2012 (5) TMI 444 - AT - Service Tax

Business Auxiliary Service (BAS) - Service provided to bank in relation to loan - arranging documents for the bank to evaluate creditability, eligibility and financial status of the prospective customer for funding by the bank. - held that - Appellant promoted funding business of bank gathering documents and preparing profiles to enable the bank to consider its funding activity. All these facts and attendant circumstances bring the bank and the Appellant to the understanding as taxable service provider and recipient of such service. - Appellant provided Business Auxiliary Service to the bank liable to tax. Extended period of limitation - Show Cause Notice issued on 22.8.2006 for the period from 1.7.2003 to 31.3.2005 Held that - In the present case, limitation can be reckoned from the date of knowledge of the department on 20.1.2005 giving rise to cause of action. Adjudication is not time-barred. - Decision of Apex Court in CCE, Visakhapatnam Vs. Mehta & Co. (2011 (2) TMI 2 (SC)), followed. Whether amendment made by Finance Act 2004 coming into force with effect from 10.9.2004 read with Notification No.14/2004 dated 10.9.2004 granted immunity to the Appellant from levy Held that - service provided by the Appellant in the present case was to the financing bank but not to the borrower. Relation between the Appellant and the bank proves that there was quid pro quo between the Appellant and the bank to meet the requirement of funding. The Appellant had only served the bank but not acted on behalf of the bank. Borrower was not privy to the contract between the Appellant and the bank. So also in absence of any letter of appointment and agreement. Appellant has no scope to be benefited by the amendment of law. Penalty - held that - But while appreciating the levy was new imposition of penalty under Section 78 and 76 of the Act, simultaneously shall be harsh. Therefore levy of penalty under Section 78 shall be proper dose to prevent the Appellant from recurrence of the contravention of law and to cause loss of revenue.

Summary

Issues Involved:
1. Classification of service under 'Business Auxiliary Service' and tax and penalty levied.
2. Immunity from levy due to amendment by Finance Act 2004 and Notification No. 14/2004.
3. Timeliness of the Show Cause Notice issued.
4. Entitlement to double taxation relief.

Detailed Analysis:

Issue 1: Classification under 'Business Auxiliary Service'
The Appellant argued that their service of arranging documents for the bank should not be classified as 'Business Auxiliary Service' subject to tax. However, the Tribunal found that the Appellant was indeed providing a service to the financing bank by arranging documents to evaluate the creditworthiness of prospective customers. The Tribunal noted that there was no evidence of a direct relationship between the Appellant and the borrower, and the service provided was clearly for the bank's benefit. Consequently, the Tribunal upheld the classification of the service as 'Business Auxiliary Service' and confirmed the tax demand of Rs. 3,23,789/-.

Issue 2: Immunity from Levy
The Appellant claimed immunity from taxation based on the amendment by the Finance Act, 2004, and Notification No. 14/2004. The Tribunal examined this claim and found that the service provided by the Appellant was to the financing bank, not the borrower. The relationship between the Appellant and the bank indicated a quid pro quo arrangement. As the service was not provided on behalf of the client to the borrower, the Tribunal concluded that the Appellant was not entitled to the benefit of the amendment and the notification, thus rejecting the claim for immunity.

Issue 3: Timeliness of Show Cause Notice
The Appellant contended that the Show Cause Notice issued on 22.8.2006 for the period from 1.7.2003 to 31.3.2005 was time-barred. The Tribunal referred to the Apex Court's judgment in CCE, Visakhapatnam Vs. Mehta & Co. and determined that the date of knowledge of tax escapement (20.1.2005) was crucial for calculating the limitation period. Since the Show Cause Notice was issued within the permissible period from the date of knowledge, the Tribunal held that the notice was not time-barred and upheld the Adjudication.

Issue 4: Double Taxation Relief
The Appellant argued that the processing fee recovered by the bank included the commission paid to the Appellant, which had already been taxed, thus claiming double taxation. The Tribunal found no evidence to support this claim and noted the absence of an appointment letter to substantiate the inclusion of the commission in the processing fee. Therefore, the Tribunal rejected the plea of double taxation.

Penalty Consideration:
The Appellant sought a reduction in penalty, citing that they had paid the tax and interest before Adjudication and 25% of the penalty within 35 days of the Adjudication order. The Tribunal noted that it lacked the discretion to condone the five-day delay in penalty payment before the Finance Act, 2011. However, following the Delhi High Court's decision in K.P. Pouches (P) Ltd. Vs. UOI, the Tribunal granted partial relief by reducing the penalty to 25% of the tax demanded.

Conclusion:
The Tribunal confirmed the tax and interest demands while granting partial relief by reducing the penalty to 25% of the tax demand. The Appellant's claims regarding immunity from levy, time-barred notice, and double taxation were rejected. The appeal was partly allowed, providing the Appellant with partial relief.