2017 (10) TMI 801 - AT - Service Tax

Business Auxiliary Services - appellants are engaged in making arrangements for vehicle loans to interested customers, from various financial institutions, for which the appellants are getting some commission/income as percentage of loan amounts, which is reflected in their books of accounts as incentive received - Held that - the commission received by the appellant is not in the nature of rental charges as claimed by the appellant. Moreover as per the lease agreement also, appellants are not authorised to sub-let the premises - he financial institutions are providing services of vehicle loans to the customers of the appellant which results in boosting the business of the financial institutions and in recognition of the said assistance rendered by the appellant, the financial institutions reciprocate with commission in some percentage of loan distributed though the appellant and this activity is a clear case of promotion of service rendered by the clients i.e. financial institutions, which is specifically included in the category of BAS specified under Finance Act, 1994 and are liable to service tax w.e.f. 01/07/2003. Such promotion of the business of financial help promote the business of the appellant also and does not alter the character of BAS - the appellants are liable to pay the services tax under the category of BAS. Penalty - Held that - the penalty was dropped by invoking the provisions of 80 of the Finance Act on account of the fact that there were contradictory decisions on this issue during the relevant time - penalty set aside. Appeal allowed in part.

Summary

Issues:
1. Service tax liability on commission income received by the appellants for arranging vehicle loans.
2. Applicability of penalty under Sections 76, 77, and 78 of the Finance Act, 1994.

Detailed Analysis:

Issue 1: Service Tax Liability
The appellants, holders of a registration certificate under the category of authorized service station, were involved in arranging vehicle loans for customers from financial institutions and receiving commission income as a percentage of loan amounts. The dispute arose when the authorities considered this activity as promotion of services provided by financial institutions, falling under Business Auxiliary Services (BAS) liable for service tax. The appellants contended that the commission received was not for BAS but as rental charges for providing infrastructure to financial institutions. They argued that the commission was accounted for as incentive received and not as consideration for BAS. The appellants relied on various judicial precedents to support their argument. However, the tribunal found that the commission received was indeed in the nature of promotion of services provided by financial institutions, which falls under BAS and is liable for service tax. The tribunal dismissed the appellants' arguments and upheld the service tax liability.

Issue 2: Penalty Imposition
Regarding the penalty under Sections 76, 77, and 78 of the Finance Act, the appellants argued against the imposition of penalties, citing that they had paid the tax along with interest before adjudication proceedings began, showing no intention to evade payment. They relied on legal decisions to support their stance. The tribunal noted that penalties were dropped in similar cases due to contradictory decisions during the relevant time. Consequently, the tribunal decided to drop the penalty imposed on the appellants.

In conclusion, the tribunal upheld the service tax demand on the commission income received by the appellants for arranging vehicle loans, dismissing their arguments. However, the tribunal dropped the penalty imposed on the appellants, considering the circumstances and legal precedents cited.