2020 (2) TMI 692 - AT - Service Tax

Business auxiliary service and GTA services provided under two different firms name separately - composite service or not - Appellant owns another proprietary firm viz., SR Transporters who are also registered with the Central Excise department for providing Goods Transport Agency services - only allegation of the department is that both firms are owned by the same person and are located in nearby plots - extended period of limitation - HELD THAT - It is undisputed that the two firms have been given separate registrations by the department for different activities. There is nothing on record to show that the department has declined to give registration to one of the units holding that both the units are the same and the services rendered by both firms amount to rendition of a single service requiring service tax to be paid accordingly. It is also not in dispute that both the firms have been paying service tax and filing returns as required under the law - the allegation that there was any suppression of facts or wilful misstatement or fraud on behalf of the appellant is unsustainable. Both GTA services and business auxiliary services have separate entries in section 65 of the Finance Act, 1994. To allege that services rendered by two different firms, may be for the same client, merely on the ground that both are co-located and are owned by the same person, in our view, is not correct. Only if the contract is for a composite service rendered by a particular service provider the question of the essential character of the service comes into play. Therefore, we do not find any grounds whatsoever to hold that the services provided by the appellant are composite services. There is no ground, whatsoever, for clubbing the value of services rendered by the two firms. As the basis for demand is incorrect, the demand, interest as well as penalties need to be set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Allegation of clubbing services provided by two different firms owned by the same proprietor for the purpose of service tax.
2. Imposition of service tax, interest, and penalties based on the alleged clubbing of services.
3. Invocation of extended period of limitation and imposition of penalties.

Analysis:

Issue 1: Allegation of clubbing services provided by two different firms
The appellant, engaged in business auxiliary services and Goods Transport Agency (GTA) services through two separate firms owned by the same proprietor, faced allegations from the department of rendering a consolidated service of processing and transporting goods. The department contended that the services provided by both firms should be treated as a single service falling under "business auxiliary service," leading to the demand for service tax on the total amounts charged by both units. The appellant argued that each firm undertakes distinct activities and bills clients separately, with the essential character of services differing between processing and transportation.

Issue 2: Imposition of service tax, interest, and penalties
Following a show cause notice, the adjudicating authority ordered the recovery of service tax, interest, and penalties on the appellant. The appellant challenged this order, citing compliance with tax regulations, separate registrations for the two units, and no intent to evade tax liabilities. The appellant also highlighted a circular clarifying the treatment of ancillary services in GTA transactions to support their position that the services should not be clubbed together for taxation purposes.

Issue 3: Invocation of extended period of limitation and penalties
The appellant contested the invocation of an extended period of limitation, arguing that no new facts were revealed during the audit, and there was no evidence of fraud or intentional misrepresentation. The department, however, supported the findings of the impugned order, emphasizing the common ownership of the two firms as grounds for sustaining the demand for service tax. The Tribunal, after considering arguments from both sides and examining the records, found that the department's allegation of clubbing services due to common ownership was unsustainable. The Tribunal concluded that there was no basis to treat the services provided by the two firms as composite services and set aside the demand, interest, and penalties imposed by the adjudicating authority.

In the final judgment, the Tribunal allowed the appeal, setting aside the impugned order and providing consequential relief to the appellant. The decision emphasized the separate nature of the services provided by the two firms and rejected the department's contention of clubbing services based solely on common ownership, thus ruling in favor of the appellant.