2017 (11) TMI 1002 - AT - Service Tax

Business Auxiliary Service - For operation of receiving EMI payments and remitting the same to SPV / Trust, the appellant-assessee is paid a consideration in percentage terms - Securitization Service Fee - Revenue held a view that this fee is liable to service tax under Business Auxiliary Service as the appellant-assessee provided service to the SPV / Trust which will fall under clause (iv) of Section 65 (19) prior to 10.9.2004 - Held that - Securitization Service Fee in fact which is sought to be taxed under BAS cannot be attributed to any of the services rendered under the categories mentioned under BAS - For an activity of service which is incidental or auxiliary support service, the activity of the main person (service receiver) is to be identified. In the present case, the obligation of the Trust for PTC holders is identified as the main activity which is incidentally or auxiliarily supported by the appellant-assessee. We find no reason for such inference. It is neither supported by contractual arrangements nor factually established - decided against Revenue. Business auxiliary services - the allegation is that the appellant-assessee is providing service to ICICI bank which is incidental or auxiliary to the bill collection - Held that - The cheques and other bills collected by the appellant-assessee are on their own account which are further passed on in terms of agreement with the ICICI bank. The conditions of transaction and schedule of payment will not influence the nature of activity as agreed upon between the two contracting parties - We find no element of Business Auxiliary Service in such arrangement - decided against Revenue. Appeal dismissed - decided against Revenue.

Summary

Issues:
1. Tax liability under "Business Auxiliary Service" for service tax.
2. Interpretation of contractual arrangements between the appellant-assessee and Trust/SPV and ICICI bank.
3. Determination of whether the appellant-assessee's activities constitute auxiliary or incidental services for tax purposes.
4. Analysis of accounting methods and their impact on tax liability.

Issue 1: Tax liability under "Business Auxiliary Service" for service tax.
In Appeal ST/166/2010, the Revenue contended that the appellant-assessee's collection and remittance of EMI payments to Trust/SPV constituted auxiliary services taxable under Business Auxiliary Service. The Revenue argued that the appellant-assessee's activities supported the main service of the Trust/SPV to PTC holders. However, the Tribunal found that the appellant-assessee's role was based on a principal-to-principal agreement and did not directly support the Trust/SPV's obligations to PTC holders. The Tribunal concluded that the Securitization Service Fee could not be taxed under BAS as it did not align with the services mentioned in the tax entry.

Issue 2: Interpretation of contractual arrangements between the appellant-assessee and Trust/SPV and ICICI bank.
In Appeal ST/560/2011, the Revenue argued that the appellant-assessee's transactions with ICICI bank involved auxiliary services for bill collection. However, the Tribunal disagreed, stating that the appellant-assessee's role was that of a principal in the transaction, not a collection agent for ICICI bank. The Tribunal noted that the appellant-assessee's accounting methods, showing a nominal fee for collection services, were legitimate and not a tax evasion tactic. The Tribunal emphasized that the appellant-assessee's role was to service the amount received from obligors, making it a principal-to-principal financial arrangement with ICICI bank.

Issue 3: Determination of whether the appellant-assessee's activities constitute auxiliary or incidental services for tax purposes.
Both appeals highlighted the importance of analyzing the nature of the appellant-assessee's activities to determine tax liability. The Tribunal scrutinized the agreements between the appellant-assessee and Trust/SPV and ICICI bank to establish whether the appellant-assessee acted as a collection agent or a principal in the transactions. The Tribunal concluded that the appellant-assessee's activities did not fall under Business Auxiliary Service as they were not providing auxiliary services directly supporting the main services of the Trust/SPV or ICICI bank.

Issue 4: Analysis of accounting methods and their impact on tax liability.
The Tribunal examined the appellant-assessee's accounting practices in both appeals to assess any potential impact on tax liability. In Appeal ST/560/2011, the Revenue questioned the allocation of expenses and profit on sale of receivables in the appellant-assessee's accounts. However, the Tribunal found that the appellant-assessee's accounting procedures were legitimate and approved by competent authorities. The Tribunal rejected the Revenue's argument that the provision for servicing should be considered taxable under BAS, emphasizing that the appellant-assessee's transactions were between principals and did not involve auxiliary services.

In conclusion, the Tribunal dismissed the Revenue's appeal and allowed the appellant-assessee's appeal with any consequential relief as per law in both cases.