2025 (1) TMI 483 - AT - Service Tax

Classification of service - Support Service for Business or Commerce or not - services rendered by TASMAC by giving license and permitting contractors to do the business within the bars - levy of interest and penalty - HELD THAT - As stated by revenue an identical issue was considered by a coordinate bench of this Tribunal in the appellants own case M/S. TAMILNADU STATE MARKETING CORPORATION LTD. VERSUS THE PRINCIPAL COMMISSIONER OF GST AND CENTRAL EXCISE, CHENNAI NORTH COMMISSIONERATE, CHENNAI 2019 (6) TMI 1328 - MADRAS HIGH COURT where it was held that 'TASMAC is liable to pay service tax of the licence fees received for the period 1.7.2012 to 28.3.2013.' Levying of interest under section 75 and imposition of penalty under section 76 (as it stood prior to amendment on 14/05/2015), 77 78 of the Finance Act 1994 - HELD THAT - It is no longer res integra that interest is necessarily linked to the delayed or deferred payment of duty, such liability arises automatically by operation of law, as under section 75 of the Finance Act 1994, in the instant case. The same cannot hence be set aside once delayed payment of duty is demanded. Similarly, the imposition of penalty under section 76 of the Finance Act, 1994 is statutory in nature and becomes payable when there is a failure to pay service tax in the normal course. Conclusion - i) TASMAC is liable for service tax for the period 1st July 2012 to 28th March 2013. ii) Interest is applicable, but penalties under sections 77 and 78 are not, due to the interpretative nature of the issue. Appeal disposed off.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

• Whether the services provided by TASMAC, by granting licenses to bar operators, qualify as taxable services under the category of 'Support Service for Business or Commerce' under the Finance Act, 1994.
• Whether TASMAC's activities fall under the Negative List or are exempt from service tax post-1st July 2012.
• Whether interest and penalties under sections 75, 76, 77, and 78 of the Finance Act, 1994, are applicable in this case.
• Whether TASMAC's activities are sovereign functions, thereby exempting them from service tax.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Taxability of Services Provided by TASMAC

• Relevant Legal Framework and Precedents: The Finance Act, 1994, specifically sections 65(104c), 65(105)(zzzq), and 65B(44), define taxable services. The Negative List introduced post-1st July 2012, under section 66D, specifies services exempt from tax.
• Court's Interpretation and Reasoning: The court noted that the services provided by TASMAC, by granting licenses to bar operators, were initially considered taxable as 'Support Service for Business or Commerce.' However, post-1st July 2012, the introduction of the Negative List expanded the scope of taxable services.
• Key Evidence and Findings: The court relied on the Tribunal's earlier decision, which was upheld by the Madras High Court, indicating that TASMAC's activities were taxable.
• Application of Law to Facts: The court applied the provisions of the Finance Act, 1994, to TASMAC's activities, concluding that they were taxable services, except for the period after 29th March 2013, when statutory backing was provided.
• Treatment of Competing Arguments: TASMAC argued that its activities were sovereign functions, but the court found that the decision to award contracts was a corporate decision, not a sovereign function.
• Conclusions: TASMAC's services were taxable under the Finance Act, 1994, for the period 1st July 2012 to 28th March 2013.

Issue 2: Applicability of Interest and Penalties

• Relevant Legal Framework and Precedents: Sections 75, 76, 77, and 78 of the Finance Act, 1994, deal with interest and penalties for non-payment of service tax.
• Court's Interpretation and Reasoning: The court held that interest under section 75 is automatically applicable for delayed payment. However, penalties under sections 77 and 78 were dropped as the dispute was one of interpretation.
• Key Evidence and Findings: The court referenced its earlier decision in TASMAC's case, which concluded that penalties were not applicable due to the interpretative nature of the dispute.
• Application of Law to Facts: The court applied the statutory provisions, confirming the liability for interest but dropping penalties except under section 76.
• Treatment of Competing Arguments: TASMAC's argument against penalties was accepted, but the court maintained the interest liability.
• Conclusions: Interest is applicable, but penalties under sections 77 and 78 are not, due to the interpretative nature of the issue.

3. SIGNIFICANT HOLDINGS

• Verbatim Quotes of Crucial Legal Reasoning: "Hence we hold that appellants will be exigible to service tax liability in respect of the impugned activities only for the period 1.7.2012 to 28.03.2013 as 'taxable service' under Section 65B (44) of the Finance Act, 1994."
• Core Principles Established: TASMAC's activities are not sovereign functions and are taxable under the Finance Act, 1994, except when statutory backing is provided. Interest is automatically applicable for delayed tax payments.
• Final Determinations on Each Issue: TASMAC is liable for service tax for the period 1st July 2012 to 28th March 2013. Interest is applicable, but penalties under sections 77 and 78 are not, due to the interpretative nature of the issue.

The judgment provides clarity on the taxability of services provided by government corporations and highlights the importance of statutory backing in determining tax liability. The court's reliance on precedents and its careful distinction between sovereign functions and corporate decisions are critical aspects of this judgment.