2004 (8) TMI 603 - Commissioner - Service Tax

Summary

Issues Involved:
1. Classification of the appellants' services under 'Advertising Agency' versus 'Business Auxiliary Service.'
2. Applicability of service tax on the appellants' activities.
3. Justification for invoking the extended period of limitation for tax demand.
4. Validity of penalties and interest imposed by the Original Authority.

Issue-wise Detailed Analysis:

1. Classification of Services:
The appellants argued that their activities involved merely obtaining advertisements and passing them on to the publishers, without engaging in activities such as negotiating prices, preparing layouts, or making texts of the advertisements. They contended that their role was limited to space selling or canvassing, and thus, they should not be classified under 'Advertising Agency' but under 'Business Auxiliary Service.' The Original Authority, however, held that the appellants' activities went beyond mere canvassing and classified them under 'Advertising Agency' based on Clause (105) of Section 65 and sub-clause (c) of Clause (2) of Section 65A, which states that when a service cannot be classified under clause (a) or (b), it should be classified under the sub-clause which occurs first among those that equally merit consideration.

2. Applicability of Service Tax:
The appellants did not initially register for or pay service tax under the 'Advertising Agency' category, believing their services did not fall under this classification. They later registered under 'Business Auxiliary Service' and started paying service tax after the Finance Bill, 2003, brought such services under the taxable category. The Original Authority, however, upheld the demand for service tax under 'Advertising Agency,' stating that the appellants' services were more specific to this category.

3. Extended Period of Limitation:
The Original Authority invoked the extended period of five years for the tax demand, citing the Larger Bench decision in the Nizam Sugar Factory case. The appellants argued that the department was aware of their activities as early as January 1998, and thus, the extended period of limitation should not apply. The Tribunal noted that the department's knowledge of the appellants' activities precluded the invocation of the extended period, referencing the Rubicon Steels and Syncom Formulation cases, which held that extended limitation cannot be invoked if the facts were already known to the department.

4. Penalties and Interest:
Given that the proceedings were initiated beyond the normal period of limitation and the nature of the appellants' activities was already known to the department, the Tribunal concluded that the penal actions would not survive. The penalties and interest imposed by the Original Authority were thus deemed unjustified.

Conclusion:
The Tribunal held that the appellants' activities fell under 'Business Auxiliary Service' and not 'Advertising Agency.' The impugned orders were set aside, and the appeals were allowed. The Tribunal emphasized that the appellants' services were clearly a business auxiliary service provided to the publisher by selling space on a commission basis, and this activity was not covered under the advertising agency service. The Tribunal also noted that the proceedings were hit by limitation as the demand was issued beyond the normal period without justification. Consequently, the penalties and interest imposed were also invalidated.