Custom, Excise & Service Tax Tribunal
M/S. United Telecoms Ltd vs Cst, Hyderabad on 20 October, 2010
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT BANGALORE
Bench Division Bench
Court I
Date of Hearing: 13/05/2010
Date of decision:..
Appeal No. ST/566/09
(Arising out of Order-in-appeal No.24/2009(H-II) S.Tax dt. 19/5/2009 passed by Commissioner(Appeals), Hyderabad)
For approval and signature:
Honble Mr. M.V. Ravindran, Member(Judicial)
Honble Mr. P. Karthikeyan, