2019 (1) TMI 1107 - AT - Service Tax

Business Auxiliary Services - Commercial concern or not - services to clients in respect of supply of IMFL to CSD canteens - N/N. 14/2004. - basic contentions of the appellant were on the issue that they being a proprietorship concern cannot be equated to a commercial concern for the purpose of Business Auxiliary Service - time limitation - Held that - It is seen from the records of the case that the appellants have entered into contract with two companies and have engaged 34 people for helping them in the discharge of their functions vis- -vis their customers; they have received commission to the tune of crores of rupees. The concern being reasonably big, the appellants claim that they are proprietorship concern and not a commercial concern, does not find favour with us - the activity undertaken by the appellants are certainly not on a small scale to be held to be a proprietorship concern in the understanding of a common man - the Ld. Commissioner has rightly observed that the service rendered by the assessee is as a commercial concern. Appellant also claims themselves to be a commission agent of their customers - Held that - Sub-clause (vii) under Business Auxiliary Service includes a service incidental or auxiliary to any activity specified in clauses (i) to (vi) and includes activities such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision and includes services as a commission agent, but does not include any information technology service and any activity that amounts to manufacture within the meaning of clause (f) of Section 2 of the Central Excise Act, 1944 - the services rendered by the appellants are within the ambit of Business Auxiliary Service. Time Limitation - Held that - The appellants were under bona fide belief that the services by them are not taxable to service tax - extended period cannot be invoked - demand needs to be limited to the normal period. For the computation of duty payable during the normal period, the issue needs to go back to the original authority. Simultaneous Penalty u/s 76, 77 and 78 of FA - Held that - Ld. Commissioner has imposed penalty under Section 76 and Section 78 simultaneously, which is not permissible during the relevant period. Moreover, we find that Ld. Commissioner has imposed penalty under Section 78 equivalent to twice the duty demanded - this is very harsh - penalty u/s 78 set aside - However, penalty under Section 77 and Section 76 would continue. The appeal is remanded with a direction to the Original Authority for computation of demand to the normal period and penalty under Section 77 and Section 76 would continue - appeal allowed by way of remand.

Summary

Issues: Liability to pay service tax under Business Auxiliary Services, classification of appellant as a commercial concern, nature of services provided by the appellant, invocation of extended period for demand, penalties imposed under Section 76 and Section 78.

Liability to pay service tax under Business Auxiliary Services:
The appellant contended that their services do not fall under Business Auxiliary Services and, if classified as such, would be exempted under Notification No.14/2004. The Revenue argued otherwise, citing precedents. The Tribunal analyzed the agreements and services provided by the appellant, concluding that the services rendered were within the ambit of Business Auxiliary Services, as per sub-clause (vii) which includes various activities like billing, collection of payments, and management services. Thus, the Tribunal upheld the demand on merits.

Classification of appellant as a commercial concern:
The appellant claimed to be a proprietorship concern and not a commercial concern providing services. The Tribunal noted that the appellant had engaged in significant transactions with multiple companies, employed several individuals, and received substantial commissions. Despite the appellant's arguments, the Tribunal held that the appellant's activities were not on a small scale to be considered a proprietorship concern, but rather classified them as a commercial concern, as observed by the Commissioner.

Nature of services provided by the appellant:
The appellant asserted that they acted as commission agents for their clients, seeking benefits under specific notifications. However, the Tribunal found that the agreements did not explicitly designate the appellant as a commission agent. The Tribunal concluded that the appellant's services were not limited to acting as sales agents but encompassed various activities crucial for their clients' business operations, falling under Business Auxiliary Services.

Invocation of extended period for demand:
Regarding the invocation of the extended period for demand, the Tribunal disagreed with the Commissioner's findings on the intention to evade duty. The Tribunal emphasized that there must be a positive act indicating intent to evade payment, which was not proven in this case. As the appellant believed in good faith that their services were not taxable, the Tribunal ruled out the invocation of the extended period, limiting the demand to the normal period and remanding the issue for computation by the Original Authority.

Penalties imposed under Section 76 and Section 78:
The Tribunal noted that the simultaneous imposition of penalties under Section 76 and Section 78 was impermissible during the relevant period. Additionally, the penalty under Section 78, equivalent to twice the duty demanded, was deemed harsh and set aside. However, penalties under Section 77 and Section 76 were upheld. The Tribunal directed the Original Authority to compute the demand for the normal period, with penalties under Section 77 and Section 76 to continue.

In conclusion, the Tribunal remanded the appeal to the Original Authority for computation of demand and maintained penalties under Section 77 and Section 76, while setting aside the penalty under Section 78.