 1994 as amended.
10.
From the above facts, it appeared that the said service provider had
contravened the provisions of Section 68 of the Finance Act, 1994; read
with Rule 6 of the Service Tax Rules, 1994 in as much as they have failed
to determine and pay the Service Tax & Ed. Cess; for the period 1.7.2003
to 31.12.2005.
OIO No:58/STC-AHD/ADC(MKR)/2011-12
11.
Page 6 of 32
All the above facts of contravention of Finance Act, 1994, as
amended and rules made there under, on the part of the said service
provider appeared to have been committed by way of suppression of facts
with an intent to evade payment of Service Tax and, therefore, the said
Service Tax not paid was required to be demanded and recovered from
them under the proviso to Section 73(1) of the Finance ct, 1994 as
amended, by invoking extended period of five years. All these acts of
contravention of the provisions of Section 68 and Section 70 of the
Finance Act, 1994 as amended, read with Rule 6 and 7 of the Service Tax
Rules, 1994 appeared to be punishable under the provisions of Section
76, Section 77 and Section 78 of the Finance Act, 1994 as amended from
time to time.
12.
Therefore,
a
show
cause
notice
was
issued
from
F.No.
STC/138/O&A/SCN/BA/JC/R-VI/D.II/08 dated 23.10.2008 to M/s
Bikes Auto, Ahmedabad asking them to show cause as to why :
(i)
Services rendered by them should not be considered as
taxable service under the category of Business Auxiliary
Services as defined under Section 65 of the Finance Act,
1994 as amended, and the total Service Tax (ST + CESS)
worked out to Rs.7,53,621/- at appropriate rate during the
period from 01.07.03 to 31.12.05 should not be demanded
and recovered from them under proviso of Section 73(1) of
Finance Act, 1994;
(ii)
An interest of Rs.2,03,514/- as applicable on the amount of
service tax liability should not be demanded from them for
the delay in making the payment, under Section 75 of the
Finance Act, 1994;
(iii)
However, the said service provider have paid the Service Tax
amount of Rs.9,33,683/- with interest against his total
service tax liability, therefore, why the same should not be
adjusted to the afore said demand for their Service Tax and
interest liability;
(iv)
Penalty should not be imposed upon them under provisions
of erstwhile Section 75 A of the Finance act, 1994;
(v)
Penalty should not be imposed upon them under Section 76
of the Finance Act, 1994 for the failure to make timely
payment of Service Tax payable by them;
OIO No:58/STC-AHD/ADC(MKR)/2011-12
(vi)
Page 7 of 32
Penalty should not be imposed upon them under Section 77
of the Finance Act, 1944 for the failure to file prescribed
service tax return within stipulated time; and
(vii)
Penalty should not be imposed upon them under Section 78
of the Finance Act, 1944 for suppressing the value of
taxable service provided by them before the Department with
intent to evade payment of Service Tax.
13.
The said Show Cause Notice F.No.STC/138/O&A/SCN/BA/JC/
R-VI/D-II/08 dated 23.10.2008 issued to M/s Bikes Auto, Ahmedabad
was adjudicated by the then Additional Commissioner of Service
Tax, Ahmedabad vide her OIO No:STC/50/Addl/2008-09 dated
17.03.2009, who
(i)
Confirmed the demand of Rs.7,53,621/- (Rupees Seven
Lakhs Fifty three thousand Six hundred twenty one only)
under section 73(2) of the Finance Act, 1994 along with
interest under section 75 of the Finance Act, 1994;
(ii)
Further, confirmed the payment of service Tax along with
interest of Rs.9,33,683/- paid by the Service provider and
held that department can adjust the same towards the final
liability of Service Tax along with interest as worked out by
the Range Superintendent;
(iii)
Waive the penalty imposed under section 76 and 77 of the
Finance Act, 1994; and
(iv)
Imposed a penalty of Rs.7,53,621/- under section 78 of
Finance Act, 1994 with condition that if service tax and
interest as determine at Sr. No.(i) are paid within thirty days
of communication of this order the amount of penalty liable
to be paid by the party under section 78 shall be 25% of
service tax. Also the benefit of reduction of penalty shall be
paid within thirty days of communication of this order the
amount of penalty liable to be paid by the party under section
78 shall be 25% of service tax. Further, the benefit of
reduction of penalty shall be available only if the amount of
penalty so determined has also been paid within thirty days
of communication of this order.
14.
Being aggrieved with the said O.I.O., the said service provider
preferred an appeal before the Commissioner (Appeal), Ahmedabad along
with stay application. The Commissioner (Appeals-IV), Central Excise,
OIO No:58/STC-AHD/ADC(MKR)/2011-12
Page 8 of 32
Ahmedabad uphold the impugned order passed by the adjudicating
authority
vide O.I.A. No.230/2009(STC)/HKJ/Commr(A)/ Ahd dated
15.09.2009.
15.
Being aggrieved with the said O.I.A., the said service provider
preferred an appeal before the Hon’ble CESTAT, Ahmedabad. The
CESTAT, Ahmedabad vide Order No. A/929/WZB/AHD/2010 dated
09.06.2010/14.07.2010 held that:
“Appellant is engaged in the business of sales and servicing of bikes and
registered with service tax department (under the category of authorized service
station). In addition they were also holding their clients to take loans from various
financial institutions. For the said purpose they were assessing the financial
institution and were getting commissions from them. The dispute in the present
appeal relates to the service tax on the commissions received by them during the
period 01.07.03 to 31.12.05. Accordingly the lower authorities have confirmed the
demand of service tax of Rs.17,07,060/- along with imposition of penalties. The
appellant’s main contention is that the said services were covered under the scope
of business support service came into effect with effect from 01.06.08, no duty
can be confirmed against them. They have relied upon the Tribunal’s decision in
the case of Wings Group of Companies Vs. CST. Bangalore reported in
2008(12) STR 287 (Tri.- Bang.). They have also contended that prior to
10.09.04, they were exempted from payment of tax under Notification No.25/2004
ST. The Clause-e of the said notification of the service provided except banking
company or a financial institution. The Tribunal in the case of Car World
Autoline Vs. CCE Cochin reported in 2008(9) STR 246 (Tri.-Bang.) has
extended the benefit of the notice to the assessee. The demand also stands
challenged on the point of limitation by submitting that there was a lot of
confusion and the things became clear only with the circular issued by the Board
on 06.11.06.
I find that the legal issues are settled by the above referred decisions of the
Tribunal. However there is confusion as regards the period for which the duty is
being challenged and also the facts as to whether the appellant was paying duty
from 2004 onwards or not. For the said purpose I set aside the impugned order
and remand the matter to Assistant Commissioner for fresh adjudication after
verification of the factual position and in the light of the law declared by the
Tribunal in the above referred judgments. Needless to say that the appellant
would be given an opportunity to put-forth their case. Appeal is thus allowed by
way of remand.”
16.
The Hon’ble CESTAT, Ahmedabad allowed the appeal filed by
service provider by way of remand to the adjudicating authority for fresh
OIO No:58/STC-AHD/ADC(MKR)/2011-12
Page 9 of 32
adjudication after verification of the factual position and in the light of the
law declared by the Tribunal in the above referred judgments.
DEFENCE REPLY & PERSONAL HEARING.
