Customs, Excise and Gold Tribunal - Bangalore
Bridgestone Financial Services vs The Commissioner Of Service Tax on 4 January, 2007
Equivalent citations: [2007]9STJ177(CESTAT-BANGALORE), 2007[8]S.T.R.505, [2007]10STT11
ORDER T.K. Jayaraman, Member (T)
1. This appeal has been filed against OIO No. 20/06 dated 20.3.06 passed by the Commissioner of Service Tax Bangalore. The appellants provided specialized services for promotion and marketing of home loans and personal loans provided by City Bank. Revenue proceeded against the appellants for payment of service tax on the reimbursement of expenses received by them from M/s City Bank during the period from July 2003 to September 04. Adjudication proceedings were conducted. The adjudicating Authority held that the appellants are liable to pay service tax under the category of "business auxiliary services" during the period from July 2003 to September 2004. He confirmed an amount of Rs. 54,56,783/- towards their service tax liability for the above mentioned period. Interest under Section 75 of the Finance Act 1994 was demanded. Penalties of Rs. 200/-for every day of default was imposed under Section 76. A penalty of Rs. 1,000 under Section 77 of the Finance Act was imposed for failure to file ST 3 returns in the prescribed form. Further it was held that appellants suppressed the value of taxable service with an intent to evade payment of service tax and therefore a penalty of Rs. 1,00,00,000/- was imposed under Section 78 of the Finance Act 1994. The appellants are highly aggrieved over the impugned order.
2. Shri K.S. Ravishankar learned advocate appeared for the appellants and Shri R.K. Singla learned JCDR for the Revenue.
3. The learned advocate reiterated the following points.
i) The appeal is barred by limitation of time. Since the show cause notice had only alleged suppression of facts and had not alleged willful suppression with intent to evade tax. This is a fatal defect at natal stage which cannot be cured later. The following case laws are relied on:
a) CCE v. HMV Ltd.
b) Kaur Singh v. CCE 1997 (94) ELT 289 (SC)
c) T.N. Dadha Pharmaceuticals v. CCE 2003 (152) ELT 251 (SC)
d) Cosmic Dye Chemicals v. CCE
e) Aban Loyd Chiles Offshore Ltd. v. CCE
ii) In the case of Aban Loyd Chiles Offshore Ltd., It has been held by the Apex Court that Proviso to Section 28 can be invoked where the payment of duty has escaped by reason of collusion or willful mis-statement or suppression of facts. It has further been held that so far as the mis-statement or suppression of facts are concerned, they are qualified by the word "Wilful". The word "Willful" preceding words "Mis-statement or suppression of facts clearly spells out that there has to be an intention on the part of the assessee to evade duty.
iii) The activities carried on by the appellants in terms of the agreements would fall under "Support Services of Business or Commerce (SSBC for short) under Section 65(104 c) of the Act, with effect from 1.5.06. The definition of SSBC covers services provided "in relation to business or commerce and includes evaluation of prospective customers, telemarketing processes" etc., The activities performed by the appellants are appropriately classifiable under SSBC in terms of the principles of classification laid down in Section 65-A of the Act and tax liability would arise with effect from 1.5.06. Hence there was no service tax liability during the disputed, period. The show cause notice at page 2 - para 6 admits the nature of work of the Appellant which proves the contentions of the Appellants that the services rendered is SSBC.
iv) The contention is supported by the statement of the General Manager.
v) Even if it is assumed that service tax is attracted under the category of "Business Auxiliary Services (BAS for short) Clause (vi) of BAS definition which came into effect from 10.9.04 is relevant as the Appellant rendered services on behalf their client, which is clear from the agreements with various parties viz., Citibank N.A., Citi financial Retail Services P Ltd., and Associate India Financial Services Ltd., The appellants submit that they do what the finance companies/banks would themselves do. Therefore during the period from 1.7.03 to 9.9.04 the above activity was not at all a taxable service and even after 10.9.04 they were liable for the benefit of exemption under Notification No. 14/2004-ST which exempted a proprietary concern. This exemption was available till Notification No. 14/04 ST was amended by Notification No. 19/05 ST dated 7.6.05. Therefore, the entire exercise is revenue neutral and the Respondent has miserably failed to give any finding on this issue at all. The following Apex Court decisions are relied on:
a) CCE v. Narmada Chematur Pharmaceuticals Ltd. 2005 (179) ELT 276 (SC)
b) Commr v. Narayan Polyplasts 2005 (179) ELT 20 (SC)
vi) A substantial portion is received as reimbursement as admitted in the Show cause notice and impugned order and the same is not chargeable to service tax as per the Trade Notices and Circular enclosed to the compilation and the following two decisions rendered by this Bench.
a) B.S. Refrigeration Ltd., v. CST 2006 (4) STR 103 (T-Bang)
b) Scott Wilson Kirkpatrick (I) Pvt. Ltd v. CST in Final Order No. 1775/06 dt 18.10.2006.
vii) Even assuming that the appellant would fall under Clause (ii) of the definition of BAS viz., promotion or marketing of service on behalf of client, the Appellant would be liable to pay service tax only on the service element. The appellant had received total retainer fees of Rs. 12,59,000 for the period from July 2003 to September 04 from Citibank N.A. Citibank Mortgage Loans, Citi financial Retail Services and Associate India Financial Services Ltd., which constitutes the service element. It is submitted that maximum liability on the service element would come to about Rs. 1,07,020/- at the rate of 8% tax on Rs. 12,59,000/- This is without prejudice to the basic contention that service tax is not at all attracted during the relevant period. The reimbursements have been held to be excludible.
viii) The appellant relies on DGST Circular issued in October 2003 at page 21 of the compilation filed on 28.7.2006, wherein the DGST has clarified that reimbursements of expenses are not taxable. This circular is binding on the Revenue as per the Supreme Court decision in Ranadey Micronutrients v. CCE and CCE v. Dhiren Chemical Industries Therefore the demand of service tax on reimbursements fails in totality.
