2020 (10) TMI 730 - AT - Service Tax

Classification of services - Business Auxiliary Services or not - Sales Promotion Agency - extended period of limitation - penalties - HELD THAT - Business Auxiliary Service is defined during the relevant period included the services related to promotion or marketing or sales of goods produced or provided by or belonging to the client. The agreements which have been entered into clearly state that the appellant has been employed as a promoter of the products of their clients - It is true that there is only one customer viz; APBCL in the State of Andhra Pradesh who purchases IMFL from various distilleries and in turn would sell it in retail. Therefore, it is in the interest of every distillery to ensure that they sell more to the customer of APBCL. This is sought to be done, inter alia, by close coordination with the retailers, to ensure maximum quantities of their client s products are ordered by the retailer from the depots of APBCL. For this purpose, they need to promote and market their goods to the sole customer. The Promoter i.e. the appellant got paid at ₹ 8/- per case as service charges on the secondary sales of their brands during the period of agreement. All these factors make it abundantly clear that not only is the agreement titled as sales promotion agreement but the responsibilities of the appellant or that of sales promotion, there may be some other related incidental responsibilities and the payment to the appellant is based on the sales of the products. Although there is only one wholesale buyer, APBCL, their orders depend on the orders which the retailers place on the depots of APBCL. The appellant was specifically required to ensure that the retailers place maximum quantities of the client s products on APBCL depots. Thus, the services rendered by the appellant are in the nature of promotion and marketing of the clients products - the appellant is liable to pay service tax under Business Auxiliary Services for the services rendered by them. Extended period of Limitation - Penalty - HELD THAT - The appellant has not taken the registration nor disclosed the nature of their activities to the Service Tax Department at any stage. It is only on the basis of specific intelligence and follow up of investigations that it has come to the light that the appellant was rendering Business Auxiliary Services and has neither obtained registration nor filed returns nor has paid any service tax whatsoever - the appellant has suppressed these facts and therefore the invocation of extended period of limitation under Section 73 is correct and proper. Consequently, the confirmation of interest is also liable to be upheld - penalties also upheld. Appeal dismissed - decided against appellant.

Summary

Issues Involved:
1. Classification of services rendered by the appellant.
2. Liability for service tax under "Business Auxiliary Services."
3. Invocation of extended period of limitation.
4. Imposition of interest and penalties under Sections 75, 76, 77, and 78 of the Finance Act, 1994.

Detailed Analysis:

1. Classification of Services Rendered by the Appellant:
The appellant was investigated by the Department based on specific intelligence, revealing that they were providing "Business Auxiliary Services" to various companies without registering for or paying service tax. The appellant argued that their services were not classifiable as "Business Auxiliary Services" because they were merely liaising with a single customer, Andhra Pradesh Beverages Corporation Limited (APBCL), and not promoting or marketing products. However, the agreements with their clients clearly indicated that their responsibilities included promotional and marketing activities, such as liaising with APBCL, obtaining feedback, procuring orders, and ensuring effective follow-up on various issues. The appellant's services were thus found to fall under the definition of "Business Auxiliary Services" as they involved promotion and marketing of their clients' products.

2. Liability for Service Tax under "Business Auxiliary Services":
The definition of "Business Auxiliary Services" during the relevant period included services related to the promotion or marketing of goods produced or provided by the client. The agreements explicitly stated that the appellant was employed as a promoter of the products. Despite the appellant's argument that there was no open market for the product and only one customer, APBCL, the Tribunal found that the appellant's activities were indeed promotional and marketing in nature. The appellant was responsible for ensuring that retailers placed maximum quantities of their clients' products on APBCL depots. Consequently, the appellant was liable to pay service tax under "Business Auxiliary Services."

3. Invocation of Extended Period of Limitation:
The appellant had not obtained service tax registration, disclosed their activities to the Department, or paid any service tax. The Tribunal found that the appellant had suppressed facts and intended to evade payment of service tax. Therefore, the invocation of the extended period of limitation under Section 73 of the Finance Act, 1994, was deemed correct and proper.

4. Imposition of Interest and Penalties under Sections 75, 76, 77, and 78 of the Finance Act, 1994:
Given the appellant's failure to register, disclose their activities, or pay service tax, the Tribunal upheld the imposition of interest under Section 75 and penalties under Sections 76, 77, and 78 of the Finance Act, 1994. The penalties were justified due to the appellant's suppression of facts and intent to evade service tax.

Conclusion:
The Tribunal found that the appellant's services were correctly classified under "Business Auxiliary Services" and that they were liable for service tax. The invocation of the extended period of limitation and the imposition of interest and penalties were upheld. The appeal was rejected, and the impugned order was confirmed as correct and proper.