17. Personal Hearing in the matter was conducted on 15.12.2011. Shri
Vipul Khandhar, Chartered Accountant appeared & submitted that he
will submit a reply within seven days. He submitted his reply on
23.12.2011.
17.1. In their defence reply submitted to this office on 23.12.2011, they
contented that:
17.2. Before proceeding to deal with the allegation leveled against them
for imposition of penalty, it would be profitable to appraise some of the
basic and vital factual details, which would enable to adjudicate the case
judiciously. The proposal for imposition of service tax on the “Business
Auxiliary Service” w.e.f. 01.07.2003. The instant matter pertains to
service tax demand on service charge/commission income for the period
01.07.2003 to 31.12.2005 from the activities carried out as under:
The instant matter pertains to service tax demand on commission
income for the period 01.07.2003 to 31.12.2005 from the activities
carried out as under:
•
helping out to get the financial assistance i.e. loan from the
financial institutions
•
Arranging for seating of the representatives of these financial
institutions in their premises for the purpose of sanction of loan to the
customers.
17.3 Now the salient issue by the said service provider have to
address here is that :(i)
Whether their activities were covered under the “Business
Auxiliary Service” or under the category of “Business Support
Service”.
If it is covered under the business auxiliary service, from
which day it is covered w.e.f. 01.07.2003 or w.e.f. 10.09.2004
& onwards.
(ii)
When there were interpretation difference & confusion in the
trade over across the country, demand of service tax prior to
clarification bared by the limitation.
OIO No:58/STC-AHD/ADC(MKR)/2011-12
17.3.1.
Page 10 of 32
They reiterated the provision of support service for business
or commerce.
“Meaning of Support Service of Business or Commerce (section
65(104c) (as inserted by Finance Act, 2006) defines ‘Support Services of
Business of Commerce’ as under:“Support Services of Business of Commerce” means services
provided in relation to business or commerce and includes evaluation of
prospective customers, telemarketing, processing of purchase orders and
fulfillment services, information and tracking of delivery schedules,
managing distribution and logistics, customer relationship management
services,
accounting
and
processing
of
transactions,
operational
assistance for marking, formulation of customer service and pricing
policies,
infrastructural
support
services
and
other
transaction
processing.”
17.3.2
The aforesaid definition is an inclusive definition and has two
parts. First, service in relation to business or commerce, and two, it
includes host of services i.e. evaluation of prospective customers,
telemarketing etc., the various services which are included are as
follows;(a)
evaluation of prospective customers
(b)
telemarketing
(c)
(d)
processing of purchase orders and fulfillment services
information and tracking of delivery schedules
(e)
managing distribution and logistics
(f)
customer relationship management services
(g)
accounting and processing of various transactions
(h)
operational assistance for marketing
(i)
formulation of customer service and pricing policies
(j)
Infrastructure support services and other transaction
processing service.
They are covered under clause (h) & (i) of the above mention
services. They are giving table space in their premises for their
working for their contention they on following case;
(i)
2008 (11) S.T.R. 63 (Tri. - Bang.) IN THE CESTAT, SOUTH ZONAL
BENCH, BANGALORE Dr. S.L. Peeran, Member (J) and Shri T.K.
Jayaraman, Member (T) WINGS GROUP OF COMPANIES Versus
OIO No:58/STC-AHD/ADC(MKR)/2011-12
Page 11 of 32
COMMR. OF S.T., BANGALORE Stay Order No.:1024/2007, dated
20-12-2007
in
Application
No.
ST/Stay/78/2007
in
Appeal
No.:ST/96/2007 Stay/Dispensation of pre-deposit - Business
Auxiliary Services - Marketing of loans - Appellant undertaking
marketing of home loans and personal loans as agent of bank Prima facie issue involved identical with that of Tribunal decision in
2008 (9) S.T.R. 255 (Tribunal) - Tribunal in cited decision held that
Business Support Services effective from 1-5-2006 and impugned
activity covered thereunder - Pre-deposit of Service tax and
penalties waived and recovery thereof stayed - Sections 65(19) and
65(104c) of Finance Act, 1994 - Section 35F of Central Excise Act,
1944 as applicable to Service tax vide Section 83 of Finance Act,
1994. [paras 1, 4]
17.4. Not contrary to above mention ground, they further reiterated the
Noti.No. 25/2004, which exempt service provided by them up to
10.09.2004 are as under.
Drawing attention on that, they submitted that the exemption
Notification No:25/2004-ST dated 10-09-2004 by which, the
services rendered by the appellant prior to 10th September, 2004
were
exempt
from
payment
of
Service
tax.
They draw attention on the basic provision are as under.
"Exemption to value of taxable services received before 10-92004 in respect of services covered under extended scope of
existing services as per Finance Act, 2004 (Notification No. -2002552
TSdated 10-9-2004) [F. No. B2/8/2004-TRU].
G.S.R. (E) - In exercise of the powers conferred by sub-section (1) of
section 93 of the Finance Act, 1994 (32 of 1994), the Central
Government, being satisfied that it is necessary in the public
interest so to do, hereby exempts that portion of the value
of following taxable services, namely(a)…
(b)…
(c) …
(d)…
(e)
Services provided to a customer by any body corporate or
commercial concern other than banking company or a financial
institution including a non- banking financial company, in relation to
banking and other financial services."
OIO No:58/STC-AHD/ADC(MKR)/2011-12
Page 12 of 32
From above it is clear that they come under the ambit of the
exemption because as a service provider they were other
than a banking company and they are entitled for exemption
under this category.
17.4.1.
Therefore they are not liable for service tax amt to
Rs.5,98,602/- for the period 01.07.2003 to 09.09.2004 &consequently
penalty also.
17.5.
They also rely in support of their contention on the following
case laws;(a)
2008 (9) S.T.R. 246 (Tri. - Bang.) IN THE CESTAT, SOUTH
ZONAL BENCH, BANGALORE Dr. S.L. Peeran, Member (J) and Shri
T.K. Jayaraman, Member (T) CAR WORLD AUTOLINE Versus
COMMISSIONER OF C. EX., COCHIN Final Order No.:1022/2007,
dated 3-9-2007 in Appeal No.ST/112/2006 Business Auxiliary
Services - Exemption - Services provided to customers of bank Expansion of scope of taxable services - Exemption to such
expanded services provided before 10-9-2004 vide Notification
No.25/2004-S.T. - Period of dispute from July 2003 to September
2004- Exemption under notification ibid claimed but not examined
in impugned orders - Reason for denial of exemption not given in
impugned order - Service tax paid after 10-9-2004 under Business
Auxiliary Services - Exemption entitled for impugned period Service tax demand and penalty set aside - Sections 65(19), 73, 76
and 93 of Finance Act, 1994. [paras 2, 4, 4.1 ]
17.5.1. Regarding penalty on service tax paid by them for the period
10.09.2004 to 31.12.2005 they drawn attention
to the fact that
levy itself in question regarding applicability of service tax due to
matter referred to CBEC board for clarification, which clarify by the
board as under;
"Extracts of Circular No. 87/06/206-ST, dated 6-11-2006 Levy
of Service Tax on Commission earned by Automobile Dealers"
Whether the commission received by the automobile dealers
from
Bank/Non
introducing
the
Banking
customers
Financial
seeking
Companies
(NBFC),
finances/loans
to
for
such
banks/NBFCs is to be subjected to service tax? Further, in
case, part of these incentives are passed on by the dealers to the
customers, whether tax would be leviable only on that part of
OIO No:58/STC-AHD/ADC(MKR)/2011-12
Page 13 of 32
incentive, which is retained by the dealers or whether it would be on
full amount?
