2019 (6) TMI 410 - AT - Service Tax

Business Auxiliary Service - promotion/marketing of the sale of goods belonging to their clients - benefit of exemption under Notification No 14/2004-ST dated 10.04.2009 - time limitation - HELD THAT - The services provided by the person (service provider) to the client are only exempted in terms of the said notification and services provided by the appellant to their clients do not fall within the any of the clauses referred at a to d in the said notification the benefit of exemption will not be admissible to the appellants - In the case under consideration Commission Agents were procuring the orders as per which the textile materials was to be manufactured and supplied hence bench concluded that the activities undertaken were incidental and auxiliary to the auxiliary to the activity of production. In the present case appellants do not provide any service in relation to textile processing to their clients. Management and Business Consultancy services - Commission Agent services - N/N. 14/2004-ST - HELD THAT - The entire defence of the appellants is that if the turnover in respect of Commission Agent services which as per them is exempted under Notification No 14/2004-ST is excluded then their total turnover will be less then 10 Lakhs and they will be exempted under Notification No 6/2005-ST. Since we do not agree with the contention of the appellants that the services provided by them as commission agent are exempt from payment of service tax the entire defence set up for getting this demand set aside collapses. Time limitation - Bonafide belief - HELD THAT - We do not find anything placed on record to show the existence of such a bonafide belief - the demands made by invoking the extended period of limitation as provided by Section 73 of the Finance Act 1994 are sustainable. Demand of interest - HELD THAT - Since we have upheld the demand of service tax the demand of interest under Section 75 is natural corollary. Penalties - HELD THAT - Since service tax has been demanded invoking extended period of limitation under Section 73 of Finance Act 1994 penalty under Section 78 will follow - Since appellant have failed to take registration and pay the service tax penalties under section 77(1)(a) 77 (2) of Finance Act 1994 to are justified and sustained. Appeal dismissed - decided against appellant.

Summary

Issues Involved:
1. Classification of services under "Business Auxiliary Service" and "Management and Business Consultancy" service.
2. Eligibility for exemption under Notification No. 14/2004-ST.
3. Applicability of extended period of limitation.
4. Imposition of penalties and interest.

Detailed Analysis:

1. Classification of Services:
The tribunal upheld the classification of the appellant's activities under "Business Auxiliary Service" and "Management and Business Consultancy" service. The appellant's activity of finding customers for grey fabrics was classified as "Business Auxiliary Service" under Section 65(19)(i) read with Section 65(105)(zzb) of the Finance Act, 1994. Additionally, the activity of providing business expansion advice was classified as "Management and Business Consultancy" service under Section 65(65) read with Section 65(105)(r) of the Finance Act, 1994. The tribunal confirmed the demand of ?18,41,602 under "Business Auxiliary Service" and ?65,560 under "Management and Business Consultancy" service, totaling ?19,07,162.

2. Eligibility for Exemption under Notification No. 14/2004-ST:
The appellant claimed exemption under Notification No. 14/2004-ST, arguing that their activities were in relation to textile processing. However, the tribunal found that the services provided were primarily for the benefit of the grey fabric manufacturer and not directly related to textile processing. The tribunal noted that the activities of suggesting a suitable textile process house and coordinating between the supplier, customer, and process house were incidental and not independent services provided to the customers of grey fabrics. Consequently, the tribunal held that the appellant's services did not qualify for exemption under Notification No. 14/2004-ST as they did not fall within the specified categories of services related to agriculture, printing, textile processing, or education.

3. Applicability of Extended Period of Limitation:
The tribunal upheld the invocation of the extended period of limitation under Section 73 of the Finance Act, 1994. The tribunal noted that the appellant had not declared the service tax liability in their ST-3 returns and had not paid the service tax on due dates. This amounted to suppression of facts with intent to evade payment of service tax. The tribunal relied on various judicial precedents to support the view that bona fide belief must be based on reasonable considerations and that mere ignorance or lack of consultation with the department does not constitute a bona fide belief.

4. Imposition of Penalties and Interest:
The tribunal confirmed the imposition of penalties and interest. The demand for interest under Section 75 was upheld as a natural consequence of the confirmed service tax demand. The tribunal also upheld the penalties under Section 78, citing the Hon'ble Supreme Court's decisions in Rajasthan Spinning and Weaving Mills and Dharmendra Textile Processors, which held that penalties under Section 78 follow when the extended period of limitation is invoked. Additionally, penalties under Section 77(1)(a) and 77(2) were sustained due to the appellant's failure to take registration and pay the service tax.

Conclusion:
The tribunal dismissed the appeal, confirming the classification of services, denial of exemption under Notification No. 14/2004-ST, applicability of the extended period of limitation, and imposition of penalties and interest. The order emphasized strict interpretation of exemption notifications and the necessity for clear evidence to support claims of bona fide belief.