2019 (1) TMI 1883 - AT - Service Tax

Levy of Service Tax - Banking and other financial services - receipt of the reimbursement from State Marketing Federation - exemption under N/N. 8/2004-ST dated 09.07.2004, or any other notification - suppression of facts or not - extended period of limitation under proviso to Section 73(1) of Finance Act - penalties under Sections 76, 77 and 78 of the Finance Act, 1994 - HELD THAT - The show cause notices have been issued on 20.10.2011 invoking the extended period of limitation for the disputed period 2006-2007 to 2010-2011. It is an admitted fact that the appellant was registered with the Service Tax Department and was maintaining proper records of their transactions and paying service tax on the services taxable under the Banking and other Financial services. They were also filing regular returns with the Department. Thus, there is no question of Revenue Intelligence getting into of any short payment of service tax. As regards, none-payment of service tax on receipt of reimbursement from the State Marketing Federation, the authorised person of appellant company explained, in the course of investigation, that the same is towards the assistance in procuring paddy. The reimbursement is for the expenses in the nature of various procurement expenses like godown expenses, expenses on transportation of paddy and expenses on staff and other incidental expenses. Extended period of limitation - suppression of facts or not - HELD THAT - The issue involved is one of interpretation. Secondly, the service provided by the appellant Cooperative Bank to Markfed, which is the Sate Marketing Federation, is in the nature of Business Auxiliary Services provided by a Commission Agent in relation to sale or purchase of agricultural produce, which is exempt from service tax under the Notification No.13/2003-ST read with Notification No.8/2004-ST. We further find that there is no suppression of records or contumacious conduct on the part of the appellant. The issue being one of interpretation, the extended period of limitation is also not available to the Revenue. Appeal allowed - decided in favor of appellant.

Summary

Issues:
(i) Liability for service tax on reimbursement from State Marketing Federation
(ii) Exemption from service tax on reimbursement received
(iii) Invocation of extended period of limitation
(iv) Imposition of penalties under Sections 76, 77, and 78

Analysis:

(i) Liability for Service Tax on Reimbursement:
The Cooperative Bank, the appellant, was involved in agricultural finance and received reimbursement from the State Marketing Federation. The Commissioner classified the services under Clause (a)(vi) of Banking and other Financial Services, leading to the imposition of penalties. However, the appellant argued that their services did not fall under advisory financial services and the reimbursements were related to transportation and manpower, not covered under the said clause. The appellant contended that the reimbursement was exempt under Notification No.8/2004-ST. The appellant also highlighted the Kerala High Court's decision and a Tribunal case to support their claim that the reimbursement should not be taxed indirectly.

(ii) Exemption from Service Tax on Reimbursement Received:
The appellant believed that the reimbursement received was exempt under Notification No.13/2003 and Notification No.8/2004-ST, as it pertained to Business Auxiliary Services provided to a commission agent in the sale or purchase of agricultural produce. They argued that the services rendered were akin to commission agent services and should not be taxed under banking and financial services. The appellant also referenced a Board Circular to support their belief that the reimbursement was not taxable.

(iii) Invocation of Extended Period of Limitation:
The Revenue invoked the extended period of limitation for the period 2006-2007 to 2010-2011. However, the appellant had been registered with the Service Tax Department, maintained proper records, and paid service tax on taxable services. The appellant explained that the reimbursement was for procurement expenses related to paddy, and the nature of services provided did not change despite accounting discrepancies. The appellant argued that the extended period of limitation should not apply due to the interpretation dispute.

(iv) Imposition of Penalties under Sections 76, 77, and 78:
The appellant contended that penalties under Sections 76, 77, and 78 should not be imposed as the issue revolved around the interpretation of Banking and other Financial Services. They argued that since the services provided were exempt under specific notifications, penalties should not be levied. The Tribunal found that the appellant's services fell under Business Auxiliary Services exempt from service tax and that no suppression of records or contumacious conduct was evident.

In conclusion, the Tribunal allowed the appeal, set aside the impugned order, and granted the appellant consequential benefits in accordance with the law. The judgment highlighted the interpretation dispute regarding the nature of services provided by the Cooperative Bank to the State Marketing Federation, ultimately leading to the decision in favor of the appellant based on the exemptions provided under relevant notifications.