2023 (3) TMI 443 - AT - Service Tax

Classification of services - Business Auxiliary service or not - business of promoting and marketing post-paid mobile connections and providing services of finding prospective customers, billing, collection of cash/cheques of mobile bills, evaluation of prospective customers and other customer care services for M/s. Aircel Ltd. in their capacity as an authorized agent, for which they received commission from M/s. Aircel Ltd. - waiver of penalty u/s 80 of FA. HELD THAT - In the case of CHOTEY LAL RADHEY SHYAM VERSUS COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, LUCKNOW 2015 (11) TMI 979 - CESTAT ALLAHABAD , the Tribunal had set aside the demand observing that the assessee therein, who is an agent of M/s. BSNL, being engaged only in the purchase and sale of SIM cards and recharge coupons, the demand could not sustain, as M/s. BSNL had already paid the Service Tax on the SIM cards and recharge coupons. The said decision, however, would not be applicable to the case of the appellant on merits since the appellant herein is not only engaged in the purchase and sale of SIM cards, but also doing the activity of procurement of clients, promotion of sales, evaluation of prospective customers and other customer care services. The facts, however, reveal, that the appellant was under the bona fide belief that they were not liable to pay the Service Tax as the commission paid to them was part of the charges received by the telecommunication service provider for providing the post-paid connections. Taking note of this, it is opined that the appellant has furnished reasonable cause for failure on their part to pay the Service Tax. It is also noted that they have paid up a major part of the Service Tax. Penalty - HELD THAT - Section 80 of the Finance Act, 1994, as it stood during the relevant period, provided that penalty not to be imposed in certain cases when the assessee is able to establish reasonable cause for non-payment of Service Tax - this is a fit case to invoke Section 80 of the Act ibid. to set aside the penalty imposed on the appellant under Sections 77 and 78. The impugned order is modified to the extent of setting aside the penalties imposed under Sections 77 and 78 of the Finance Act, 1994, without disturbing the confirmation of demand of Service Tax along with interest - appeal allowed in part.

Summary

Issues:
1. Liability to pay Service Tax on commission received for promoting and marketing post-paid mobile connections.
2. Applicability of penalties under Section 77 and 78 of the Finance Act, 1994.
3. Invocation of Section 80 of the Finance Act, 1994 for reasonable cause.

Analysis:

Issue 1:
The case involved the liability of the appellant to pay Service Tax on the commission received for promoting and marketing post-paid mobile connections. The Department contended that the activity of the appellant fell under the category of 'Business Auxiliary Service' as per Section 65(105)(zzb) of the Finance Act, 1994. Despite being registered under this category, the appellant failed to pay the Service Tax and file returns for the period in question, resulting in a demand of Rs.9,25,211. The Adjudicating Authority confirmed this demand, which was upheld by the Commissioner (Appeals), leading to the appeal.

Issue 2:
Regarding the penalties imposed under Section 77 and 78 of the Finance Act, 1994, the appellant argued that they were under a bona fide belief that since the main service provider had already paid the Service Tax on the post-paid connections, they were not liable to pay it on the commission received. The appellant contended that the demand amounted to double taxation and that penalties should be set aside due to their genuine belief. The Tribunal considered the appellant's arguments but held them liable to pay the Service Tax for the services rendered.

Issue 3:
The appellant invoked Section 80 of the Finance Act, 1994, which provided for the non-imposition of penalties in certain cases where reasonable cause for non-payment of Service Tax is established. The Tribunal found that the appellant had a reasonable cause for their failure to pay the tax, considering their belief that the Service Tax had already been discharged by the telecommunication service provider. As a result, the penalties under Sections 77 and 78 were set aside, while the demand for Service Tax along with interest was confirmed.

In conclusion, the appeal was partly allowed, with the penalties under Sections 77 and 78 being waived under Section 80 of the Finance Act, 1994, while the demand for Service Tax with interest was upheld.