2022 (2) TMI 737 - HC - Service Tax

Classification of services - Business Auxiliary services or not - Government company formed with the object of developing tourism and infrastructure related to it and running Palace on Wheels - can be charged of rendering business auxiliary service on account of realizing felicitation fee from the empaneled showrooms/Emporia s, which was required for avoiding fraud, cheating, and to protect the foreign and domestic tourist? - HELD THAT - The term business auxiliary service has been defined in Section 65 (19) of the Finance Act, 1994 as to mean, besides others, promotion for marketing or sale of goods produced or provided by or belonging to the client. The tribunal assessed the factual situation and came to the conclusion that the activity amounted to marketing of the goods for sale. The stand of Tribunal is agreed upon. The agreement between the shop owners and the assessee provided that the shop owner would pay facilitation fees per season to the corporation on the condition that the tourist buses of the corporation would stop at the showroom of the shop owners for the purpose of shopping by the tourist travelling in palace on wheels. It was thus a clear case of promotion of sale of the goods of the shop owners or the showroom owners, as the case may be. Appeal dismissed.

Summary

Issues:
1. Whether a government company operating a luxury train can be charged with rendering business auxiliary service for collecting facilitation fees from shop owners along the tourist route?

Analysis:
The Rajasthan Tourism Development Corporation (RTDC) appealed against the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) judgment challenging the imposition of service tax on facilitation fees collected from shop owners enroute the luxury train "Palace on Wheels." The key issue was whether RTDC's actions constituted business auxiliary services subject to service tax. The appellant argued that the arrangement aimed to provide reliable shopping avenues for foreign tourists, not to develop the shop owners' businesses. Conversely, the department contended that the transaction fell within the broad definition of business auxiliary services under Section 65(19) of the Finance Act, 1994, encompassing promotion for marketing or sale of goods. The tribunal found the activity to be marketing goods for sale, a view upheld by the High Court. The agreements between RTDC and shop owners involved the payment of facilitation fees for tourists to stop at the shops, clearly promoting the sale of goods. Consequently, the court dismissed the appeal, stating no legal question arose as the activity aligned with the definition of business auxiliary services.

In conclusion, the judgment reaffirmed that RTDC's collection of facilitation fees from shop owners along the tourist route for the luxury train "Palace on Wheels" constituted business auxiliary services involving the promotion of goods for sale. The court upheld the imposition of service tax on these fees, emphasizing the broad scope of the definition under the Finance Act, 1994. The decision clarified that the primary purpose of the arrangement was to market goods to tourists, leading to the dismissal of the appeal.