2018 (7) TMI 1670 - AT - Service Tax

Scope of SCN - Banking and Other Financial Services - appellants is a non-banking financial institution - the basic allegation is that the assessee being a non-banking financial institution is engaged in lending activity and, therefore, their services are classifiable under bank and other financial services with effect from 10.09.2004. Held that - Only a company, corporation or cooperative society would fall within the definition of non-banking financial institution. There is no allegation in the Show Cause Notice that assessee is liable to pay service tax as they are rendering Banking and Other Financial Services as they are included in the category any other person - the categorical allegation in the Show Cause Notice is that assessee is a non-banking financial institution and therefore is liable to pay service tax for the Banking and Financial Services. This being so, the Commissioner has traversed beyond the scope of Show Cause Notice to confirm the demand for the period 01.05.2006 to 30.04.2007. The Commissioner has rightly dropped the demand for the period from 01.10.2004 to 30.04.2006 and for 01.05.2007 to 30.11.2009 when the words any other person was not part of the definition under Section 65(105)(zm). The Tribunal had analyzed a similar issue in the case of Grama Vidiyal Trust 2018 (6) TMI 584 - CESTAT CHENNAI has held that As it has already been found that the appellants would not fall within the ambit of banking company or financial institution for the purposes of Section 65 (12) ibid, that allegation in the SCN and its confirmation in the impugned order cannot then be sustained. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Classification of the appellant's activities under 'Banking and Other Financial Services'
2. Liability to pay service tax for the period from 01.05.2006 to 30.04.2007
3. Validity of the demand for the period from 01.10.2004 to 30.04.2006 and 01.05.2007 to 30.11.2009
4. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994

Issue-wise Detailed Analysis:

1. Classification of the appellant's activities under 'Banking and Other Financial Services':
The appellants, a Public Charitable Trust, were primarily engaged in micro-financing activities to poor women members of self-help groups. The Department alleged that these activities fell under 'Banking and Other Financial Services' and were liable for service tax. The appellants argued that they did not qualify as a banking company, financial institution, or non-banking financial company as per the definition in Section 65(12) of the Finance Act and Section 45(e) of the RBI Act, 1934. The Tribunal agreed with the appellants, noting that a Trust does not fall within the definition of a non-banking financial institution, which is limited to companies, corporations, or cooperative societies.

2. Liability to pay service tax for the period from 01.05.2006 to 30.04.2007:
The taxable service definition was amended to include "any other person" during this period. The Commissioner confirmed the demand for this period, arguing that the appellants fell within this category. However, the Tribunal found that the Show Cause Notice alleged the appellants were a non-banking financial institution, not "any other person." Therefore, confirming the demand on this new basis was beyond the scope of the Show Cause Notice. The Tribunal referenced a similar case (Grama Vidiyal Trust) where the demand was set aside under similar circumstances.

3. Validity of the demand for the period from 01.10.2004 to 30.04.2006 and 01.05.2007 to 30.11.2009:
For these periods, the definition of taxable service did not include "any other person," limiting liability to services provided by a banking company, financial institution, non-banking financial company, or other specified entities. The Commissioner dropped the demand for these periods, and the Tribunal upheld this decision, noting that the appellants did not fall under the specified categories.

4. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994:
The Commissioner dropped the penalties by invoking Section 80 of the Finance Act, 1994, which allows for waiver of penalties if there is reasonable cause for failure to comply with tax provisions. The Department argued this was erroneous, but the Tribunal did not find grounds to impose penalties, especially given the appellants' status as a charitable trust and the nature of their activities.

Conclusion:
The Tribunal set aside the demand for the period from 01.05.2006 to 30.04.2007, along with interest and penalties, following the precedent set in the Grama Vidiyal Trust case. The demand for the periods from 01.10.2004 to 30.04.2006 and 01.05.2007 to 30.11.2009 was also rightly dropped. Consequently, the assessee's appeal was allowed, and the Department's appeal was dismissed.