2019 (9) TMI 583 - AT - Service Tax

Classification of services - Business Auxiliary Services or not - amounts received by the Appellants from the vehicle manufacturer/ dealer and accounted by them in their book of accounts as subvention income - Case of appellant is that since the subvention income is nothing but interest against the advances the same should not be subjected to service tax - recovery of amount not/short paid. Whether the amounts received by the Appellants from the vehicle manufacturer/ dealer and accounted by them in their book of accounts as subvention income should be subjected to service tax under the category of Business Auxiliary Services as defined by Section 65 (19) of Finance Act, 1994? HELD THAT - We are not in agreement with the submissions made by the appellants. Once we hold that the amounts received by the appellants as subvention charges are consideration for providing the business auxiliary services, the manner in which they are determined are irrelevant. They may be equivalent to difference of their interest earning on loan extended in normal course and under the special scheme or can be more or less than that is immaterial for treating it is as consideration for providing the service. Similar issue decided in the case of M/S HOUSING DEVELOPMENT CORPORATION LTD (HUDCO) VERSUS CST, AHMEDABAD 2011 (11) TMI 95 - CESTAT, AHMEDABAD where it was held that Interest is nothing but the time-compensation for somebody s money being retained by somebody else. The longer the period of retention, the higher will be the interest amount. In this background, the prepayment charges can never be considered to be in the nature of interest as prepayment only means payment before time. This should ideally result in refund of interest and not the demand for more interest because the borrowed money is being paid back before time. Thus we are not in position to agree with the argument of the appellants by which they contend that these subvention charges are nothing but interest on advances and hence exempt from payment of service tax.- demand of service tax in under the category of Business Auxiliary Services on the amounts received as subvention income by the Appellants is upheld. Time limitation - HELD THAT - Appellant have not shown any reason for entertaining the so called bonafide belief that service tax was not payable in respect of the subvention income. On the contrary the fact is that they were availing the CENVAT credit in respect of input services received for providing these services. Appellants have and could not have denied the fact that they had availed CENVAT Credit in respect of the advertisements jointly issued by them along with the vehicle manufacturers/ dealers for the purpose of special schemes, offering interest at nil/ lower rate - appellant have deliberately withheld the information in respect of the subvention income recovered by them, from the department with the intention to evade payment of service tax. Hence the extended period is rightly invoked for demanding service tax from the appellant. Penalty u/s 78 - HELD THAT - Since we uphold that the demand by invoking extended period of limitation, the penalty under Section 78 of Finance Act, 1994 to is sustained - Penalty upheld. Penalty u/s 77 of FA - HELD THAT - Penalty under Section 77 are civil in nature and are imposed for infractions noticed since by not making proper declarations in ST-3 returns appellants have contravened the provisions of Section 70 of Finance Act, 1994 read with rule 7 of Service Tax Rules, 1994 penalties as imposed by the Commissioner under Section 77(2) too are justified - penalty upheld. Interest u/s 75 on amount short paid - HELD THAT - The interest as provided by the statue is for the delay in the payment of tax from the due date. Since the demand has been upheld, demand for interest too is upheld - Demand of interest upheld. Appeal dismissed - decided against appellant.

Issues Involved:
1. Classification of services under "Business Auxiliary Service."
2. Nature of subvention income.
3. Applicability of service tax on subvention income.
4. Invocation of extended period of limitation.
5. Imposition of penalties under Sections 77 and 78.
6. Demand for interest under Section 75.

Detailed Analysis:

1. Classification of Services under "Business Auxiliary Service":
The revenue contended that the services provided by the appellant to vehicle dealers were classifiable under "Business Auxiliary Service" as defined by Section 65(105)(zzb) of the Finance Act, 1994. The appellant argued that the subvention income received was interest and not a service. The tribunal held that by providing loans at reduced rates and engaging in joint advertisements, the appellant promoted the sale of vehicles, thus providing "Business Auxiliary Service" to vehicle dealers. The subvention income was considered as consideration for this service.

2. Nature of Subvention Income:
The appellant claimed that the subvention income was essentially interest income, compensating for the loss incurred by providing loans at subsidized rates. The tribunal disagreed, stating that the subvention income was consideration for promoting the business of vehicle dealers, not interest. The tribunal referenced the HUDCO case, emphasizing that the method of calculating charges does not change the nature of the service provided.

3. Applicability of Service Tax on Subvention Income:
The tribunal upheld the demand for service tax on subvention income, classifying it under "Business Auxiliary Service." The tribunal cited previous cases, including Speed Finance Service and Tata Motors Ltd, to support this classification. The tribunal concluded that the subvention income was not interest but a consideration for promoting the business of vehicle dealers.

4. Invocation of Extended Period of Limitation:
The appellant argued that the extended period of limitation should not apply as they were under a bona fide belief that no service tax was payable on subvention income. The tribunal found that the appellant had not disclosed the subvention income in their ST-3 returns and had availed CENVAT credit for input services related to the provision of these services. This non-disclosure and availing of credit indicated an intention to evade tax, justifying the invocation of the extended period of limitation.

5. Imposition of Penalties under Sections 77 and 78:
The tribunal upheld the penalties imposed under Sections 77 and 78. The appellant's failure to disclose subvention income and incorrect filing of ST-3 returns constituted suppression of facts and deliberate evasion of tax. The tribunal referenced the Rajasthan Spinning and Weaving Mills case to justify the penalty under Section 78 and found the penalties under Section 77 for incorrect filings to be justified.

6. Demand for Interest under Section 75:
The tribunal upheld the demand for interest under Section 75, stating that interest is a statutory obligation for delayed payment of tax. The tribunal referenced multiple cases, including P V Vikhe Patil SSK and Ballarpur Industries Limited, to support this decision.

Conclusion:
The tribunal dismissed the appeal, upholding the classification of subvention income as consideration for "Business Auxiliary Service," the applicability of service tax, the invocation of the extended period of limitation, and the imposition of penalties and interest. The decision emphasized that the nature of the transaction and the intention behind it, rather than nomenclature, determine tax liability.

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