2014 (11) TMI 166 - AT - Service Tax

Business Auxiliary Service - co-branding of hose pipes (by manufacturers and HPCL) as well as printing logo - whether HPCL have provided Business Auxiliary Service (BAS) to the manufacturer of hoses, LPG stoves, pressure cookers, kitchen lighters. - Held that - The appellants have put a weak defence by saying that they are merely endorsing the safety requirements under various regulations cited above. Undoubtedly, the safety regulations which are statutory requirements have to be complied with and the oil companies indeed would have to recommend adherence to such safety regulations. But this does not detract from the fact that the promotion and marketing of goods is being definitely undertaken. The agreements are for co-branding of the goods, sale through HPCL distributor network. The agreement with SUPER LPG states Super LPG approached HPCL for marketing their goods. The agreements clearly provide for specific overriding commission on per piece basis on or on ad valorem basis and such commission is payable over and above the commission payable to HPCL distributors. The commission is for the service rendered by HPCL towards marketing/promotion of goods manufactured by the manufacturers mentioned above. The service tax amount has been correctly demanded and the appropriation of the said amount already deposited is correct in law. - Decided against the assessee. Levy of penalty - Waiver of penalty u/s 80 - Held that - It is clear that they were aware of requirement of payment of service tax under the agreements. But they chose not to pay the tax. For the sake of repetition, it may be mentioned that the appellants are very old assessees. They are a massive organisation with all expertise. Therefore, non-disclosure of agreements amounting to clear suppression of facts does not give them the benefit of doubt and makes them liable for penalty under Section 78. In similar circumstances, penalty would have been imposed on private companies, there appears to be no reason why the appellant should escape penalty on similar ground. - Decided against assessee.

Issues Involved:
1. Classification of services provided by HPCL.
2. Competence of the Central Excise officer to issue the show-cause notice.
3. Time-barred nature of the demand.
4. Imposition of penalty under Sections 76, 77, and 78 of the Finance Act, 1994.
5. Applicability of Section 80 for waiver of penalties.

Issue-wise Detailed Analysis:

1. Classification of Services Provided by HPCL:
The primary issue was whether HPCL provided "Business Auxiliary Service" (BAS) to manufacturers of LPG hoses, stoves, pressure cookers, and kitchen lighters. The Tribunal examined the marketing agreements between HPCL and various manufacturers, which included clauses on co-branding, promotion, and advertising of products. The agreements explicitly mentioned promotional activities such as "promoting 'SURAKSHA LPG Hose' for domestic LPG" and "highlight the safety features of 'SURAKSHA LPG Hose' and endorse and support the product by promoting the same through Television, Radio, Bill Boards, Newspapers, Magazines, Petrol Pumps, safety clinics and Road shows." The Tribunal concluded that HPCL's activities amounted to promotion and marketing of the manufacturers' goods, thereby classifying them under BAS as per Section 65(19) of the Finance Act, 1994.

2. Competence of the Central Excise Officer to Issue the Show-cause Notice:
The appellants argued that the show-cause notice was issued by DGCEI but made answerable to the Commissioner, Service Tax, Mumbai, which they claimed violated Section 73(1) and 73(2) of the Finance Act, 1994. The Tribunal dismissed this argument, stating that the term "Central Excise officer" refers to any competent officer and not a specific individual. Therefore, the issuance of the notice was valid.

3. Time-barred Nature of the Demand:
The appellants contended that the demand was time-barred as there was no fraud, collusion, or intent to evade payment of service tax. However, the Tribunal found that the appellants had suppressed facts by not disclosing the agreements that included service tax in the overriding commission. This suppression justified the invocation of the extended period for demand under Section 73(1) of the Finance Act, 1994.

4. Imposition of Penalty under Sections 76, 77, and 78 of the Finance Act, 1994:
The appellants argued against the imposition of penalties, claiming they had paid the service tax before the issuance of the show-cause notice and acted under a bonafide belief. The Tribunal noted that the agreements explicitly included service tax in the overriding commission, making it implausible for HPCL to claim ignorance. The Tribunal cited the Supreme Court's decision in Rajasthan Spinning & Weaving Mills, which held that penalties must be imposed if conditions under Section 11AC of the Central Excise Act (analogous to Section 78 of the Finance Act, 1994) are met. The Tribunal found that HPCL's actions constituted wilful suppression of facts, warranting the imposition of penalties.

5. Applicability of Section 80 for Waiver of Penalties:
The appellants sought waiver of penalties under Section 80, citing reasonable cause for non-payment of service tax. They relied on various judgments where penalties were waived due to bonafide belief. The Tribunal distinguished these cases, noting that HPCL had sufficient expertise and resources to understand their tax obligations. The Tribunal found no reasonable cause for non-payment and upheld the penalties, emphasizing that government undertakings are not exempt from penalties if they evade duty.

Conclusion:
The Tribunal upheld the order of the Commissioner, confirming the demand for service tax, interest, and penalties. The appeal of the appellants was rejected, and it was pronounced in court on 1.10.2014.

← Previous Next →