2014 (7) TMI 1079 - AT - Service Tax

Classification of service - C and F service or Business Auxiliary service - Held that - there is an agreement dated April 11, 2001 between assessee and NICL for appointment as depot operator for organizing and promoting sale of their CLP for the year 2001-02. There is no agreement between NICL and assessee for the period 2004-05. Commissioner in the order in original has observed that since show-cause notice nowhere mentions that payment was received under head of freight, loading/unloading, general expenses and incentive, services provided by assessee to NICL is business auxiliary service (BAS) with effect from July 1, 2003. For the period prior to July 1, 2003 there was no specific category of commission agent s service. Commissioner applies section 65A for determination of classification of service. When prior to July 1, 2003 BAS was not in existence, there is no reason to apply section 65A in this case. Commissioner classifies the service as C and F service for 2001-02 and under BAS with effect from July 1, 2002 though there was no proposal classifying the service under BAS in the show-cause notice and he has confirmed the entire demand. - matter remanded back - Decided in favour of assessee.

Issues involved:
1. Classification of taxable service provided by the assessee.
2. Imposition of penalties under various sections of the Finance Act, 1994.
3. Dispute regarding the classification of services provided to different entities.
4. Application of section 65A for determination of service classification.

Classification of taxable service provided by the assessee:
The case involved the appointment of the assessee as a depot operator for the distribution, marketing, and sale of country liquor products to retailers by various companies. The Central Excise Officers conducted a detailed investigation and issued a show-cause notice demanding service tax from the assessee. The issue arose when the service provided by the assessee was classified differently by the Commissioner in the cases of MDCW and NICL. The Commissioner classified the service as "business auxiliary service" (BAS) in the case of MDCW but as C and F service in the case of NICL. The Tribunal found discrepancies in the classification and lack of examination by the Commissioner, leading to the remand of the matter for a fresh order after considering all evidence and affording the assessee an opportunity of hearing.

Imposition of penalties under various sections of the Finance Act, 1994:
The Tribunal addressed the penalties imposed on the assessee under sections 75A, 76, 77, and 78 of the Finance Act, 1994. The penalties included a fixed amount penalty, daily penalties, and penalties based on a percentage of the outstanding tax amount. The Revenue challenged the penalty calculation methodology, arguing for a higher penalty rate post-April 18, 2006, as per section 76 of the Act. After hearing both parties, the Tribunal upheld the penalty imposed by the Commissioner up to April 17, 2006, but rejected the Revenue's appeal for enhancing the penalty post that date, citing the mandatory nature of the penalty calculation under the Act.

Dispute regarding the classification of services provided to different entities:
The Tribunal examined the agreements between the assessee and MDCW, as well as NICL, to determine the nature of services provided. In the case of MDCW, the Tribunal noted discrepancies in the classification of services as BAS by the Commissioner, without proper examination of the evidence presented by the assessee. Similarly, in the case of NICL, the Tribunal found issues with the application of section 65A for service classification, especially when BAS did not exist before July 1, 2003. The Tribunal concluded that the matter needed to be remanded back to the Commissioner for a fresh order after considering all evidence and ensuring the principles of natural justice were followed.

Application of section 65A for determination of service classification:
The Tribunal scrutinized the application of section 65A for the classification of services provided by the assessee to NICL. The Commissioner had classified the services under BAS with effect from July 1, 2003, despite no proposal in the show-cause notice for such classification. The Tribunal highlighted that section 65A is applicable when there is a dispute about classification between two taxable services, which was not the case before July 1, 2003, when BAS did not exist. The Tribunal emphasized the incorrect application of section 65A and the need for a fresh order by the Commissioner after examining all evidence and providing a fair hearing to the assessee.

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