In some cases, the automobile dealers help the buyers of the vehicles
for arranging the finances. For this, they have a tie-up with
Banks/Non-banking Finance Companies. The customers are advised
by the dealers to approach such financial companies for taking loans.
The
automobile
dealers
get
commission
from
such
financial
companies for directing the customers to the latter. By this activity,
the automobile dealers 'promote or market the services provided by
their customer (i.e., the institution), and are therefore covered under
'taxable service' namely, the "Business auxiliary service". The tax is
payable on the gross commission received by the automobile dealer.
In some cases, the dealers share part of their commission with their
customers to attract them. However, this is an independent
transaction between the automobile dealer and the purchaser of the
vehicle, and does not involve the service rendered by the automobile
dealer to the finance company. Therefore, tax payable by the dealer
would be on the gross amount received from the financial company
and not on the balance amount, i.e., after excluding the amount that
he passes on to the customer".
17.6.
They further contended that from the above it was clear that no
clarity was there regarding applicability & value on which they were liable
for service tax. So there was no question of applicable of penalty during
the period up to 26.11.2006.
17.7.1
(a)
They also want to rely on the following case laws:-
2008 (12) S.T.R. 162 (Tri. - Del.) IN THE CESTAT, PRINCIPAL
BENCH, NEW DELHI [COURT NO. III] Shri P.K. Das, Member (J)
MODERN MACHINERY STORE Versus COMMISSIONER OF C.
EX.,
JAIPUR-I
Final
Order
No.878/200 SM(BR)/(PB),
dated
11-4-2008 in Appeal No. ST/32/2008-SM(BR) Penalty (Service tax)
- Delay in payment of Service tax - Authorized Service Station
receiving commission from financial institutions for marketing
loans - Service tax paid with interest before show cause noticeLetter from Department seeking details of commission – Confusion
prevalent during material period over leviability of Service tax on
impugned activity - Service tax paid voluntarily before notice after
OIO No:58/STC-AHD/ADC(MKR)/2011-12
Page 14 of 32
C.B.E. & C. clarified the issue - No mala fide for delay in payment Penalties set aside - Sections 76,77,78 and 80 of Finance Act,
1994. [paras 1,4,5]
(b)
2008 (9) S.T.R. 220 (Tri. - Del.) IN THE CESTAT, PRINCIPAL
BENCH, NEW DELHI [COURT NO. III] Ms. Archana Wadhwa,
Member (J) VIPUL MOTORS (P) LTD. Versus COMMISSIONER OF
C. EX., JAIPUR-I Final Order No. 1576 12007 -SM(BR)(PB), dated
5-10-2007 in Appeal No.ST/128/2007 -SM(BR) Penalty (Service
tax) - Waiver of - Business Auxiliary Services of arranging loansBona
fide
belief
on
non-liability
-
Penalty
not
imposed by adjudicating authority - Penalties imposed in revision
order-Service tax introduced recently and confusion prevalent-Mala
fide in not paying Service tax absent - Service tax with interest paid
on being pointed out by Department - Exercise of description by
Assistant Commissioner in not imposing penalty under Section 80
of Finance Act, 1994 sustainable- Impugned order set aside and
original order restored - Sections 75A, 76, 78 and 80 ibid. [paras 1,
2, 4]
(c)
2008 (9) S.T.R. 136 (Tri. - Del.) IN THE CESTAT, PRINCIPAL
BENCH, NEW DELHI [COURT No. III] Ms. Archana Wadhwa,
Member (J) THE FINANCIERS Versus COMMISSIONER OF C.
EX.,JAIPUR
Final
Order
No.1578/2007-
M(BR)(PB),
dated
4-10-2007 in Appeal No. ST/123/2007-SM(BR) Penalty (Service
tax) - Waiver of - Business Auxiliary Services of arranging loans Bona fide belief on non-liability - Penalty not imposed by
adjudicating authority- Penalties imposed in revision order Service tax introduced recently and confusion prevalent - Appellant
not having mala fide in not paying Service tax - Service tax with
interest paid on being pointed out by Revenue - Exercise of
discretion by Assistant Commissioner in not imposing penalty
under Section 80 of Finance Act, 1994 sustainable- Impugned
order set aside and original order restored - Sections 75A, 76, 78
and 80 of Finance Act, 1994. [paras 1, 2, 4]
(2)
Regarding contention in SCN that the assesses has "Suppressed
the material facts of realization of value service and also
discharging the service liability in respect to the service provider"
are untenable.
Suppression of facts means as per supreme court, in the case of
pushpam pharmaceutical company v. Collector of central
excise Bombay[1995 Supp (3) CSS462], While dealing with the
OIO No:58/STC-AHD/ADC(MKR)/2011-12
Page 15 of 32
meaning of the expression "suppression of acts" in proviso to
section 11A of the Act held that the term must be construed
strictly, it does not mean any omission and the act must be
deliberate and willful to evade payment of duty. The Court further
held that:"In taxation (Suppression of facts) can have only one meaning
that the correct information was not disclosed deliberately to
escape payment of duty. Where facts are known both the parties
the omission by one to do what he might have done and not that he
must have done, does not render it suppression".
Relying on the aforesaid observations of this court in the case
of Pushpam Pharmaceutical Co. v. Collector of Central Excise,
Bombay [1995 Suppl*3) CSS462] further stated that, "we find that
suppression of facts can have only one meaning that the correct
information was not disclosed deliberately to evade payment of duty
when fact were known to both the parties, by one to do what he is
settled law that mere failure to declare does not amount to willful
suppression.
There must be some positive act from the side of the assesses
to find willful suppression".
In view of above facts that there was no deliberate intention
on the part of the assessee, not to disclose the correct information
or to evade payment of duty. Demand of service tax prior to period
dt. 06.11.2006 was time barred. In the impugned period SCN has
been issued as on Dt. 23.10.2008.
So demand of service tax barred by the time limit, so drop the
proceeding in the interest of justice
(3)
Thus, it would be seen that there would not be deliberant de-
finance for not complying the provision of said Act. As soon as they
became aware, they have taken immediate steps to fulfils their service
tax liability, and requested to take the lenient view and drop the
demand of service tax & penalty proceeding may be dropped on the
basis of above reason.
OIO No:58/STC-AHD/ADC(MKR)/2011-12
(4)
Page 16 of 32
While deciding the similar type of cases of service tax and
central excise law have mentioned below the honourable CEGAT as
well as commissioner (appeal) has taken lenient view and has not
impose any penalty under section 78 of finance Act, 1994 and has
given relief of section 80 ibid of finance Act, 1994 of Service Tax Act.
17.8. They also rely on following case law in support of their contention.
I. CCE, Bhopal V. Thyrocare Services [2006(4) STR 200 (Tri.-Del.)];
Genuine interpretational dilemma as to correct classification of
service and possibility existing of assessee being misguided Assessee having justifiable reasons to believe that they were not
covered under service tax - Setting aside of penalty upheld.
