2016 (3) TMI 572 - AT - Service Tax

Business auxiliary services or mailing list compilation and mailing services - taxability of Commission received on franking received from the Department of Posts - from 1 st July 2003 to 31 st March 2006 - Held that - We cannot but be surprised by the discriminatory approach in the two impugned orders situated in identical circumstances by the same appellate authority. The more specific taxable service of mailing list compilation and mailing was notified only from 16 th July 2005 and taxing that very service under any other entry that existed till then is an act of overreach contrary to legislative intent of taxing the rendering of that service only with effect from 16th June 2005. The later order in the matter of M/s Sai Mailing Service was decided without taking into account the benefit of enlightenment in the form of the order in the matter of M/s United Mailing Service and has, therefore, erred in upholding the decision of the lower authority for the demand prior to 16 th June 2005. The transaction of franking or usage of the postal service is solely between the appellants and the post office with the former as the customer of the latter. The depiction of the latter as a client is not consistent with this reality and the categorization under section 65(19)(vi) fails the test of rationality. Demand prioro to 16-6-2005 dropped - demand on service charges collected from clients for the period from 16 th June 2005 to 31 st March 2006 confirmed - Decided partly in favor of assessee.

Summary

Issues:
Taxability of service fee charged from clients under Finance Act, 1994; Taxability of rebate on franking charges; Applicability of penalties under sections 76, 77, and 78 of Finance Act, 1994.

Analysis:

1. Taxability of Service Fee:
The Assistant Commissioner held that the activities, excluding franking, were classified as 'business auxiliary services' taxable under section 65(105)(zzb) of Finance Act, 1994. The demand on M/s United Mailing Services was based on the commission/rebate received from the Department of Posts and the receipts from other sub-categories. Penalties were imposed under sections 76, 77, and 78 of the Act.

2. Appeal Proceedings:
In the appeal, the Commissioner classified the activity under 'mailing list compilation and mailing service' taxable under section 65(105)(zzzg) of the Act since June 2005. The tax on commission/rebate on franking was upheld, with exemption under notification no. 6/2005-ST.

3. Taxability of Rebate on Franking Charges:
The demand on M/s Sai Mailing Services was confirmed, with penalties imposed. The Commissioner modified the penalty under section 76 of the Act in the appeal proceedings.

4. Judicial Review:
The Tribunal noted a discriminatory approach in the orders, highlighting a specific taxable service notification effective from June 2005. The Tribunal found errors in upholding demands pre-June 2005 due to lack of consideration of previous decisions.

5. Taxation of Franking Charges:
The Tribunal analyzed the nature of transactions between the appellants, clients, and the Department of Posts, emphasizing the appellants' role as bulk mailers. It concluded that the appellants were users of the post office, not service providers to clients, and franking charges were reimbursement, not commission for services.

6. Final Decision:
The Tribunal modified the order for M/s Sai Mailing Services, confirming demands on service charges from June 2005 to March 2006. For M/s United Mailing Services, demands on service charges for the same period were upheld. The demands on rebate from postal authorities were set aside, along with penalties due to timely tax payments.

In conclusion, the Tribunal disposed of both appeals, clarifying the taxability of service charges and rebate on franking charges, while emphasizing the statutory framework and the nature of transactions involved.