2024 (8) TMI 322 - AT - Service Tax

Levy of service tax - Business Auxiliary Service (BAS) - agreement with M/s. Indian Oil Corporation Limited for operation of the Company Owned Company Operated outlet - Department considered the services rendered by the appellant as promotion, marketing or selling of the products of the company - HELD THAT - The appellant has been appointed by IOCL for the purpose of operation of the Company Owned Company Operated outlet. From the Clauses of agreement, it is apparent that the appellant has been engaged for the purpose of maintenance and handling of a retail outlet of IOCL - from the Terms and Conditions of the Agreement, we observe that the Maintenance and Handling Service rendered by the appellant would not come within the ambit of 'Business Auxiliary Service'. The Department considered the services rendered by the appellant under the category of 'Business Auxiliary Service', on the allegation that they have promoted the sales and/or marketing of the products manufactured by IOCL - the activities undertaken by the appellant would not fall under any of the clauses of definition of business auxiliary service. None of the Clauses of the Agreement talk about promoting the sales or marketing the goods manufactured by IOCL. At the maximum, the services rendered can be categorized as Management and Maintenance Service', but there is no demand of service tax under this category in the impugned Notice. Thus, the demand of service tax confirmed in the impugned order under the category of 'Business Auxiliary Service' is not sustainable. Since the demand of service tax is not sustainable, the question of demanding interest and imposing penalties does not arise. The impugned order is set aside - appeal allowed.

Summary

Issues:
1. Taxability of service charges under Business Auxiliary Service
2. Interpretation of the agreement between the parties
3. Applicability of Section 67(2) of the Finance Act, 1994

Analysis:

Issue 1: Taxability of service charges under Business Auxiliary Service
The appellant, engaged by IOCL for operating a retail outlet, contested the service tax demand on the grounds that they were not involved in promoting sales or marketing IOCL products. The Tribunal analyzed the agreement terms and observed that the appellant's role was limited to maintenance and handling services, with IOCL retaining ownership and operational control. The Tribunal noted that the appellant's activities did not align with the definition of Business Auxiliary Service under Section 65(19) of the Finance Act, 1994. As the services did not fall under the specified clauses, the demand for service tax under this category was deemed unsustainable, leading to setting aside of the same.

Issue 2: Interpretation of the agreement between the parties
The Tribunal examined the agreement dated 19.08.2006 between the parties, highlighting the responsibilities assigned to the appellant, which primarily focused on maintenance and operational support for the IOCL outlet. The agreement outlined tasks related to building upkeep, product delivery, customer service standards, and compliance with IOCL guidelines. By analyzing the agreement clauses, the Tribunal concluded that the appellant's role was limited to operational support and did not involve sales promotion or marketing activities, as alleged by the Department.

Issue 3: Applicability of Section 67(2) of the Finance Act, 1994
The appellant raised a contention under Section 67(2) of the Finance Act, 1994, arguing that if liable for service tax, the charges should be considered inclusive of service tax as they did not collect any tax separately from IOCL. The Tribunal, however, focused on the primary issue of taxability under Business Auxiliary Service and did not delve into the Section 67(2) argument, as the demand for service tax itself was set aside. Consequently, the Tribunal did not address the applicability of Section 67(2) in this context.

In conclusion, the Tribunal allowed the appeal filed by the appellant, setting aside the impugned order confirming the service tax demand under Business Auxiliary Service. The Tribunal's analysis emphasized the contractual obligations and the nature of services provided by the appellant, ultimately leading to the decision in favor of the appellant.