II. CCE, Jaipur V. Sikar Ex-Serviceman Welfare Co-Op. Soc Ltd.
[2006(4) STR 213 (Tri.-Del.)]; As interpretation of law involved,
setting aside of penalty upheld.
III. Suri Colour Labs (P) Ltd. CCE, Meerut-II [2006(4) STR 96
(Tri.-Del.)]; Since appellants under confusion in respect of
eligibility to benefit of notification 12/2003-ST, imposition of
penalty not warranted.
IV. Surat Municipal Corpn. V. CCE, Surat [2006(4) STR 44
(Tri.-Del.)] Appellant were under bonafide belief that they are
not liable to pay service tax penalty not imoposable in view of
section 80.
V. BST Ltd. V. CCE, Cochin [2006(4) STR 40 (Tri.-Bang.)]
Penalty not justified when activity not taxable
XVI. Cosmic Dye Chemical V. CCE, Bombay [1995(75) ELT
721(SC)] When bonafide impression is gained from 2 CBEC
Circulars, no penalty can be imposed. In our case also, based on
bonafide dependence on circular issued by CBEC, we had
determined the classification and hence cannot be imposed.
17.8.1
The delay if at all occurred was due to the their belief that
they were not liable for service tax, that it was a new provision,
interpretation of statue to which the office at the assesses was not fully
acquainted and here the delay was bona fide where no penalty could be
levied due to technical breach of provision of law.
17.8.2.
In the above context, it is submitted that penalty may not be
imposed in all cases only because lawful to do so. The adjudicating
authority should take in to consideration all the factors before proceeding
OIO No:58/STC-AHD/ADC(MKR)/2011-12
Page 17 of 32
to impose penalty. As such it is requested that a lenient view may be
taken and proceeding may be dropped.
17.9.
Without prejudice to the aforesaid contention, it is submitted
that proceeding for imposing penalty is a proceeding which is quasi criminal in nature. The question of imposition of penalty in ordinary
course came for scrutiny before Hon'ble Supreme Court in the case of
Hindustan Steel Vs State of Orissa reported in AIR 1970 SC 253. The
Hon'ble Supreme Court observed that penalty should not be imposed in
ordinary course unless the party in deliberately in defiance of law. Penalty
will not also be imposed merely because it is lawful to do so. Applying the
ratio, of the above decision in the present case, it would be seen there is
no allegation of deliberate defiance of law. No penalty may be imposed
and the proceeding initiated vide the subject notice may be dropped.
They finally submitted that based on the foregoing submissions that:
(i)
There were no liability of service tax under the business auxiliary
service, so drop the demand of service tax & refund the service tax pre
deposited by us.
(ii)
It is requested that no penalty may be imposed as proposed vide
the subject notice under section 78 of the finance Act, 1994. It is new
provision & due to interpretation difference. We have made default.
(iii)
They also requested to give benefit of section 80 ibid to
them and condoned.
DISCUSSION & FINDINGS
18.
I have carefully gone through the Show Cause Notice, Order-in-
original dated 17.03.2009, OIA dated 15.09.2009 and CESTAT Order
dated 09.06.2010/14.07.2010 remanding case back in light of two
decisions cited in the order, relevant documents of the case, and
submissions made during & after personal hearing.
18.1. At the outset, I observe that this is second round of litigation and
Hon’ble CESTAT has remanded the matter to re-examine the fact as to
whether the service provider was paying duty from 10.09.2004 onwards
or not and also to examine the issue in the light of Tribunal’s decision in
the case of Wings Group of Companies Vs. CST. Banglore reported at
2008(12)STR 287(Tri-Bang) and in light of case of Car World Autoline
Vs. CCE cochin reported as 2008(9)246(Tri-bang).
OIO No:58/STC-AHD/ADC(MKR)/2011-12
Page 18 of 32
18.2. I observe that the central issue in this case is that whether the
service tax is to be levied on the commissions received by the service
provider under ‘Business Auxiliary Services’ for the period from
01.07.2003 to 31.12.2005?
18.3
The said service provider were engaged in helping out to get the
financial assistance to the purchaser of vehicle i.e. loans from these
financial institutions & Arranging for seating of the representatives of
these financial institutions in their premises for the purpose of sanction
of loan to the customers. For the said services the said service provider
was getting commissions from these financial institutions.
18.4. The
main
contention
of
the
service
provider
is
regarding
classification of their service. I find that the appellants were working as
Direct Selling Agents (DSA) for the Banking and Financial Institutions
and facilitating their clients in fetching the finance for the purchase of
vehicle motor bikes and resultant to that service they earned some
consideration from the bank or financial companies who advance finance.
The nature of the activity carried out by the service provider are more
akin to the promotion or marketing of the service provided by their clients
viz. banks or financial companies. The said service provider has two sets
of clients, on one hand there is prospective buyer of the vehicle to whom
they provide service of helping them in fetching the vehicle whereas on
the other hand they have banks or financial institutions as their clients to
whom they provide service as DSA. From the nature of service it can be
derived that the said service provider had rendered services of the kind of
promotion of banking and other financial services on behalf of their
clients i.e. banks or financial companies. Arrangement of documentation
like
signing
of
necessary
agreements,
acquiring
of
documents,
endorsement of hypothecation or hire purchase etc., better fit as
promotion of service on behalf of their clients. These services will
appropriately fall under
clause (ii) of
service
category of Business
Auxiliary Service as defined under sub clause (19) of section 65 of the
Finance Act,1994
18.5
I
find
that
Notification
No.:25/2004-ST
dated
10.09.2004
exempted value of taxable services rendered by the appellant prior to 10th
September, 2004 were exempt from payment of Service tax. The basic
provision is as under. "Exemption to value of taxable services received
before 10-9-2004 in respect of services covered under extended scope of
existing services as per Finance Act, 2004 (Notification No.
TS-2002552
OIO No:58/STC-AHD/ADC(MKR)/2011-12
Page 19 of 32
dated 10-9-2004) [F. No. B2/8/2004-TRU]. The text of the said
notification is as under.
In exercise of the powers conferred by sub-section (1) of section 93 of the Finance
Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary
in the public interest so to do, hereby exempts that portion of the value of
following taxable services, namely (a)
services provided to a customer, by a commissioning and installation
agency in relation to erection;
(b)
services provided to any person, by a sub-broker in connection with the
sale and purchase of securities listed on a recognized stock exchange;
(c)
services provided to any person by a multisystem operator in relation to
cable services;
(d)
services provided to a client by a commercial concern in relation to the
following business auxiliary services namely, (i)
procurement of goods or services, which are inputs for the client;
(ii)
production of goods on behalf of the client;
(iii)
provision of service on behalf of the client; or
(iv)
a service incidental or auxiliary to any activity specified in (i) to
(iii) above;
(e)
services provided to a customer by any body corporate or commercial
concern, other than a banking company or a financial institution
including a non-banking financial company, in relation to banking and
other financial services;
(f)
services provided to a customer by a banking company or a financial
institution including a non-banking financial company in relation to
financial services namely lending; issue of pay order, demand draft,
cheque, letter of credit and bill of exchange; providing bank guarantee,
over draft facility, bill discounting facility, safe deposit locker, safe vaults;
operation of bank accounts;
(g)
services provided to any person by a tour operator, other than a tour
operator engaged in the business of operating tours in a tourist vehicle
covered by a permit granted under the Motor Vehicles Act, 1988 or rules
made thereunder, in relation to a tour; and
(h)
service provided to a policy holder, by an insurer carrying on life insurance
business in relation to the risk cover in life insurance,
from the whole of service tax leviable thereon under section 66 of the said Act,
which is received by the service provider prior to the 10th day of September, 2004.
