2025 (4) TMI 1110 - AT - Central Excise

Classification of services - business auxiliary service or services of selling of space for advertisement? - income received by the appellant from mall management activities - extended period of limitation - HELD THAT - Firstly if the services were rendered to the developer the consideration should have been received from the developer for rendering the service. In this case the appellant had instead of receiving any amount from the developers paid the developer Rs. 1, 00, 000/- per annum and bought the space. Thereafter it sold the space and earned income. Therefore the consideration which is received from the buyers of this space for advertisement cannot be called as income received for promoting the business of the developer. The second reason is that once the department accepted the activity as the service of selling of space for advertising with effect from 01.05.2006 it can also not say that the service was some other service prior to this date. If the activity of selling space for advertisement had fallen under business auxillary service before 01.05.2006 they would have been no reason to introduce a separate service of selling of space for advertisement service. Since the activity was not covered before the new service was introduced from 01.05.2006. The department does not dispute the service tax paid by the appellant from 01.05.2006 under the service selling of space for advertisement . The demand of service tax on the income received by the appellant and recorded under the head of income from mall management cannot be subjected to service tax in the facts of the case under the head of business auxiliary service before 01.05.2006. The impugned order is set aside - Appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

(a) Whether the income received by the appellant during the period 01.04.2004 to 30.04.2006 from mall management activities is liable to service tax under the category of "business auxiliary service" as defined in section 65(19) of the Finance Act, 1994.

(b) Whether the appellant's activity of selling advertising space in the mall prior to 01.05.2006 can be classified as "business auxiliary service" or whether it falls under a separate taxable service category introduced only from 01.05.2006, namely "selling of space for advertisement".

(d) Whether interest and penalties imposed under Sections 75, 77, and 78 of the Finance Act, 1994 are justified.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (b): Classification of Service and Taxability for the Period 01.04.2004 to 30.04.2006

Relevant legal framework and precedents: The service tax provisions under the Finance Act, 1994, particularly Section 65(19), define "business auxiliary service" to include services relating to promotion, marketing, customer care, procurement, production, provision of services on behalf of the client, and services incidental or auxiliary to these activities. The category "selling of space or time for advertisement" was introduced as a taxable service under section 65(105)(zzzm) effective 01.05.2006.

Court's interpretation and reasoning: The Tribunal examined the nature of the appellant's activities and the agreements entered into with the developer. The show cause notice alleged that the appellant provided multiple services including managing the complex, promoting shopper traffic, organizing promotional events, and acting as liaison, which fall within the ambit of business auxiliary services. However, the appellant contended that it did not provide these services but only engaged in selling advertising space, which was taxable only from 01.05.2006.

Key evidence and findings: The appellant's books of accounts recorded the income as "income from mall management". The appellant had paid Rs. 1,00,000 per annum to the developer for leasing advertising space and then sold this space to advertisers. The department's claim that the appellant received consideration from the developer for business auxiliary services was contradicted by the fact that the appellant paid the developer rather than received payment.

Application of law to facts: The Tribunal concluded that since the appellant purchased advertising space from the developer and resold it, the income recorded was from selling advertising space and not from providing business auxiliary services to the developer. Furthermore, the introduction of the separate taxable service category "selling of space for advertisement" from 01.05.2006 indicated that such activity was not taxable under business auxiliary services prior to that date. The department's acceptance of service tax payments from 01.05.2006 under this new category reinforced this interpretation.

Treatment of competing arguments: The department's argument that the appellant's activities constituted business auxiliary services was rejected on the grounds that no consideration was received from the developer for such services and that the appellant's income was derived from reselling advertising space. The Tribunal also rejected the notion that the activity was taxable under business auxiliary services prior to 01.05.2006 simply because it became taxable under a separate head thereafter.

Conclusions: The appellant's income for the period prior to 01.05.2006 was not liable to service tax under business auxiliary services. The service of selling advertising space was not taxable before 01.05.2006, and thus no demand for service tax could be sustained for that period.

Issue (c): Invocation of Extended Period of Limitation

Relevant legal framework: The proviso to Section 73(1) of the Finance Act, 1994 permits recovery of service tax beyond the normal limitation period if the taxpayer has not disclosed the taxable service or has suppressed facts.

Court's interpretation and reasoning: The appellant contended that it was under a bona fide belief that no service tax was payable on selling advertising space prior to 01.05.2006 and had consistently paid service tax thereafter. The Tribunal found that the appellant had not suppressed facts but had a reasonable basis for not paying service tax before 01.05.2006.

Application of law to facts: Since the appellant's classification of the service was consistent with the law and the department's own introduction of a separate taxable category from 01.05.2006, the extended period of limitation could not be invoked.

Conclusions: The extended period of limitation for recovery of service tax was not applicable in this case.

Issue (d): Imposition of Interest and Penalties

Relevant legal framework: Sections 75, 77, and 78 of the Finance Act, 1994 provide for interest on delayed payment, penalty for failure to pay service tax, and penalty for other offences respectively.

Court's interpretation and reasoning: Since the Tribunal held that the appellant was not liable to pay service tax for the disputed period, the imposition of interest and penalties based on the demand was not justified.

Conclusions: Interest and penalties imposed under the impugned order were set aside along with the principal demand.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"If the services were rendered to the developer the consideration should have been received from the developer for rendering the service. In this case, the appellant had, instead of receiving any amount from the developers, paid the developer Rs. 1,00,000/- per annum and bought the space. Thereafter, it sold the space and earned income. Therefore, the consideration which is received from the buyers of this space for advertisement cannot be called as income received for promoting the business of the developer."

"Once the department accepted the activity as the service of selling of space for advertising with effect from 01.05.2006, it can also not say that the service was some other service prior to this date. If the activity of selling space for advertisement had fallen under business auxiliary service before 01.05.2006, they would have been no reason to introduce a separate service of 'selling of space for advertisement' service."

"Demand of service tax on the income received by the appellant and recorded under the head of income from mall management cannot be subjected to service tax in the facts of the case under the head of 'business auxiliary service' before 01.05.2006."

Accordingly, the appeal was allowed and the impugned order demanding service tax, interest, and penalties was set aside.

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