2017 (2) TMI 1148 - AT - Service Tax

Classification of service - Business auxiliary services - use of electronic device to provide the service - Held that - activity of Billing in the process of sale of goods produced or provided by or belonging to the client would be covered in the clause (vii) of the Section 65(19) as business auxiliary service . Clause (i) read with clause (vii) includes in its ambit the activity of billing - In the instant case the activity of the appellant is clearly that of generating bills for MSEDCL and is squarely covered in the definition of business auxiliary service clause (vii) as billing - the prime purpose of the activity is to generate bills and it is only incidental that electronic programmable devices are used for this purpose. The use of this device cannot change the nature of the services - the service provided by the appellant falls under the category of business auxiliary service and not information technology service or business support service. Extended period of limitation - Held that - Recording of a statement during the investigation cannot be considered as disclosure of information. The appellants were engaged in providing the service much before the recording of statement and they had not voluntarily come forward to pay service tax on the service or to disclose the full details to the Revenue - extended period rightly invoked. Benefit of N/N. 12/2003-ST and/or exclusion of the cost of material used during the provision of service - Held that - To avail the notification they have to prove that they had sold the goods during the provision of service to the client and produce necessary evidence like payment of VAT to establish the same. Abatement of the value of the goods and material consumed - pure agent or not - Rule 5(2) of the Service Tax (Determination of Value of Taxable Services) Rules, 2006 - Held that - as the appellants are service providers to MSDECL and service tax is payable on the value recovered by the appellants from the service receiver. The claim of deduction, if any, has to be supported by N/N. 12/2003-ST or the Service Tax (Determination of Value of Taxable Services) Rules, 2006. It is seen that the appellants do not qualify for any such deduction. Appeal dismissed - decided against appellant.

Summary

Issues:
1. Classification of service as business auxiliary service or information technology service.
2. Deduction of material cost.
3. Invocation of extended period.
4. Benefit of Notification 12/2003-ST and exclusion of material cost.
5. Claim of acting as a pure agent for abatement of value of goods and material consumed.

Issue 1: Classification of service:
The appellant argued that the service provided to MSEDCL was not business auxiliary service but information technology service. They claimed that the use of handheld electronic devices for billing did not qualify as business auxiliary service. However, the Tribunal disagreed, stating that the activity of generating bills for MSEDCL fell under the definition of business auxiliary service, specifically clause (vii), which includes billing as an auxiliary activity. The Tribunal emphasized that the use of electronic devices was incidental, and the nature of the service remained unchanged. The Tribunal distinguished previous cases and clarified that services need not be provided solely on behalf of the client to qualify as business auxiliary service.

Issue 2: Deduction of material cost:
The appellant sought to deduct the material cost based on legal precedents. However, the Tribunal noted that there was no general exemption for material used during service provision. While Notification 12/2003-ST provided exemptions subject to conditions, the appellants failed to provide evidence of selling goods to their clients during service provision to qualify for the exemption.

Issue 3: Invocation of extended period:
The appellant contested the invocation of the extended period, arguing that a partner's statement was recorded after the service was provided. The Tribunal upheld the extended period, stating that recording a statement during investigation did not constitute voluntary disclosure of information, and there was no evidence of seeking clarification on service tax liability.

Issue 4: Benefit of Notification 12/2003-ST and exclusion of material cost:
The appellant claimed benefits under Notification 12/2003-ST and exclusion of material cost. However, the Tribunal ruled that the appellants did not meet the requirements for the exemption and failed to prove the sale of goods during service provision.

Issue 5: Claim of acting as a pure agent:
The appellant argued that they acted as a pure agent and should be entitled to abatement of the value of goods and material consumed. The Tribunal rejected this claim, stating that service tax was payable on the value recovered from the service receiver, and the appellants did not qualify for any deduction under Notification 12/2003-ST or relevant rules.

In conclusion, the Tribunal dismissed the appeals on 7.2.2017, affirming the classification of the service as business auxiliary service, denying the deduction of material cost, upholding the invocation of the extended period, rejecting the benefit of Notification 12/2003-ST, and dismissing the claim of acting as a pure agent for abatement.