The said notification was further amended vide corrigendum issued from
F.No. B2/8/2004-TRU dated 07.10.2004 as under:In the notification of the Government of India in the Ministry of Finance
(Department of Revenue), No. 25/2004-Service Tax, dated the 10th September,
OIO No:58/STC-AHD/ADC(MKR)/2011-12
Page 20 of 32
2004, published in the Gazette of India, Extraordinary, Part II, Section 3, Subsection (i) vide G.S.R. 599 (E), dated the 10th September, 2004, at page 26 (i)
in line 18, for “by any body corporate or commercial concern”, read “by a
commercial concern”;
(ii)
in line 19 for “financial company,”, read “financial company or any other
body corporate,”; and
(iii)
in line 22, for “financial company”, read “financial company or any other
body corporate”.
18.6.
The close look at the said notification, it is clear that their claim
that they come under the ambit of the aforesaid exemption because as a
service provider they were other than a banking company and they are
entitled for exemption under this category is not correct. The clause (e) of
the said notification state that “services provided to a customer by any
body corporate or commercial concern, other than a banking company or
a financial institution including a non-banking financial company, in
relation to banking and other financial services. There is no dispute
that they are body other then Banking and other financial company,
however, under clause (e) of the aforesaid notification, the services
rendered by such bodies are exempt, if the said service is provided in
relation to Banking and Other Financial service.
Which is not
their case. In this regard the Commissioner (Appeal) while denying
benefit under Notification No. 25/2004 dated 10.09.2004 relying on the
CBEC’s circular No.87/5/2006-ST dated 06.11.2006 had rightly held
that their service is classifiable under “Business Auxiliary Service” by
observing that their’s is a service which is promotion of service on behalf
of their clients and have rightly denied their claim. However, CESTAT in
while referring matter for de-novo proceeding in the appeal filed by the
said service provider against the Commissioner Appeal’s order directed
Original Adjudicating Authority to specifically examine their case in
light of Tribunal’s decision in the case of Wings Group of Companies
Vs. CST. Banglore
reported at 2008(12)STR 287(Tri-Bang) and
in
light of case of Car World Autoline Vs. CCE cochin reported as
2008(9)246(Tri-bang). Accordingly I now examine and analyze their case
as under.
(a)
Analysis in light of decision in the case of Wings Group of
Companies Vs CST, Bangalore
This decision was based on the decision given by the Tribunal in the case
of S.R. Kalyana Krishnan Vs CCE, Cochin Reported in 2008(9) STR 255
(T). In both the cases, the assessee i.e. wings Group of Companies and
OIO No:58/STC-AHD/ADC(MKR)/2011-12
Page 21 of 32
S.R.Kalyana Krishnan were agents appointed by M/s ICICI Bank Limited
to provide specialized services both in respect of promotion and marketing
of home loan, personal loans and credit cards. Thus, the Tribunal held
their service under Business Support Service. Apart from the aforesaid
observation I find that in the said decision the Tribunal have no occasion
to examine CBEC’s Circular No. 87/5/2006-ST dated 06.11.2006, the
text of the said circular is as under:Circular No. 87/05/2006-S.T., dated 6-11-2006
F.No. 137/128/2006-CX. 4
Government of India
Ministry of Finance (Department of Revenue)
Central Board of Excise & Customs, New Delhi
Subject: Service tax issues relating to authorized motor vehicle dealers and
service stations - Reg.
It has been brought to the notice of the Board that certain doubts have arisen in respect to
activities undertaken by authorized motor vehicle dealers and service stations. The issues
are as mentioned below:(a)
Whether the mark-up (profit) on the spare parts sold by a service station during the
servicing of vehicles is liable to payment of service tax?
(b)
Whether exemption can be claimed on the cost of consumables that get consumed
during the course of providing service?
(c)
Whether ‘free services’ given by the authorized dealers (for which they are
reimbursed by the vehicle manufacturers) are subjected to service tax?
(d)
Whether the commission received by the automobile dealers from Banks /Non
Banking Financial Companies (NBFC), for introducing the customers seeking
finances / loans to such banks / NBFCs is to be subjected to service tax? Further,
in case part of these incentives are passed on by the dealers to the customers,
whether tax would be leviable only on that part of incentive, which is retained by
the dealers or whether it would be on full amount?
(e)
Whether service tax is chargeable on the amounts received for servicing /repair of
the commercial vehicles?
2. The issues have been examined. As regards, the issue relating to sale of spare parts
and consumables, Notification No. 12/2003-S.T., dated 20-6-2003, exempts service tax to
the extent of value of the goods and materials sold by the service provider to the service
recipient, if documentary proof of such sale exists and no credit of excise duty paid on
such spares or consumables have been taken. It may, however be pertinent to note that for
availing such exemption, the goods must be sold and consequently, they must be available
(whether independently or as a part used for repair of a vehicle) for sale. In other words,
the exemption would not be available to such consumables which have been consumed
during the process of providing service and are not available for sale.
3. As regards ‘free servicing’ (where the customer does not pay any charges) of the
motor vehicles, normally the service charges are reimbursement by the vehicle
manufacturers, who promises such a facility to attract customer. As the law does not in
any way restricts the levy of service tax only on the service charges received from the
recipient of the service, therefore, such reimbursements are subject to service tax.
OIO No:58/STC-AHD/ADC(MKR)/2011-12
Page 22 of 32
4. In some cases, the automobile dealers help the buyers of the vehicles for
arranging the finances. For this, they have a tie-up with Banks / Non-banking
Finance Companies. The customers are advised by the dealers to approach such
financial companies for taking loans. The automobile dealers get commission from
such financial companies for directing the customers to the latter. By this activity,
the automobile dealers ‘promote or market the services provided by their customer
(i.e., the financial institution), and are therefore covered under ‘taxable service’,
namely, the “Business auxiliary service”. The tax is payable on the gross commission
received by the automobile dealer. In some cases, the dealers share part of their
commission with their customers to attract them. However, this is an independent
transaction between the automobile dealer and the purchaser of the vehicle, and does not
involve the service rendered by the automobile dealer to the finance company. Therefore,
the tax payable by the dealer would be on the gross amount received from the financial
company and not on the balance amount, i.e., after excluding the amount that he passes on
to the customer.
5. As regards the applicability of service tax on the activity of servicing /repairing of the
commercial vehicles, it is clarified that as regards ‘authorized service stations’, the taxable
service, means any service provided or to be provided, to a customer, by an authorized
service station, in relation to any service, repair, reconditioning or restoration of motor
cars, light motor vehicles or two wheeled motor vehicles, in any manner. Further, a ‘light
motor vehicle’ means any motor vehicle constructed or adapted to carry more than six
messengers, but not more than twelve passengers, excluding driver. Similarly, as per the
‘Motor Vehicle Act’, a ‘motor car means any motor vehicle other than a transport
vehicles, omnibus, road-roller, tractor, motor cycle or invalid carriage’. In other words,
servicing, repair, reconditioning or restoration of specified types of vehicles (whether they
are used for commercial purposes or not) fall under the category of taxable services.
