2008 (11) TMI 87 - AT - Service Tax

Security agency appellant, corporation set up by State Govt. to undertake commercial activity for welfare of ex-servicemen in the State non-filing of return even if appellant is exempted in income tax as charitable organization but it should be considered as commercial concern for levy of service tax because its P/L A/c shows income from such activities larger period invokable - demand notice, not time barred - since there is no mala fide intention to evade duty, penalty is set aside

Issues Involved:
1. Limitation period for the recovery of service tax.
2. Whether the appellant is a "commercial concern" and liable to pay service tax.
3. Basis for calculating the service tax (gross amount vs. commission).
4. Imposition of penalties under sections 76, 77, and 78 of the Finance Act, 1994.

Detailed Analysis:

1. Limitation Period for Recovery of Service Tax:
The appellant argued that the demand for service tax for the period from October 1998 to December 2002, raised vide show-cause notice dated 22-4-2004, is time-barred. They contended that there was ongoing correspondence with the revenue regarding their liability, and hence, the conditions for invoking the longer limitation period of five years did not exist. The Tribunal disagreed, stating that under section 73(1) (as it existed prior to 10-9-2004), mere omission or failure to file returns was sufficient for invoking the five-year limitation period. The Tribunal cited judgments in ETA Travel Agency (P.) Ltd. v. CCE and Free Look Outdoor Advertising v. CCE to support their view. The show-cause notice issued on 22-4-2004 was within the five-year period from the last date for filing the return for October 1998-March 1999, which was 25-4-1999.

2. Whether the Appellant is a "Commercial Concern":
The appellant contended that they were not a "commercial concern" as their primary objective was the welfare and rehabilitation of ex-servicemen, not profit-making. The Tribunal examined the provisions of the PESCO Act and found that the appellant's functions included various business activities and that they prepared annual profit and loss accounts, indicating commercial activities. The Tribunal referenced the judgment of the Hon'ble Calcutta High Court in M.N. Dastur & Co. Ltd. v. Union of India, which defined "commercial concern" broadly to include any entity engaged in trade or commercial activities. The Tribunal concluded that the appellant was indeed a commercial concern as they engaged in commercial activities and prepared financial statements reflecting these activities.

3. Basis for Calculating Service Tax:
The appellant argued that service tax should be charged only on the commission received, not on the gross amount, which included the salaries of security personnel. The Tribunal rejected this argument, citing judgments in New Industrial Security Force v. CCE and Panther Detective Services v. CCE, which held that service tax is chargeable on the gross amount billed to the clients, including salaries. The Tribunal also referenced the Hon'ble Madras High Court's decision in GDA Security (P.) Ltd. v. Union of India, which upheld the inclusion of all expenses in the taxable value.

4. Imposition of Penalties:
The appellant contended that being a State Government Undertaking, they had no intention to evade tax, and thus, penalties under sections 76, 77, and 78 should not be imposed. The Tribunal agreed, noting that the appellant had doubts about their liability and engaged in long correspondence with the revenue. The Tribunal referenced the judgment in Surat Municipal Corporation v. CCE, which held that a statutory Government body cannot have a mala fide intention to evade tax. Consequently, the Tribunal set aside the penalties, invoking section 80 of the Finance Act, 1994, which provides relief from penalties in cases of reasonable cause.

Conclusion:
The Tribunal upheld the demand for service tax along with interest but set aside the penalties imposed under sections 76, 77, and 78 of the Finance Act, 1994. The impugned order was modified accordingly.

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