2018 (3) TMI 707 - AT - Service Tax

Business Auxiliary services - appellants disbursed loan to identified industry and obtained the commission for such financial activity - Revenue entertained a view that such commission earned while disbursing loan will be attracting service tax under the category of business auxiliary services in terms of Section 65(19) of the Finance Act, 1994 - Held that - The fact remains that appellant did disburse the loans to the commercial enterprises in furtherance of their business and they did get the commission - The appellant is independent corporation for commercial activity. They may be mandated to act in a particular manner by the Policy of the government. That by itself will not exempt them from tax liability - there is no case for excluding income of appellant as commission in disbursing loan, from tax liability under BAS - demand upheld. Extended period of limitation - Held that - the appellant is nothing to gain from suppressing the fact and no malafide intend can be attributed to them in the present facts and circumstances of the case - demand proceeding initiated against the appellant are barred by limitation for the period beyond normal period. Appeal allowed in part.

Summary

Issues:
Tax liability on commission earned by disbursing loans, invocation of extended period for penalties, applicability of Section 80 for contesting demand, limitation period for proceedings, bonafide belief of the appellant.

Analysis:

Tax Liability on Commission Earned:
The appellant, a National Cooperative Development Corporation, disbursed loans for sugar development fund (SDF) at concessional rates and earned commission. The Revenue contended that such commission attracts service tax under business auxiliary services. The appellant argued that being a government-mandated entity for welfare activities, their actions are not commercial services subject to tax. However, the tribunal upheld the tax liability, stating that the appellant's commercial activity of disbursing loans and earning commission is not exempt from tax, even if mandated by government policy.

Invocation of Extended Period for Penalties:
The Revenue sought to impose penalties under Sections 76 and 78, but the tribunal found no case for invoking the extended period or imposing penalties. The appellant, a government corporation, demonstrated no malafide intent to evade service tax, and the tribunal noted the lack of suppression or deliberate tax evasion. Consequently, penalties were not imposed due to the appellant's bonafide belief and lack of malafide intent.

Applicability of Section 80 for Contesting Demand:
The tribunal rejected the appellant's invocation of Section 80 to contest the demand for the extended period. The leniency shown by the original authority due to the appellant's full payment of tax with interest did not warrant dropping the demand for the extended period, as the appellant was engaged in taxable activities and registered with the department.

Limitation Period for Proceedings:
The tribunal agreed with the appellant's argument regarding the limitation period. The appellant had informed the tax authorities about their activities well before the show cause notices were issued, demonstrating their bonafide belief and lack of intention to evade tax. The tribunal found that the demand proceedings initiated against the appellant were time-barred for the period beyond the normal period.

Bonafide Belief of the Appellant:
The tribunal emphasized the appellant's bonafide belief and lack of malafide intent throughout the proceedings. The appellant's proactive communication with tax authorities, lack of personal motive or profit in non-payment of tax, and the absence of deliberate tax evasion were crucial factors in determining the bonafide nature of the appellant's actions. The tribunal concluded that the tax liability was correctly decided for the normal period, affirming the appellant's bonafide conduct in the case.

This detailed analysis of the judgment highlights the key issues addressed, arguments presented by both parties, and the tribunal's findings regarding tax liability, penalties, limitation period, and the appellant's bonafide belief.