2019 (11) TMI 1573 - AT - Service Tax

Levy of Service Tax - Business Auxiliary service - fee collected by the Appellant from applicants for issuance of SOC-VRC - allegation is that Appellant did not prepare SOC-VRC on its own but for the applicants on behalf of Shonkh and ultimately on behalf of the State Government, thus satisfying all the ingredients of section 65(19)(vi) of the Finance Act, 1994 - HELD THAT - The period involved in the present Appeal is from 1 October, 2006 to 30 September, 2011. It is also important to note that for the subsequent period from October 2011 to March 2014, another show cause notice was issued to the Appellant on the same issues as contained in the show cause notice dated 13 April 2012 issued in the present case with regard to the said agreements dated 30 November, 2002 and 30 May, 2006. This notice came to be decided by the Commissioner by order dated 31 December, 2015. The Commissioner noticed that the issue that was required to be decided was as to whether the service provided by the Appellant by way of issuing SOC-VRC to the various vehicle owners on behalf of the Regional Transport Offices of the State Government would be leviable to Service Tax under the category of BAS in terms of section 65(105) of the Act prior to 1 July, 2012. When the Commissioner in regard to the Appellant's own case for a subsequent period held that Service Tax cannot be levied under the category of BAS, which order of the Commissioner attained finality, the Department cannot be permitted to contend in this Appeal that Service Tax under the category of BAS can be levied upon the Appellant. It also needs to be noted that the Commissioner placed reliance upon the decision of Madhya Pradesh High Court in Smart Chip 2015 (7) TMI 886 - MADHYA PRADESH HIGH COURT and also upon the Circular dated 18 December 2006. In Smart Chip, a contract was entered into by Smart Chip and the State Government of Madhya Pradesh for carrying out various activities which were found to be covered under the category of BAS by the Department. The Tribunal found that the activity carried out by the assessee pertains to preparation of smart cards at the service centres in different offices of the Transport Department, which would not amount to any of the category of services provided for under BAS. The Madhya Pradesh High Court found that the services rendered by the assessee for the Transport Department pertains to discharge of statutory function by the Department under the Motor Vehicles Act and the same would not amount to customer care, promotion, marketing of services, incidental or auxiliary to support services and therefore, the order of the Tribunal was upheld. The Special Leave Petition filed by the Department was dismissed on 6 July, 2015 by the Supreme Court. It has been stated by the learned Counsel for the Appellant that the said order of the Tribunal has attained finality in as much as no Appeal was filed by the Department to assail this order. The Department cannot be permitted to take a contrary stand in his Appeal - thus, no Service Tax under the category of BAS could have been levied upon the Appellant. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether the issuance of smart optical card-based vehicle registration certificates (SOC-VRC) by the appellant qualifies as a taxable service under Business Auxiliary Service (BAS).
2. Whether the appellant can be considered as providing services on behalf of the State Government.
3. Applicability of the Circular dated 18 December 2006 issued by CBEC.
4. Consistency in the Department's stance in similar cases.

Issue-wise Detailed Analysis:

1. Issuance of SOC-VRC as a Taxable Service under BAS:
The Commissioner confirmed the demand for Service Tax on the appellant, stating that the service of issuing SOC-VRC to applicants on behalf of the State Government falls under BAS as per Section 65(19)(vi) of the Finance Act, 1994. The appellant contended that the issuance of SOC-VRC is a statutory function of the State Government under the Motor Vehicles Act and cannot be classified as a business activity. The appellant argued that this function, whether performed by the Government or delegated to them, retains its sovereign nature and is not subject to Service Tax under BAS.

2. Provision of Services on Behalf of the State Government:
The appellant argued that they did not provide any service on behalf of the Government to the applicants, as the Government itself issued the SOC-VRC. The appellant's role was merely facilitative, and the activity should be considered a sovereign function. The Commissioner, however, viewed the State Government as the client and the appellant as the service provider, making the service taxable under BAS.

3. Applicability of the Circular dated 18 December 2006:
The appellant relied on the CBEC Circular, which clarifies that activities performed by a sovereign/public authority under any law are not services provided for consideration and thus not taxable. The Commissioner, in a subsequent order for a different period, held that the issuance of SOC-VRC is a sovereign function and not taxable under BAS, based on this Circular and the decision in CCE, Bhopal vs. Smart Chip Ltd. The Department's Special Leave Petition against this decision was dismissed by the Supreme Court.

4. Consistency in the Department's Stance:
The appellant highlighted that the Department did not appeal against the Commissioner's order for a subsequent period, which held the issuance of SOC-VRC as a sovereign function and not taxable under BAS. Additionally, in a similar case involving Virgo Softech Ltd., the Tribunal upheld that the activity was not taxable under BAS, and this decision also attained finality as no appeal was filed by the Department. The appellant argued that the Department cannot take a contrary stand in their case.

Conclusion:
The Tribunal concluded that the issuance of SOC-VRC by the appellant is a statutory function of the State Government and not a business activity. Therefore, it does not fall under BAS and is not subject to Service Tax. The Tribunal emphasized the need for consistency in the Department's stance across similar cases. The impugned order dated 18 February 2013 was set aside, and the appeal was allowed.