2018 (4) TMI 1182 - AT - Service Tax

Penalties u/s 76 and 77 - Classification of services - services such as supply of infrastructure like table, chair, network, electricity, telephone etc. to the insurance companies - whether classified under insurance auxiliary service or Business Support Services - Held that - the appellant have replied to the SCN contending that they have been appointed as corporate agent for insurance companies and therefore their activity would not fall under Business Support Service and would fall within the Insurance Auxiliary Service; that therefore it is the insurance companies that have to pay the service tax - demand of duty with interest upheld. It is clear that they have failed to pay the service tax on the bonafide belief that the activity did not fall under Business Support Service. Taking this into consideration, the penalty imposed under section 76 is unwarranted - penalty u/s 77 upheld. Demand of duty with interest upheld - penalty u/s 77 upheld - penalty u/s 76 set aside - appeal allowed in part.

Summary

Issues:
1. Whether the activities of the appellants fall within the category of Business Support Services under section 65(104c) of the Finance Act?
2. Whether the appellants were liable to pay service tax for the services provided to insurance companies?
3. Whether the penalties imposed under sections 76 and 77 of the Finance Act were justified?

Analysis:

Issue 1:
The appellants argued that their activities should be categorized under Insurance Auxiliary Service rather than Business Support Service, as they were appointed as corporate agents for the insurance companies. They contended that the charges received were reimbursement expenses, and the liability to pay service tax lay with the insurance companies. However, the definition of Business Support Service included infrastructural support services, such as providing office utilities, internet, and telephone facilities. The tribunal found that the charges received for providing such infrastructural facilities clearly fell within the definition of Business Support Service as per section 65(104c). Therefore, the demand for service tax was upheld.

Issue 2:
The appellants further argued for the waiver of penalties, claiming a genuine belief that their activities did not fall under Business Support Service. They maintained that the insurance companies were responsible for paying the service tax. The tribunal acknowledged the appellants' consistent plea and their failure to pay service tax based on a bonafide belief. Consequently, the penalty under section 76 was set aside, while the demand confirmed along with interest and penalty under section 77 remained unchanged.

Conclusion:
The tribunal upheld the demand for service tax on the appellants' activities falling under Business Support Services. However, considering the appellants' genuine belief and consistent plea regarding the service tax liability, the penalty under section 76 was waived, while the penalty under section 77 and the confirmed demand with interest remained unchanged.