2018 (6) TMI 856 - AT - Service Tax

Classification of Services - Business Auxiliary Service or Recovery Agent Service - appellant was a proprietary concern and was functioning as outsourcing agency for banks/ financial institutions - case of appellant is that they are not a commercial concern and therefore being an individual is not liable to pay service tax during the relevant period, prior to 1.5.2006 - Time Limitation - Held that - In the present case, though appellant is a proprietary concern cannot be said that it is not a commercial concern. The name of the appellant itself reflects that it is not an individual but a commercial concern. The activity of the appellant herein is not solely or merely verification of credentials of prospective customers but appellants were also engaged in other activities like preparation of invoices / Bills, collection / recovery of installments from the defaulters / borrowers of the bank etc. These activities are nothing but providing incidental or auxiliary services to HDFC Bank in collecting the overdue installments etc. from the customers of HDFC and would definitely fall within the ambit of Section 65 (19)(iv) of the Finance Act prior to 10.09.1994 and Section 65 (19) (vii) after 10.09.2004 - the activities of the appellant would constitute BAS during the period of dispute and not recovery agent‟s service. Extended Period of Limitation - Held that - The appellants had been providing these services from the period from which BAS was brought into the tax net, i.e. w.e.f. 01.07.2003. However, they did not discharge service tax and had suppressed the value of such services with intent to evade tax - even after taking registration on 02.04.2004, appellants did not pay service tax or file returns disclosing the value of these services provided by them - extended period rightly invoked. Appeal dismissed - decided against appellant.

Summary

Issues:
1. Liability to pay service tax under Business Auxiliary Service.
2. Interpretation of activities falling under Business Auxiliary Service.
3. Applicability of extended period for demand of tax liability.

Analysis:

Issue 1: Liability to pay service tax under Business Auxiliary Service
The appellant argued that being a proprietorship concern, they were not liable to pay service tax under Business Auxiliary Service as they were not a commercial concern. The appellant contended that the activities they performed did not fall within the definition of Business Auxiliary Service during the disputed period. The appellant emphasized that they were not engaged in promoting or marketing goods/services, providing customer care services, or acting as recovery agents. The appellant also raised the issue of limitation, stating that the department failed to prove willful suppression or fraud to justify invoking the extended period for demand.

Issue 2: Interpretation of activities falling under Business Auxiliary Service
The department argued that the appellant's activities, including verification of customer details and collection of installments, fell within the definition of Business Auxiliary Service. The department highlighted that the appellant's actions, such as bill preparation, telephone verification, and follow-up actions for repayment, were integral to the services provided to banks and financial institutions. The department asserted that the appellant's engagement in collecting installments constituted a service covered by Business Auxiliary Service, and the extended period for demand was justified due to willful suppression of facts by the appellant.

Issue 3: Applicability of extended period for demand of tax liability
The Tribunal analyzed the definition of Business Auxiliary Service before and after 10.9.2004 to determine the scope of activities falling under it. The Tribunal rejected the appellant's argument that they were not a commercial concern, citing precedents and the nature of activities performed by the appellant. The Tribunal distinguished the appellant's case from previous decisions and concluded that the appellant's activities, which included verification, bill preparation, and collection of installments, constituted Business Auxiliary Service. The Tribunal upheld the department's invocation of the extended period for demanding tax liability based on the appellant's failure to pay service tax despite registration and willful suppression of information.

In conclusion, the Tribunal dismissed the appeal, finding that the appellant's activities fell within the definition of Business Auxiliary Service and that the demand for tax liability was not barred by limitation. The judgment was pronounced on 10.05.2018 by the Appellate Tribunal CESTAT CHENNAI.