2019 (5) TMI 1230 - AT - Service Tax

Extended period of Limitation - ancillary activity for providing Digital Signature Certificates (DSC) - Business Support Service or not - activity is related to sovereign function or not - Whether the demand has to be held as time barred and the penalty has to be set aside? - difference of opinion - majority decision - HELD THAT - The learned Member (Judicial) have recorded that the appellants had reflected all the transactions in the balance-sheet as also raised invoices for the same and therefore, it cannot be held that there was any suppression on the part of the appellants. Appellant had also referred the correspondence between Commissioner and appellants as also between appellant and Office of Controller of Certify Authority, Ministry of Communication Technology. It was, further, recorded that all the related documents like audited balance-sheet was submitted by the appellant to other Tax Authorities like Income Tax. I note that the learned Member (Judicial) have therefore, held that there was no suppression on the part of the appellant. In the present case since suppression could not be established therefore, I agree with the views expressed by learned Member (Judicial) that the demand was barred by limitation - since the demand does not sustain for extended period, therefore, the invocation of penal provisions is not justified. The majority decision is that the demand raised by way of invoking the extended period of limitation is required to be held as time barred by limitation. A small part of demand falling under normal period may be requantified and recovered by Assistant Commissioner alongwith applicable interest - Penalty is set aside. Appeal allowed in appellant.

Issues Involved:

1. Classification of Services
2. Applicability of Service Tax
3. Time-bar and Limitation
4. Imposition of Penalty

Detailed Analysis:

1. Classification of Services:

The core issue was whether the appellant's activities fell under "Business Auxiliary Services" or "Business Support Services." The appellant was involved in purchasing and selling E-Tokens and argued that this activity was akin to the sale of goods, on which VAT was paid, and thus outside the purview of Service Tax. However, the revenue contended that the appellant's role as a Local Registering Authority (LRA) for M/s (n) Code Solutions involved verifying documents and processing applications for Digital Signature Certificates, which constituted "Business Support Services." The Tribunal agreed with the revenue, concluding that the appellant's activities did not amount to the sale of goods but were services provided under the agreement with M/s (n) Code Solutions.

2. Applicability of Service Tax:

The appellant argued that their activities were not taxable as they involved the sale of Digital Signature Certificates and E-Tokens, similar to the sale of SIM cards, which are considered sovereign functions. The Tribunal, however, upheld the findings of the Commissioner (Appeals), stating that the appellant's responsibilities under the agreement with M/s (n) Code Solutions were service-oriented and not merely sales transactions. Thus, the activities were taxable under the category of "Business Support Services."

3. Time-bar and Limitation:

There was a divergence of opinion between the members regarding the issue of time-bar. The demand covered the period from 2008-09 to 2010-11, with the show cause notice issued on 18.10.2012. The appellant contended that all transactions were duly recorded in their balance sheets and other statutory documents, negating any intention to evade tax. The Member (Judicial) emphasized that the extended period of limitation could not be invoked without evidence of suppression or intent to evade tax. The Tribunal concluded that the demand raised by invoking the extended period was time-barred since there was no positive evidence of suppression or mala fide intention. The matter was referred back to the Assistant Commissioner to re-quantify the demand for the normal period.

4. Imposition of Penalty:

Given the absence of mala fide intent and suppression, the Tribunal found the imposition of penalties unjustified. The Member (Judicial) noted that the appellant had maintained all statutory records and filed necessary documents with other tax authorities, indicating a bona fide belief that their activities were not taxable. Consequently, the penalties imposed were set aside.

Final Decision:

The majority decision held that the demand raised by invoking the extended period of limitation was time-barred. The Assistant Commissioner was directed to re-quantify the demand for the normal period, and the penalties imposed were set aside. The appeal was allowed in part, with the demand for the normal period to be recovered along with applicable interest.

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