2017 (11) TMI 1406 - AT - Service Tax

Business auxiliary services - process of operating the lottery business which includes promotion, marketing and all auxiliary and incidental support services like selling, billing, collection, remitting, evaluation of prospective customers etc - Held that - The fact that appellants are engaged in promotion and marketing of lottery of the State Governments cannot be disputed. Services in relation to promotion or marketing of a service of client is liable to tax. We are not able to accept the proposition of the appellant that the State Governments are not their client. The terms of the agreement are clear that the State Governments authorized the appellants to organize and promote the lotteries. The nature of consideration that will accrue to the appellant for their services will not by itself decide the tax liability. The consideration is determined by mutual consent in terms of the agreement. In the present case on the overall receipts by sale of lottery, the State Government gets certain percentage as their share. For organizing, promoting and marketing the lottery the appellants get the consideration (retained amount) as per the terms of the agreement - tax liability upheld. Valuation - Held that - the provisions of Section 67 (2) are very clear to the effect that gross amount charged by the service provider should be inclusive of service tax payable, to consider such amount for backward calculation. In the absence of any evidence to the effect that the amount of consideration now taken up for tax liability is inclusive of service tax in terms of an arrangement or documentation, we note that the findings of the Original Authority is correct in this regard. Penalties - Held that - the Original Authority has imposed penalty only under Section 76 and 77 and not under Section 78. On perusal of the impugned order, we find no reason to interfere with the findings. Appeal dismissed - decided against appellant.

Summary

Issues:
Service tax liability of the appellant under Business Auxiliary Service in terms of Section 65 (105) (zzb) of the Finance Act, 1994.

Analysis:
The case involved a dispute regarding the service tax liability of the appellant under the category of Business Auxiliary Service. The Revenue initiated proceedings against the appellant to demand and recover service tax for a specific period. The Original Authority held that the appellants are liable to service tax only from a certain date and confirmed the liability along with penalties under the Finance Act, 1994.

The appellant argued that they are not engaged in providing any taxable service categorized as Business Auxiliary Service and there is no principal-agent relationship between them and the State Government. They contended that the income generated from organizing lotteries is business income/profit and not arising from providing services to the State Governments.

The Revenue, on the other hand, argued that the appellants are essential for the State Governments to carry out the lottery business and that the services provided by the appellants fall under Business Auxiliary Service. They referenced a similar case before the Kerala High Court to support their position.

The Tribunal examined the terms of agreements and relevant legal provisions. It noted that the explanation under the statutory provision clarified that services related to promotion or marketing of games of chance, including lotteries, are covered under Business Auxiliary Service. The Tribunal found that the appellants were indeed engaged in promoting and marketing the lotteries of the State Governments.

The Tribunal rejected the appellant's argument that they were not providing services to the State Governments and that the State Governments were not their clients. It emphasized that the appellants were authorized by the State Governments to organize and promote the lotteries, making them liable for service tax under Business Auxiliary Service. The Tribunal upheld the decision of the Original Authority regarding tax liability, penalties, and calculation methods.

In conclusion, the Tribunal found no merit in the appeals and dismissed them, affirming the service tax liability of the appellant under Business Auxiliary Service as determined by the Original Authority.

(Order pronounced in open court on 10/11/2017)