However, servicing of vehicles like trucks is not within the ambit of service tax.
6. Trade and filed formations may be advised accordingly.
(emphasis provided)
Whereas in the present case the assessee is basically engaged in selling of
Hero
Honda
brand motor
bike/services and is
registered under
authorized service station and they had provided space for banking
officials and assisted their clients for setting loan sanctioned. Hence, the
facts of the present case is totally different and therefore, the case of
Wings Group of Companies is not applicable and misplaced. Therefore, I
find that the correct classification of the service rendered by the said
service provider as held by the Commissioner Appeal’s up holding the
original order, falls under the definition of “Business Auxiliary Service”
and would be taxed accordingly.
(b)
Analysis in light of decision in the case of Car world
Autoline Vs CCE Cochin
In this case the Carworld Auoline rendered certain service to Citi Bank.
The services were rendered predominantly to the Customer of Bank in
relation to the service provided by the Bank to them. Before, I discuss
this case Law, I observe that this decision has been reversed by the
Hon’ble High Court of Kerala as reported in 2010 (17) STR 449 (Ker.). In
OIO No:58/STC-AHD/ADC(MKR)/2011-12
Page 23 of 32
such situation, the decision of Tribunal has lost its identity and merged
with the decision of Hon’ble High Court. I have also gone through the said
decision of Hon;ble High Court. The relevant text of the said decision of
Hon’ble Kerala High Court is as under:Judgment per : C.N. Ramchandran Nair, J.]. - C.R. : Appeal is filed by the
department challenging the order of the Customs, Excise and Service Tax
Appellate Tribunal [2008 (9) S.T.R. 246 (Tri. - Bang.)] declaring exemption for
the respondent from liability for service tax for the period upto 10-9-2004 based on
Annexure A2 notification issued by the Central Government. We have heard
standing counsel appearing for the appellant and counsel appearing for the
respondent.
2. Respondent was engaged by City Bank Ltd. for helping them to advance loans
to parties and for recovering the same. Respondent is admittedly engaged in
“business auxiliary service” which attracts service tax under Section 65(19) of the
Finance Act, 1994. In fact, it is stated in the Tribunal’s order that respondent has
taken registration and is paying service tax for the business auxiliary service
rendered by them from 11-9-2004 onwards. However, the question to be
considered is whether Tribunal was justified in holding the respondent’s claim of
exemption based on clause (e) of the Notification No. 25/2004-S.T. dated 10-92004. Clauses (d) and (e) which are relevant for the purpose of deciding this case,
are extracted hereunder for easy reference :
Notification: 25/2004- S.T. dated 10-Sep-2004
Service tax exemption to part of specified services provided before 10-9-2004.
In exercise of the powers conferred by sub-section (1) of Section 93 of the Finance
Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary
in the public interest so to do, hereby exempts that portion of the value of
following taxable services, namely :
(a)
...........
(d)
services provided to a client by a commercial concern in relation to the
following business auxiliary services, namely -
(i)
procurement of goods or services, which are inputs for the client.
(ii)
production of goods on behalf of the client;
(iii)
provision or service on behalf of the client; or
(iv)
a service incidental or auxiliary to any activity specified in (i) to
(iii)
above;
(e)
services provided to a customer by any body corporate or commercial
concern, other than a banking company or a financial institution including a nonbanking financial company, in relation to banking and other financial services;
…………………
The Tribunal granted exemption to the respondent by relying on clause (e).
Standing counsel appearing for the department rightly pointed out that clause (e)
has no application for the respondent because respondent was not engaged in
rendering banking and other financial services. On the other hand, respondent is
liable for payment of service tax for the business auxiliary service rendered by
them. The main body of the notification makes it clear that exemption is granted
OIO No:58/STC-AHD/ADC(MKR)/2011-12
Page 24 of 32
for certain taxable services. Therefore what is required to be considered is the
taxable services for which exemption is granted under each and every entries (a) to
(h) provided in the notification. Clause (e) provides exemption only to banking and
other financial institutions, and exemption is to any body corporate or commercial
concern other than banking companies or financial institutions including a nonbanking financial institution. Since respondent is not rendering banking and other
financial services, exemption provided under clause (e) does not apply to it. On the
other hand, respondent is admittedly engaged in business auxiliary service for
which exemption is separately dealt with in clause (d). Sub-clauses (i) to (iii) of
clause (d) specify the type of services that would be eligible for exemption under
the head “business auxiliary service”. Sub-clause (iv) is a residuary provision
which provides exemption on rendering of services incidental or auxiliary to any
of the activities referred to in sub-clauses (i) to (iii). Before declaring eligibility for
respondent, the Tribunal should have considered it with reference to the agreement
between the parties, the exact nature of service rendered by the respondent to the
City Bank Ltd. and whether any of the services so provided falls under any of the
categories (i) to (iii) and if so whether any service rendered is incidental to the
items of services mentioned in sub-clauses (i) to (iii) of clause (d). It is only on
being satisfied that the services rendered by the respondent falls on clause (d) that
the Tribunal should have declared exemption.
3. Since the matter is not considered by the Tribunal in the light of the
interpretation of the notification as above, we set aside the order of the tribunal and
remand the matter to the Tribunal for reconsideration of the issue after hearing
both sides and after calling for agreement, bills for payments received, etc. from
the respondent. Respondent should be given an opportunity to produce records
pertaining to clause (d) which they have made in the appeal.
18.7.
Further, as regard to observations in the aforesaid decision that
“On the other hand, respondent is admittedly engaged in business
auxiliary service for which exemption is separately dealt with in clause
(d). Sub-clauses (i) to (iii) of clause (d) specify the type of services that
would be eligible for exemption under the head “business auxiliary
service”. Sub-clause (iv) is a residuary provision which provides
exemption on rendering of services incidental or auxiliary to any of the
activities referred to in sub-clauses (i) to (iii).” In this regard I find answer
in the aforesaid CBEC’s circular. According to the said circular, the
activities carried out by the said service provider is Promotion and
Marketing of the service on behalf of clients. In this regard I would like to
refer to the definition of Business Auxiliary Service as defined under
clause 65 (19) of the Finance Act, 1994 which is as under.
[(19) “business auxiliary service” means any service in relation to, —
(i)
(ii)
(iii)
(iv)
promotion or marketing or sale of goods produced or provided by or
belonging to the client; or
promotion or marketing of service provided by the client; or
[* * * * ]
any customer care service provided on behalf of the client; or
procurement of goods or services, which are inputs for the client; or
OIO No:58/STC-AHD/ADC(MKR)/2011-12
Page 25 of 32
[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)
(vi)
production or processing of goods for, or on behalf of, the client;]
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].
[Explanation. — For the removal of doubts, it is hereby declared that for the
purposes of this clause, —
”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 Excise Act, 1944 (1 of 1944)]
(a)
(emphasis provided)
18.8.
