2012 (3) TMI 284 - AT - Service Tax

IPO Financing Fees - demand confirmed against the applicants for IPO finance under the head Business Auxiliary Services on the activity undertaken where they are financing to their clients through Non Banking Finance Company which are sister concerns of the applicants and share the income of interest on revenue sharing basis - MOU between the applicants and the NBFC so as to arrange finance for the applicant s clients and to share the income earned from this activity after deducting the expenses - Held that - As per the MOU, the applicants have agreed to compensate these NBFC s, if any demand arises thus have not acted as a commission agent, hence are doing business with these NBFC s on principal to principal basis and sharing their profits. Therefore, the applicants are not rendering any service under the category of Business Auxiliary Services - Processing fee - applicants are collecting money on behalf of the company who issues IPOs and deposit in a designated bank assigned by the IPO issuing company and banks shared interest earned by them with the applicants on money deposited - Revenue considered this activity of promotion of the business of the Banks and liable to pay service tax under the category of Business Auxiliary Services - Held that - The amount of interest income which the bank shares with the applicant is not because applicant is promoting or marketing of any of the services provided by the bank and not liable to pay service tax - Recovery of Common expenses - expenses recovered by the applicants from the co-user of the premises on actual basis - Revenue considered such recovery under the category of infrastructural support service as the applicants are providing infrastructure support service to the co-user - Held that - these activities are not covered under the Business Support Services as the applicants are paying the expenses incurred by them on all the premises and thereafter recovered from the co-user on actual usage basis - Complete waiver of pre-deposit of dues adjudged in the impugned order and stay recovery thereof during the pendency of the appeal

Summary

Issues:
1. Waiver of pre-deposit of service tax demands confirmed under "Business Auxiliary Services" and "Business Support Services".

Analysis:
The judgment pertains to the waiver of pre-deposit of service tax demands confirmed against the applicants under the categories of "Business Auxiliary Services" and "Business Support Services." The first issue addressed is regarding IPO Financing Fees. The demand was confirmed against the applicants for IPO finance under "Business Auxiliary Services." The applicants were financing their clients through Non-Banking Finance Companies (NBFCs) and sharing the income of interest earned by these NBFCs on a revenue-sharing basis. The department contended that the applicants were promoting the business of the NBFCs, thus falling under "Business Auxiliary Services." However, the tribunal found that the applicants were not acting as commission agents but were doing business on a principal-to-principal basis, sharing profits. Consequently, the tribunal held that the applicants were not rendering any service under "Business Auxiliary Services," warranting a waiver of pre-deposit.

Moving on to the second issue of Processing Fee, the applicants collected money on behalf of a company issuing IPOs and deposited it in a designated bank. The revenue claimed that this activity promoted the business of banks, making the applicants liable for service tax under "Business Auxiliary Services." The tribunal observed that the interest income shared by the bank with the applicants was not due to promoting the bank's services. Therefore, the tribunal concluded that the applicants were not liable to pay service tax under this category, justifying a 100% waiver of pre-deposit.

Lastly, the issue of Recovery of Common Expenses was considered. The expenses recovered by the applicants from co-users of premises were deemed by the department as infrastructural support services falling under "Business Support Services." However, the tribunal found that the applicants were not providing any service, as they were merely recovering expenses incurred on all premises from co-users based on actual usage. Consequently, the tribunal ruled in favor of a 100% waiver of pre-deposit for this issue as well.

In conclusion, the tribunal granted a complete waiver of the pre-deposit of service tax demand, interest, and penalties imposed against the applicants. The recovery of dues adjudged in the impugned order was stayed during the pendency of the appeal. Additionally, due to the substantial revenue involved, the appeal was directed to be listed for final hearing on a specified date.