2013 (2) TMI 102 - AT - Service Tax

Penalty u/s 76 to 78 - Business Auxiliary Service - BAS clause (ii) of section 65(19) - Providing a service on behalf of the banks (clients) to the latter s customers and hence the activity was not taxable prior to 10.9.2004, the date on which Provision of Service on behalf of the client was enacted as a part of the definition of BAS under Section 65 (19) - Entire period of the dispute (1.7.2003 to 31.3.2012) Held that - The terms and conditions of the relevant Agreements show that the appellant was, in fact, using their infrastructure, staff and expertise to market products of the Banks. In both the Agreements, the appellant was referred to as Direct Sales Association/Agent . After a study of the functions assigned to the appellant under the Agreements, the name of the appellant to be befitting in the sense that the appellant was, in fact, selling products of the Bank. The products of the Banks were nothing but Banking services . Therefore, ex facie , the appellant was marketing the services provided by their clients, viz. banks. Therefore, their activities squarely fell within the ambit of promotion or marketing of services provided by client which function was a part of the definition of BAS since 1.7.2003. In favour of revenue Extended period of limitation - Penalty - Section 73 (1) - Section 80 - Extra-ordinary Taxpayer-Friendly Scheme - The appellant was under believe that, on the basis of the terms and conditions of the Agreements, that their liability to pay service under BAS arose under clause (vi) of the definition - It is not in dispute that they got themselves registered with the department and paid service tax under BAS from 10.9.2004, the date on which clause (vi) became a part of the definition - Held that - Circumstances there appears to be a valid ground for the appellant to claim the benefit of Section 80 ibid, where under, if reasonable cause for non-payment of tax was shown to exist, penal action could be averted. We are of the view that such reasonable cause existed in this case. Consequently the appellant can claim exoneration from penal liability. In favour of assessee

Summary

Issues:
1. Demand of service tax and education cess for the period from 1.7.2003 to 31.12.2004
2. Penalty imposed under Sections 76 to 78 of the Finance Act, 1994
3. Applicability of "Business Auxiliary Service" (BAS) to the activities of the appellant
4. Plea of limitation raised by the appellant
5. Benefit of Section 80 of the Act in relation to penal liability

Analysis:

1. Demand of service tax and education cess:
The appeal was against the demand of service tax and education cess for the period from 1.7.2003 to 31.12.2004. The appellant argued that they were only providing service on behalf of banks to the banks' customers and hence their activities were not taxable prior to 10.9.2004. However, the Revenue contended that the appellant was promoting/marketing the services of the banks and thus liable for service tax under the definition of BAS. The Tribunal found that the appellant was indeed marketing the services provided by the banks, falling within the definition of BAS since 1.7.2003. Therefore, the liability to pay service tax under BAS was confirmed for the entire period of dispute.

2. Penalty under Sections 76 to 78 of the Finance Act, 1994:
The appellant raised a plea of limitation, stating that they had disclosed their intention to pay service tax under BAS from 10.9.2004 in their registration application, and no material fact was suppressed. However, the Tribunal found that there was suppression of facts by the appellant during the extended period, justifying the invocation of the proviso to Section 73(1) of the Act. Consequently, the demand of service tax and education cess, along with penalties, was sustained.

3. Applicability of "Business Auxiliary Service" (BAS):
The Tribunal examined the terms and conditions of the Agreements entered into by the appellant with the banks, which showed that the appellant was marketing the products of the banks, falling within the definition of BAS. The activities of the appellant were considered to be marketing services provided by the banks, making them liable to pay service tax under the head BAS from the beginning of the dispute period.

4. Plea of limitation:
The appellant's plea of limitation was rejected as there was suppression of facts during the extended period. The Tribunal found that the appellant had not disclosed material facts before October 2004, justifying the invocation of the proviso to Section 73(1) of the Act.

5. Benefit of Section 80 of the Act:
The Tribunal acknowledged the appellant's belief that their liability to pay service tax under BAS arose under a specific clause of the definition. Considering the circumstances, including the appellant's registration and payment of service tax from 10.9.2004, the Tribunal found a valid ground for the appellant to claim the benefit of Section 80 of the Act. Thus, the appellant was granted exoneration from penal liability under this section.

In conclusion, the appeal was partly allowed by sustaining the demand of service tax and education cess with interest, while setting aside the penalties imposed on the appellant.