4. Revenue filed cross-objections on the appeal filed by the appellants and urged the following points.
1) The impugned order is based on the statement dated 12.7.2004 of the appellant's General manager, the "agreements submitted, and facts of the case, which show that the appellant has evaded payment of tax and the evasion would not have come to light but for the departmental efforts. The case laws cited by the appellant are not relevant to the case. The extended time limit has been correctly invoked in the case.
2) The Trade notices of the other Commissionerates cited by the appellants have been issued in different contexts and are not applicable to the present case. The appellants claim for deduction is not supported by the provisions of Section 67 of the Act or a notification issued under Section 93 thereof or the Board's circulars. The claim for deduction of expenses claimed by the appellant is untenable.
3) The appellant's contention on the extended period invoked in this case is not correct. The comparison with a call centre attempted to be drawn by the appellant is a futile exercise. The comparison is not relevant to the case. The fact that the service provided is taxable cannot be disputed. The exemption cited is not applicable to them.
4) Support services of Business or commerce falling under Section 65 of the Finance Act 1994 became taxable with effect form 1.5.2006, whereas the period of dispute covered by the subject appeal is July 2003 to September 2004. As such, even if the service provided in subject cases falls under the above category on or after 01.05.2006, it has no bearing on the case covered by the subject appeal.
5) The support services of Business or Commerce is a very general category. The service provided in the subject case may also be brought into the above category. However, the Business Auxiliary Service is more specific to the service provided in the subject case. As such, the service provided in the subject case has been correctly classified under the category of 'Business Auxiliary Services.' The Board in their Circular No. 87/05.206-ST dated 6.11.2.006 have clarified a similar service provided by Automobile Dealers under Business Auxiliary Services. The ratio of the above Circular is applicable to the subject case. The learned JCDR reiterated the above grounds.
5. We have gone through the records of the case carefully. Shri Sharath Reddy, Proprietor of the appellant has given a statement before the superintendent, Central Excise on 20.9.04 regarding the services rendered by his unit. He has enclosed copies of the agreement entered with M/s Citi Bank N.A. M/s Citifinancial Retail Services India Ltd. A statement has also been taken from Shri Nazar Ali, General manger on the same day. Shri Sharath Reddy has stated that he was given to understand that service tax is not applicable for the nature of business that he is doing. Service rendered by the appellant unit is sourcing customers for personal loans and housing loans on behalf of M/s Citibank N.A., and M/s Citifinancial Retail Services India Ltd. The issues to be decided are the following:
1) Under what category the services rendered by the appellant are liable to service tax in terms of Finance Act 1994?
2) whether the show cause notice is time barred as contended by the appellants?
Even though the statements were taken on 20.9.04, the show cause notice has been issued for the period from July 03 to June 04 only on 13.10.05. It is very clear that the show cause notice has been issued beyond the normal period of one year. The learned advocate stated that after the statements have been taken and the records given on 20.9.04, there was no further investigation by the department. He emphasized the point that there was no willful suppression with intent to evade payment of tax. He relied on a large number of decisions of the Apex court cited (supra) From the statement of Sharath Reddy, it appears that the appellants were under a bonafide belief that service tax is not liable to be paid in respect of services rendered by them. There is no finding that there was willful suppression of facts with an intent to evade payment of taxes. Even the show cause notice has not properly brought out the intent of the appellant to evade taxes by willful suppression of facts. In these circumstances, the extended period cannot be invoked. Thus the demand is hit by time bar. The appellants strongly contended that the services rendered by them would come only under the category of "business support services" which was introduced only with effect from 1.6.06. Since the period of demand is prior to 1.6.06, it was urged that the said services could not have been brought under the category of business auxiliary services. We reproduce the definition of "business auxiliary services."
(19) "business auxiliary service " means any service in relation to,-
(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or
(ii) promotion or marketing of service provided by the client; or (in) any customers care service provided on behalf of the client;
or
(iv) any incidental or auxiliary support service such as billing collection or recovery of cheques, accounts and maintenance, evaluation of prospective customs & public relation services, as a Commission agent, but does not include any information technology service.
From the above, it is seen that promotion or marketing of services provided by the client also come under the category of Business Auxiliary Services. Therefore, we are not inclined to accept the contention of the appellant that services provided by them would not come under the category of Business Auxiliary Service during the relevant period. The appellants actually source customers for Citibank, Citifinancial retail services for personal loans and housing loans. The actual agencies which provide the financial service by giving loans are Citibank and Citifinancial Retail Services. They are actually clients of the appellants. Since the appellants promote the services rendered by their clients, it is very clear that during the relevant period, the services rendered by the appellant would definitely fall within the category of Business Auxiliary services. However as far as the present case is concerned. This is only of academic importance as we have set aside the demand on account of time bar. In view of this we are not discussing the other issues raised by the appellant. In fine, we set aside the impugned order and allow the appeal with consequential relief.
(Operative portion of the Order already pronounced in open court on conclusion of the hearing)