The close look at the aforesaid definition will clearly reveal that
in view of CBEC’s circular the service of the service provider is classifiable
under sub clause (ii) of the definition [bold letters of the aforesaid
definition] . This clause is different than the clauses (i) to (iii) of main
clause (d) of the Notification No. 25/2004 ST dated 10.9.2004. The sub
clause (i) to (iii) of the Notification are the sub clause (iv) to (vi)
[underlined portion] of the definition of Business Auxiliary Service.
Therefore, benefit under the said notification were given to
services
falling under sub-clauses (iv) to (vi) which were introduced in the
definition of the Business Auxiliary Services on 10.9.2004. Whereas
clause (ii) of the definition of Business Auxiliary Service, was there since
introduction of Business Auxiliary Service w.e.f. from 1.7.2003. Under the
circumstances their claim for exemption under Notification No. 25/2004
St dated 10.09.2004 can not be considered. The services rendered by the
said service provider is very much evident from the agreement entered by
them with HDFC Bank Ltd produced by the said service provider is
scanned and its image is reproduced for ease of reference as under.
OIO No:58/STC-AHD/ADC(MKR)/2011-12
HDFC BANK
Page 26 of 32
HDFC Bank Ltd.
Shilp-II, Near Vikram Chambers,
Ashram Road, Ahmedabad -380009
Tel:079-7542805/5511/2776/2791
Fax : 079-754 2854.
Dt: 12th April, 2002
To,
Bikes Auto
Ahmedabad
Dear Sir,
Sub: Annual Plan
At the outset, we thank you very much for giving cooperation / support to us.
As per our personal disscusion, I have explained herewith our finance target and
how we are going to achieve the same.
TARGET :
Annual ( April 2002 to March 2003 ) - 800 vehicles
How to Achive :
1) By Promotional Activities like






Paper Advertisement (Atleast one per month)
Paper Insertion (Quarterly Once)
Loan Mela (Atleast one per month)
Special scheme like insurance free / 1% s.ch. less / Silver coin free etc.
(Time to Time)
By just taking scheme, customer will get one small gift. (permanent)
Banners (permanent)
2) By operating low interest scheme then any one in market.
3) By making process simple / fast / market friendly.
4) By generating reference sale through existing customer.
Over and above, if required, we will do extra activities / efforts as per
market demand.
Dealer Incentive slab ( For the month - April to June )
No. of Cases
( Per month )
0 to 25
26 to 50
51 to 75
Above 75
Incentive
3%
3.5 %
4%
4.5 %
Looking for the same cooperation.
Always with best service / support.
Thanking you.
For HDFC Bank Ltd.
Sales Manager
For Bikes Auto
Partner
( Dharmesh Thakker )
(Naishadh B. Shah]
OIO No:58/STC-AHD/ADC(MKR)/2011-12
Page 27 of 32
From the aforesaid agreement I have no doubt in my mind that their
service is classifiable under clause (ii) of Business Auxiliary Service as
defined under sub clause (19) of clause 65 of the Finance Act,1994
Hence, with due respect it is submitted that direction of Hon’ble Tribunal
to the extent of its decision is not binding on me.
19.
With regard to Suppression of Facts, Penalty under
section 76,77 and 78 of the Finance Act,1994 and their claim under
section 80 of the Finance Act,1994:19.1.
Based on my above findings as discussed, I find that M/s
Bikes Auto though engaged in Promotion and Marketing of Service on
behalf of Clients, and classifiable under Business Auxiliary Services,
however, till the date of Investigation against them was initiated, had not
filed ST-3 returns as required to file from time to time and thereby not
declared value of taxable service which they were receiving income in the
form of Commission, from their clients towards rendering services under
the category of Business Auxiliary Service which is taxable service. These
all facts convincingly suggest that there exists suppression of material
facts. Business Auxiliary Service was introduced since 1.07.2003, where
as investigation was initiated by the Department in the year of 2006.
Further matter stands clarified vide CBEC’s circular which is also
referred by the said service provider. In the said circular para No. 6
attention was also invited to the Trade also. Though the matter was
clarified, the said service provider have not discharged their service tax
liability on the commission received by them during the period
01.03.2003 to 10.9.2004. However, the said service provider being
registered under the category of Service of Motor Vehicle, I am not
convinced with regard to the facts that they are not aware about law and
procedure to be followed. It is the duty of service provider to assess
taxability of the service which they are rendering. Here I find that from
2003 to 2006 the said service provider had not approached in this regard
to the department. Therefore, I find that such an act is an intentional
one.
Thus, I find that suppression of facts exists in their case is
intentional one. Therefore, all these acts on their part are with an intent
to evade service tax on the said Income. I have also gone through various
decisions cited by the said service provider in their submissions, however,
I find that facts and circumstances as discussed above their case is
different than what are mentioned in the citations relied upon by them.
OIO No:58/STC-AHD/ADC(MKR)/2011-12
19.2.
Page 28 of 32
I find that the charge of suppression of material facts with
intention to evade service tax had been conclusively established herein
above. Had the department not investigated, the said taxable value would
have been escaped assessment and might have resulted in non payment
of service tax. They were aware of the facts regarding payment of service
tax on the above services rendered by them but have not paid/short paid
or have not disclosed with regard to service rendered by them and its
receipt towards the same to the department. Such information is
statutorily
prescribed to be furnished by the registered service provider
in the form ST-3 returns form time to time.
The suppression with an
intent to evade payment, on part of the assessee, is proved beyond doubt
and proviso to Section 73(1) of the Finance Act, 1994 has rightly been
applied in the instant case and therefore, by their such act of omission
and commission, the assessee has rendered themselves liable for penalty.
Further, how the extended period is to be computed has been clarified by
various judgments. In this regard, I rely on the decision delivered by
Hon’ble Supreme Court of India in the case of
department in the case of M/s Mehta & Co.
appeal filed by the
cited as 2011(264) ELT
481 (SC) where in identical issue was decided reversing the decision of
CESTAT. Relevant para is reproduced below:“24. The cause of action, i.e., date of knowledge could be attributed to the
appellant in the year 1997 when in compliance of the memo issued by the appellant
and also the summons issued, the hotel furnished its reply setting out the details of
the work done by the appellant amounting to Rs. 991.66 lakhs and at that stage
only the department came to know that the work order was to carry out the job for
furniture also. A bare perusal of the records shows that the aforesaid reply was
sent by the respondent on receipt of a letter issued by the Commissioner of Central
Excise on 27-2-1997. If the period of limitation of five years is computed from the
aforesaid date, the show cause notice having been issued on 15-5-2000, the
demand made was clearly within the period of limitation as prescribed, which is
five years.”
19.3.
Further, I also rely on the following judgments of Hon’ble
Supreme Court & Tribunals;
 Mathania Fabrics Vs CCE, Jaipur reported in 2008 (221) ELT
481 (SC)
 CCE, Ahmedabad I Vs M Square Chemicals reported in 2008
(231) ELT 194 (SC)
 Salasar Dyg & Ptg. Mills (P) Ltd., Vs CCE, Surat reported in
2009 (235) ELT 93 (Tri-Ahmd.)
 Associated Cement Companies Ltd., Vs CC reported in 2001
(128) ELT 21 (SC)
OIO No:58/STC-AHD/ADC(MKR)/2011-12
19.4.
