2014 (3) TMI 231 - AT - Service Tax

Demand of service tax - Receipt of Commission - Denial of the benefit of small scale exemption under Notification No.6/2005-ST dt. 01.03.2005 - Non fulfillment of the conditions contained in para 2 of the exemption notification - Held that - appellant has admitted that the service tax was leviable during the relevant period. However, it was argued that the benefit of value based exemption Notification No.6/2005-ST dt. 03.01.2005 was admissible to the appellant during the year 2006-07 and the differential service tax for the services provided in excess of ₹ 4 lakhs, provided during the financial year 2006-07 has already been paid by the appellant. The exemption limit of ₹ 4 lakh was enhanced to ₹ 8 lakhs w.e.f. 01.04.2007 vide Notification No. 4/2007 dt. 01.03.2007. It is observed that the total amount received towards services provided was only ₹ 6,58,100/- during 2007-08 which was less than the exemption limit of ₹ 8 lakhs. Prima-facie from the above facts it is evident that appellant was eligible to the exemption during the financial year. Show cause notice dt. 09.06.2010 issued to the appellant that it is not brought out anywhere that appellant has not fulfilled the conditions specified under exemption Notification No.6/2005-ST. It is also observed that appellant in their defense reply before the adjudicating authority claimed the benefit of exemption under Notification No.6/2005-ST dt. 01.03.2005. In view of the above appellant was not put to notice during the adjudicating proceeding to explain as to how the conditions specified in exemption Notification No.6/2005-ST were not fulfilled. Regarding duty liability for the period 2006-07 demand of duty over and above the exempted limit of ₹ 4 lakhs for the financial year 2006-07, is required to be discharged by the appellant alongwith the interest applicable - Penalty is also set aside - Decided partly in favour of assessee.

Summary

Issues Involved:
- Applicability of small scale exemption under Notification No.6/2005-ST
- Fulfillment of conditions specified in the exemption notification
- Admissibility of exemption under Notification No.4/2007-ST
- Scope of the show cause notice in demanding duty
- Levibility of service tax on commission received under Business Auxiliary Services (BAS)
- Imposition of penalty under Section 78 of Finance Act, 1994

Applicability of Small Scale Exemption:
The appellant argued that they were entitled to exemption up to Rs. 4 lakhs for services provided in 2006-07 under Notification No.6/2005-ST and had correctly discharged duty after crossing the exemption limit. They contended that for the financial year 2007-08, their total services rendered were below the exemption limit of Rs. 8 lakhs, hence no service tax liability should apply. The first appellate authority denied the exemption, citing non-fulfillment of conditions in para 2 of the exemption notification. The appellant claimed they were not required to explain the fulfillment of conditions in the show cause notice and argued that the authority exceeded the notice's scope. The Tribunal observed that the appellant was eligible for the exemption as the total amount received for services in 2007-08 was below the exemption limit, and the authorities had gone beyond the notice's scope by confirming demands based on unspecified grounds.

Fulfillment of Conditions in Exemption Notification:
The Tribunal noted that the show cause notice did not mention the appellant's non-fulfillment of conditions specified in the exemption Notification No.6/2005-ST. The appellant had claimed the benefit of exemption in their defense reply, but they were not asked during adjudication to explain any failure to meet the conditions. Both the adjudicating authority and the first appellate authority were found to have confirmed demands on grounds not specified in the show cause notice, which was deemed beyond the notice's scope.

Admissibility of Exemption under Notification No.4/2007-ST:
The appellant argued that they were eligible for exemption under Notification No.4/2007-ST for services provided in 2007-08 as their total amount received was below the enhanced exemption limit of Rs. 8 lakhs. The Tribunal acknowledged the appellant's eligibility for the exemption during the financial year based on the facts presented.

Scope of Show Cause Notice in Demanding Duty:
It was highlighted that the authorities had gone beyond the scope of the show cause notice in confirming demands on grounds not specified in the notice, particularly regarding the fulfillment of conditions in the exemption notification. The Tribunal emphasized that the appellant should have been notified during adjudication if there were concerns about non-compliance with the exemption conditions.

Levibility of Service Tax on Commission Received under BAS:
The appellant admitted the leviability of service tax on the commission received under Business Auxiliary Services. However, they argued for the benefit of the value-based exemption under Notification No.6/2005-ST for the relevant periods, which the Tribunal found applicable based on the amounts received falling below the exemption limits.

Imposition of Penalty under Section 78 of Finance Act, 1994:
The Tribunal noted that the show cause notice lacked facts on how the appellant had willfully suppressed information to evade service tax payment, leading to the decision to set aside the penalty imposed under Section 78 of the Finance Act, 1994.

In conclusion, the appeal was allowed in part, with the duty demand for 2007-08 required to be allowed, and the penalty under Section 78 set aside due to insufficient evidence of willful suppression.