2018 (3) TMI 114 - AT - Service Tax

Business Auxiliary Service - whether the franking charges and the rebate received by the appellant can be subject to levy of service tax? Held that - the issue stands covered by the decision in the case of United Mailing Services, Sai Mailing Services Versus Commissioner of Service Tax, Mumbai 2016 (3) TMI 572 - CESTAT MUMBAI , where it was held that the transaction of franking or usage of the postal service is solely between the appellants and the post office with the former as the customer of the latter. The depiction of the latter as a client is not consistent with this reality and the categorisation under Section 65(19)(vi) fails the test of rationality. Appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether franking charges and rebate received by the appellant are subject to levy of service tax under Business Auxiliary Services (BAS).

Analysis:
The appellant, engaged in mailing services, used a licensed franking machine from the Postal Department. The Revenue alleged that the rebate received from the Postal Department was a consideration for promoting postal services, leading to a show cause notice for service tax under BAS. The adjudicating Commissioner confirmed a demand, interest, and penalties. The appellant contested, arguing that postage and franking charges were statutory duties under the Indian Post Office Act, not service considerations. The appellant's clients paid franking charges directly to the Postmaster General, not the appellant, and any shortage was reimbursed by the client. The rebate from the Postal Department was not a service provider-client relationship, as per a previous decision.

The issue revolved around whether franking charges and rebate received by the appellant were liable for service tax. The Tribunal referred to a previous case where it was noted that the Department of Posts was not the client of the appellant, and the appellants were users of the post office, not service providers. The appellants facilitated bulk mailing on behalf of business entities, with franking machines provided as a facility. Rebates were incentives for reduced workload on the post office staff, not commissions for services. The nature of the transaction between the appellants, clients, and the Department of Posts was crucial, and the appellants were customers of the post office, not the clients. The categorization under the relevant section failed the test of rationality, leading to the appeal being allowed and the impugned order set aside.

In conclusion, the Tribunal held that the impugned order could not be sustained, and the appeal was allowed with any consequential relief. The decision was based on the nature of the transaction, the statutory duties under the Post Office Act, and the lack of a service provider-client relationship in the rebate and franking charges received by the appellant.