Page 29 of 32
Hon’ble High Court of Gujarat in the case of CCE, Surat – I Vs
Neminath Fabrics Pvt. Ltd., reported at 2010 (256) ELT 369 (Guj),
while deciding the similar issue in Central Excise, has held that proviso
can not be read to mean that because there is knowledge, suppression
which stands established disappears – concept of knowledge, by no
stretch
of imagination, can be read into provisions – suppression not
obliterated,
merely
because
department
acquired
knowledge
of
irregularities. The relevant para is reproduced below ;
“20. Thus, what has been prescribed under the statute is that
upon the reasons stipulated under the proviso being satisfied,
the period of limitation for service of show cause notice under
sub-section (1) of Section 11A, stands extended to five years
from the relevant date. The period cannot by reason of any
decision of a Court or even by subordinate legislation be either
curtailed or enhanced. In the present case as well as in the
decisions on which reliance has been placed by the learned
advocate for the respondent, the Tribunal has introduced a
novel concept of date of knowledge and has imported into the
proviso a new period of limitation of six months from the date
of knowledge. The reasoning appears to be that once
knowledge has been acquired by the department there is no
suppression and as such the ordinary statutory period of
limitation prescribed under sub-section (1) of Section 11A
would be applicable. However such reasoning appears to be
fallacious inasmuch as once the suppression is admitted,
merely because the department acquires knowledge of the
irregularities the suppression would not be obliterated.”
19.5.
In view of the above, I find that extended period for demand
of service tax under the proviso to section 73(1) of the Finance Act, 1994
was rightly invoked and the SCN is sustainable on limitation. Therefore
demand of Service tax of Rs.7,53,621/- is recoverable from the said
service provider along with Interest as provided in proviso to Section 73(1)
of the Finance Act, 1994 read with Section 75 of the Act ibid. Therefore, I
also find that their case is not liable to be considered under section 80 of
the Finance Act,1994.
OIO No:58/STC-AHD/ADC(MKR)/2011-12
20.
Page 30 of 32
Since the said service provider had not discharged service tax
liability on the amount of taxable value received as income/commission
demanded under the show cause notice and therefore, they have
contravened the provisions of Section 67, 68, of the Finance Act, 1994
and thereby rendered themselves liable to penal action under Sections 78
of Finance Act 1994 as discussed below.
21.
21.1
Penalty under Section 78
I further observe that the show cause notice also proposes
imposition of penalty under Section 78 of the Finance Act, 1994. I find
that fraud, suppression of facts and wilful mis-statement on the part of
M/s Bikes Auto has been established beyond doubt as discussed and
concluded in the earlier part of this order. Accordingly, I hold that M/s
Bikes Auto is also liable to penalty under the provisions of Section 78 of
the Finance Act, 1994.
21.2
As it is already proved that the service provider had suppressed
the facts, the consequences shall automatically follow. Hon’ble Supreme
Court has settled this issue in the case of U.O.I Vs Dharmendra Textile
Processors reported in 2008 (231) ELT 3 (S.C) and further clarified in the
case of U.O.I Vs R S W M reported in 2009 (238) ELT 3 (S.C). Hon’ble
Supreme Court has said that the presence of malafide intention is not
relevant for imposing penalty and mens rea is not an essential ingredient
for penalty for tax delinquency which is a civil obligation.
21.3
I, therefore, hold that they have rendered themselves liable to
penalty under Section 78 of the Finance Act, 1994. My above view gets
support from below mentioned case laws ;
 Shiv Network Vs CCE, Daman reported in 2009 (14) STR 680
(Tri.Ahmd.)
 CCE, Vapi Vs Ajay Sales Agencies reported in 2009 (13) STR 40
(Tri. Ahmd.)
 Order No. A/754/WZB/AHD/2010 dt. 09.06.2010 / 23.06.2010
in the case of M/s Bajrang Security Services Vs CST,
Ahmedabad.
 Order
No.
A/1937/WZB/AHD/2010
dated
08.10.2010
/
20.12.2010 in the case of M/s Dhaval Corporation Vs CST,
Ahmedabad.
OIO No:58/STC-AHD/ADC(MKR)/2011-12
21.4
Page 31 of 32
I further observe that recently hon’ble High Court of Punjab &
Haryana, in the case of CCE Vs Haryana Industrial Security Services
reported at 2011 (21) STR 210 (P&H), has also upheld the penalty equal
to service tax imposed under Section 78 of the Finance Act, 1994. Hon’ble
Karnataka High Court has also taken similar view in the case of CCE,
Mangalore Vs K Vijaya C Rai reported at 2011 (21) STR 224 (Kar.)
22.
Penalty under Section 76 & 77
22.1.
I observe that the adjudicating authority in her order had not
imposed penalty under section 76 & 77, hence, I find fit that I should also
not impose penalty under section 76 & 77 upon the service provider.
In light of the aforesaid discussions and findings I hold that the
23.
service tax amount of Rs.7,53,621/- alongwith interest is liable to be
confirmed under section 73(2) of the Finance Act,1994 read with Section
75 of the Act ibid
and
they are also liable to penalty under the
provisions of section 78 of the Finance Act, 1994.
24.
Accordingly, I pass the following order:(i)
I Confirm the demand of service tax of Rs.7,53,621/- (Rupees
Seven Lakhs Fifty three thousand Six hundred twenty one
only) under section 73(2) of the Finance Act, 1994 along with
interest under section 75 of the Finance Act, 1994;
(ii)
Further, I confirm the payment of service Tax along with
interest of Rs.9,33,683/- paid by the Service provider and
held that department can adjust the same towards the final
liability of Service Tax along with interest as worked out by
the Range Superintendent;
(iii)
I do not impose penalty under section 76 and 77 of the
Finance Act, 1994; and
(iv)
I impose a penalty of Rs.7,53,621/- under section 78 of
Finance Act, 1994 with condition that if service tax and
interest as determine at Sr.No.(i) are paid within thirty days
of communication of this order the amount of penalty liable
to be paid by the party under section 78 shall be 25% of
service tax. Also the benefit of reduction of penalty shall be
OIO No:58/STC-AHD/ADC(MKR)/2011-12
Page 32 of 32
paid within thirty days of communication of this order the
amount of penalty liable to be paid by the party under section
78 shall be 25% of service tax. Further, the benefit of
reduction of penalty shall be available only if the amount of
penalty so determined has also been paid within thirty days
of communication of this order.
Sd/[ Dr. MANOJ KUMAR RAJAK ]
ADDITIONAL COMMISSIONER
SERVICE TAX : AHMEDABAD
F.No.STC/138/O&A/SCN/BA/JC/R-VI/D-II/08
BY
Date: 20.01.2012.
R.P.A.D.
To,
M/s. Bikes Auto,
Ramkrupa, Opp. Gold Coin Flats,
Nr. Vijay Cross Road,
Navrangpura, Ahmedabad.
Copy to:
1.
The Commissioner of Service Tax, Ahmedabad.(Attention
Review Cell).
2.
The Assistant Commissioner of Service Tax, Division-II,
Ahmedabad.
3.
The Superintendent, Range-VI, Division-II, Service Tax,
Ahmedabad, with extra copy of OIO to be served to the assesses
and submit the acknowledgement to this office.
4.
Guard file.