2017 (3) TMI 559 - AT - Service Tax

Classification of services - services to ICICI Bank in relation to disbursal of loans to various customers - whether classified under Business Auxiliary Service or not? - Held that - the appellants were acting as Direct Selling Agents for the banks and were engaged in promoting loans for the vehicles to be disbursed to various customers. Their activities included promotion of loan disbursal, facilitation of the buyer of vehicles in documentation and getting the loan amount from the bank. For this, the banks are paying certain commissions - the said activities are covered under the tax entry of Business Auxiliary Service in terms of Section 65(105)(zzb) of Finance Act, 1994 inasmuch as they are promoting and marketing the services provided by the client banks - appellants did not elaborate the background of their bona fide belief - demand upheld - appeal dismissed - decided against appellant.

Issues:
1. Whether the appellants' services to ICICI Bank are taxable under "Business Auxiliary Service" or "Business Support Service"?
2. Whether the lower authorities correctly imposed service tax liability on the appellants for the period 1.7.2003 to 31.03.2005?
3. Whether penalties under Section 76, 78, and 75 A of the Finance Act, 1994 were rightfully imposed on the appellants?
4. Whether the appellants' contention of a bona fide belief regarding tax liability justifies contesting the penalties?

Analysis:
1. The appeal concerned the taxability of the appellants' services to ICICI Bank under "Business Auxiliary Service." The appellants argued that their services should be taxed under "Business Support Service" based on a Tribunal decision. However, the Tribunal found that the appellants' activities, including promoting loan disbursal and receiving commissions, fell under "Business Auxiliary Service" as per Section 65(105)(zzb) of the Finance Act, 1994. The Tribunal distinguished previous cases to support its decision, emphasizing the promotion of services provided by the client banks. The Tribunal dismissed the appeal, upholding the tax liability under "Business Auxiliary Service."

2. The lower authorities had imposed service tax liability on the appellants for the period 1.7.2003 to 31.03.2005. The appellants contested this, alleging bias and pre-judgment by the authorities. Despite the appellants' arguments, the Tribunal reviewed the nature of the appellants' activities in promoting loan disbursal for vehicles and concluded that the lower authorities correctly determined the tax liability under "Business Auxiliary Service." The Tribunal upheld the original order confirming the service tax liability.

3. Penalties under Section 76, 78, and 75 A of the Finance Act, 1994 were imposed on the appellants by the lower authorities. The appellants contested these penalties, claiming a bona fide belief regarding tax liability and denying allegations of suppression of facts or fraud. However, the Tribunal noted the lack of substantial grounds or evidence supporting the appellants' claims. As the appellants failed to provide sufficient justification for contesting the penalties, the Tribunal found no reason to interfere with the lower authorities' decision and upheld the penalties.

4. The appellants contested the penalties on the basis of a bona fide belief regarding tax liability. However, the Tribunal found that the appellants did not provide substantial grounds or evidence to support their claim of a bona fide belief. The impugned order also noted the absence of grounds to invoke a bona fide belief or ignorance of the law in the case. Consequently, the Tribunal dismissed the appeal, maintaining the penalties imposed by the lower authorities.

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