2016 (11) TMI 836 - AT - Service Tax

Classification of service - commission received from banks and financial institutions - Business Auxiliary Service (BAS) - suppression of disclosure of the transaction - interpretation of statute - Held that - there was interpretational issue, as to liability to service tax in the matter, as is evident by the nature of activity and clarification by the Larger Bench of this Tribunal. Accordingly, we hold - (i)Service tax is payable under the category of BAS under Section 65(19), by the appellant for the normal period; (ii) Extended period is not invocable; (iii)Penalties imposed are set aside. Appeal allowed.

Summary

Issues:
Liability to service tax under "Business Auxiliary Service (BAS)" for commission received from banks and financial institutions.

Analysis:
The appellant contested show cause notices claiming they are automobile dealers, not financing or insurance agents, merely providing space to financial institutions without a principal-agent relationship. They argued they do not render services on behalf of banks, receiving income shares labeled as incentives, not commissions. The Order-in-Original confirmed demands and penalties, upheld by the Commissioner (Appeals) dropping one penalty. The appellant raised grounds including failure of natural justice, time-barred demand, disclosure of received commissions, banks already paying service tax, no agency relationship, and non-taxable nature of payments. The Revenue relied on the impugned order and a Division Bench ruling. The Tribunal noted the absence of agreements with banks/financial institutions and varying monthly commissions, concluding the activity falls under BAS for promoting or marketing client services. Referring to a Larger Bench decision, the Tribunal held service tax payable under BAS for the normal period, extended period inapplicable, and set aside imposed penalties.

This judgment clarifies the interpretational issue regarding liability to service tax for activities promoting or marketing client services, emphasizing the need for careful analysis of transactional documents. The Tribunal's decision aligns with the nature of the activity and principles outlined in the Larger Bench's ruling, ultimately allowing the appeals in part by setting aside penalties and determining service tax liability under BAS for the normal period.