2019 (11) TMI 435 - AT - Service Tax

Classification of services - Business Auxiliary Service or not - appellant, which is a Government Company, is primarily engaged in procurement/purchase of food grains and essential commodities etc and distribution of the same to the financially weaker section of the society - extended period of limitation - HELD THAT - The appellant‟s services are in relation to provisions of services on behalf of M/s Coal India Ltd. to distribute the coal for which duty is being assigned to the appellant on a consideration. Having provided such services on behalf of M/s Coal India Ltd. against consideration, the appellant have admittedly provided services falling under the category of Business Auxiliary Service‟. Extended period of limitation - demand stands raised by way of issuance of show cause notice dated 24 August, 2009 for the period 2005-06 to 2007-08 was till 31 March, 2008 by invoking the longer period of limitation - HELD THAT - Apart from the fact that the appellant is a public sector undertaking of Government of Uttar Pradesh and as such cannot be attributed with any mala fide, we also note that the Commissioner in his impugned order has observed and thus the noticee may not have suppressed the facts, but because of their omission by not applying for registration non-filing of proper return, non-payment of service tax, non supply of proper information despite repeated correspondence by investigating agency and non-appearance in compliance of summons have lead to the suppression of facts by them - In the present case the Adjudicating Authority having himself held that there was no suppression on the part of the appellant, the longer period should not have been invoked. Penalty - HELD THAT - The Commissioner has himself agreed that there was no suppression or mala fide. Inasmuch as the demand in the present appeal stands raised beyond the period of one year, the entire demand is barred by limitation and is required to be set aside. For the same reason, penalty imposed on the appellant is required to be set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues involved:
1. Whether the services provided by the appellant to M/s Coal India Ltd. fall under the category of "Business Auxiliary Service" and if the appellant is liable to pay service tax on the same.
2. Whether the demand for service tax for the period 2005-06 to 2007-08 is within the limitation period.
3. Whether the appellant's activity of distributing coal on behalf of M/s Coal India Ltd. is a sovereign function and exempt from service tax.
4. Whether the appellant should be considered a commission agent as per Notification No.13/2003-ST dated 20 June, 2003.
5. Whether the demand for service tax and penalties imposed on the appellant are justified.

Detailed Analysis:
1. The appellant, a Government Company engaged in procurement and distribution of food grains and essential commodities, entered into an agreement with M/s Coal India Ltd. for coal supply to brick fields. The Revenue claimed the services provided by the appellant to M/s Coal India Ltd. fell under "Business Auxiliary Service" and demanded service tax for 2005-06 to 2007-08. The Adjudicating Authority upheld the demand, imposing penalties under the Finance Act, 1994. The appellant argued that their distribution of coal was a sovereign function and not taxable, citing a Board's Circular. The Tribunal disagreed, stating the services provided by the appellant to M/s Coal India Ltd. constituted "Business Auxiliary Service" as they distributed coal for consideration.

2. The demand for service tax was challenged on the grounds of limitation. The Commissioner observed that the appellant's actions, such as non-registration, non-filing of returns, and non-payment of service tax, led to the suppression of facts. However, the Tribunal held that since there was no evidence of mala fide intent or tax evasion by the appellant, the longer period of limitation should not have been invoked. Consequently, the demand for service tax and penalties imposed were considered barred by limitation and set aside.

3. The appellant contended that they were not commission agents as per Notification No.13/2003-ST, which exempts commission earned by agents causing sale or purchase of goods. The Tribunal agreed that the appellant's role was not that of a commission agent but rather involved supervising coal distribution for M/s Coal India Ltd. against payments. Therefore, the notification did not apply to the appellant's case.

4. The Tribunal further analyzed the appellant's argument regarding the distribution of coal as a sovereign function. While the appellant claimed that they acted as a nodal agency from 2005, the Tribunal noted that the official appointment as a nodal agency by M/s Coal India Ltd. only occurred in April 2008. As the demand was for the period before this appointment, the Tribunal agreed with the Adjudicating Authority that the appellant's services constituted "Business Auxiliary Service" until the official nodal agency appointment.

5. In conclusion, the Tribunal found that the demand for service tax and penalties were unjustified due to the lack of mala fide intent on the appellant's part. The Commissioner's decision to extend the benefit of Section 18 of the Finance Act, 1994, to the appellant indicated a lack of suppression or mala fide. Therefore, the entire demand was deemed barred by limitation, and the penalties imposed were set aside. The appeal was allowed in favor of the appellant.