2024 (11) TMI 526 - AT - Service Tax

Classification of services - provision of online information and database access or retrieval OIDAR service defined under section 65(75) of the Finance Act and made taxable under section 65(105)(zh) of the Finance Act - to be treated as 'support services of business or commerce' (BSS) or 'online information and database access or retrieval' (OIDAR). HELD THAT - The order accepts the contentions of the appellant and holds that to be covered under OIDAR service, data or information belonging to the service provider should be provided to the service receiver but the appellant did not provide any data or information owned by Verio USA as Verio USA only provided infrastructure facilities in the form of server space and other facilities which are necessary for the appellant to store the data. Accordingly, the order holds that services provided by Verio USA to the appellant are not taxable under OIDAR service. However, the order proceeds to hold that such services are in the nature of infrastructure support and are taxable under BSS. Thus, the order has confirmed the demand under BSS though the demand made in the show cause notice is for OIDAR service. A show cause notice is the foundation and since, the taxability under BSS was not proposed in the first show cause notice, the demand could not have been confirmed under the said category. In this view of the matter the demand confirmed under BSS cannot be sustained. It would, therefore, not be necessary to examine the contention advanced by the learned counsel for the appellant that even otherwise the services received by the appellant are not taxable under BSS. Demand of service tax under advertising service for the period after 18.04.2006 - As submitted by learned counsel for the appellant that the amount that has been appropriated is Rs. 54,09,868/- but the amount paid towards service tax on advertising service is Rs. 43,25,505/- and Rs. 1,27,004/- on the service received from Minik Enterprises. Thus, the total amount of service tax that was paid is Rs. 54,52,509/- but only an amount of Rs. 54,09,868/- has been appropriated. According to the learned counsel for the appellant, there is a short fall of Rs. 42,641/- in appropriation, Appellant also submitted that an amount of Rs. 20,17,511/- has been paid in excess on advertising service and, therefore, it may also be adjusted towards or refunded to the appellant. The aforesaid errors that have been pointed out by the learned counsel for the appellant can be pointed out by the appellant to the Commissioner by moving an appropriate application and in case such an application is filed, the Commissioner shall examine the same and pass an appropriate order. Penalty under section 78 of the Finance Act on the demand of service tax with respect to issue at serial no. 1 - The issue as to whether the demand of Rs. 1,68,440/- can be sustained or not is being remitted to the Commissioner. The imposition of penalty under section 78 of the Finance Act will, therefore, depend upon the decision to be taken by the Commissioner. This issue of penalty will, therefore, also have to be examined by the Commissioner. Benefit of section 80 of the Finance Act permitting waiver of penalty should also be extended to the appellant. This issue can also be examined by the Commissioner.

Summary

Issues Involved:

1. Classification of services received from Verio USA under 'support services of business or commerce' (BSS) or 'online information and database access or retrieval' (OIDAR).
2. Appropriateness of confirming demand under BSS when initially proposed under OIDAR.
3. Appropriation and calculation errors regarding service tax, Education Cess, and SHE Cess.
4. Imposition of penalties under sections 77 and 78 of the Finance Act.
5. Applicability of the extended period of limitation and waiver of penalties under section 80 of the Finance Act.

Issue-wise Detailed Analysis:

1. Classification of Services from Verio USA:

The appellant received services from Verio USA, which were initially proposed to be taxed under OIDAR services. However, the Commissioner reclassified these services under BSS, arguing that Verio USA provided infrastructure facilities, such as server space, which constituted 'infrastructural support' services. The appellant contested this reclassification, asserting that the Commissioner could not confirm a demand under a different category than what was proposed in the show cause notice. The Tribunal agreed with the appellant, citing precedent that demands cannot be confirmed under a head not alleged in the show cause notice, thus setting aside the demand under BSS.

2. Appropriateness of Confirming Demand under BSS:

The Tribunal emphasized that a show cause notice forms the foundation of any demand, and a shift from OIDAR to BSS without proper notice was impermissible. The Tribunal referenced the Inox Leisure case, where similar overreach by the authorities was deemed unsustainable. Consequently, the demand confirmed under BSS was set aside.

3. Appropriation and Calculation Errors:

The appellant highlighted discrepancies in the appropriation of service tax payments, particularly concerning Education Cess and SHE Cess. The Commissioner had appropriated Rs. 54,09,868/- while the appellant claimed to have paid Rs. 54,52,509/-, indicating a shortfall of Rs. 42,641/-. Additionally, the appellant argued that the confirmed amount of Education Cess was miscalculated. The Tribunal directed the appellant to file an application with the Commissioner to rectify these errors, who would then reassess and pass an appropriate order.

4. Imposition of Penalties:

The penalties imposed under sections 77 and 78 were challenged by the appellant. The Tribunal found that since the demand under BSS was unsustainable, the associated penalties should also be set aside. The penalty of Rs. 1,68,440/- related to Education Cess and SHE Cess was remitted to the Commissioner for reevaluation, contingent on the recalculated demand. The Tribunal also directed the Commissioner to consider the waiver of penalties under section 80 of the Finance Act.

5. Extended Period of Limitation and Waiver of Penalties:

The appellant argued against the invocation of the extended period of limitation and sought the waiver of penalties under section 80. The Tribunal did not make a definitive ruling on these points but remitted the issues back to the Commissioner for further examination, allowing the appellant to present their case for waiver and reassessment of demands.

Conclusion:

The Tribunal set aside the demand under BSS due to improper classification and confirmed penalties associated with it. The issues related to service tax calculations and penalties under Education Cess and SHE Cess were remitted to the Commissioner for reevaluation. The Tribunal allowed the appeal to the extent of setting aside the BSS demand and associated penalties, while directing further examination on other issues by the Commissioner.