2023 (2) TMI 99 - AT - Service Tax

Levy of Service tax - Business Auxiliary Service - amount received by the appellant in the name of commission while sub-contracting on back to back basis - invocation of extended period of limitation - penalties - HELD THAT - The arrangement herein is that the appellant being a service provider for services as that of site formation, mining etc. were being awarded the tenders floated by various Government departments for receiving the aforesaid activities. Apparently and admittedly in such scenario the said different departments were the service recipients and the appellant has been the service provider as far as the service of site formation, mining etc., are concerned. Further, admitted facts are that for execution of the work of awarded tenders, the appellant was appointing sub-contractors to act on his behalf. Hence the tender awarding departments/companies remain the service recipients and the sub-contractor is the service provider but on behalf of the appellant - sub-contractor was stepping into the shoes of the appellant by virtue of a duly executed agreement by and between the appellant and the concerned sub-contractor purely for undertaking by the sub-contractor for the execution of the entire work under the respective tender, adhering to all such terms and conditions as were imposed upon the appellant by virtue of his agreement with the said employer. The perusal of few such agreements, as found on record, reveals that the sub-contractor was also made liable to compensate the appellant for any loss or damage to which the appellant might be held liable to the employer/tender agency on account of failure or improper execution of the work by the subcontractor and on account of not abiding by any terms and conditions of the agreement with the employer. The sub-contractor was not the service recipient of the appellant as such cannot be called as his client. He rather was been engaged by the appellant as his agent pursuant to the duly executed agreement where all profits and even all losses accruing to the appellant on any account pursuant to his agreement with the employer/tender agency were to be inculcated by the sub-contractor. In such circumstances, the arrangements between the appellant and the appointed sub-contractor cannot be called as an activity of the appellant meant to promote or market the service provided by the sub-contractor. Hence engagement of sub-contractor in the given circumstances cannot be called as the Business Auxiliary Service being provided to the subcontractor by the appellant. Extended period of limitation - penalties - HELD THAT - There arises no case for the appellant to discharge any liability. The question of having any intent to evade the tax liability does not at all arises. There is nothing produced by the Department on record to shown a positive act of the appellant which may constitute an act of committing any fraud, misrepresentation or suppression on appellant s part. Nor there remains any question of contravention of the applicable act and rules - once there was no circumstance for appellant to be the service provider of Business Auxiliary Services to his sub-contractor, the question of suppression is held to have wrongly been indicated. The appellant had otherwise provided all relevant documents including Tenders, agreements etc. to the investigating team - the extended period has wrongly been invoked by the Department. Both the points of adjudication stands decided in favour of the appellant and against the Department - Appeal allowed.

Summary

Issues Involved:
1. Whether the amount received by the appellant as commission while sub-contracting on a back-to-back basis is liable to service tax under the category of "Business Auxiliary Service."
2. Whether the extended period of limitation is applicable, and penalties are imposable on the appellant.

Analysis:

Issue 1: Liability of Service Tax under "Business Auxiliary Service"
The appellant, engaged in site formation, mining, and construction services, received commission on sub-contracts under the head "other income." The Department alleged the commission was taxable under Business Auxiliary Services. The Tribunal analyzed the definition of Business Auxiliary Services under Section 65(19) of the Finance Act. It was observed that the appellant appointed sub-contractors to execute awarded tenders, acting as agents on the appellant's behalf. The sub-contractors were not the service recipients but were engaged by the appellant to execute work under agreements. The Tribunal held that the appellant's engagement of sub-contractors did not constitute Business Auxiliary Services but was outsourcing work. Therefore, the appellant was not liable to pay service tax under this category. The Tribunal referred to a previous decision to support this conclusion.

Issue 2: Applicability of Extended Period of Limitation and Penalties
The demand period was from October 2004 to November 2006, with a show cause notice issued in April 2010. The Department invoked the extended period of limitation under Section 73 of the Finance Act. However, the Tribunal found no intent to evade tax liability as the appellant was not providing Business Auxiliary Services. Without evidence of fraud, collusion, misstatement, suppression of facts, or contravention of laws, the extended period could not be applied. The Tribunal disagreed with the Commissioner's findings on suppression, noting that the appellant had provided all relevant documents during the investigation. Consequently, the extended period was deemed wrongly invoked, and the penalties were not applicable. The appeal was allowed in favor of the appellant, overturning the Commissioner's decision.

In conclusion, the Tribunal ruled in favor of the appellant on both issues, setting aside the Commissioner's findings and allowing the appeal.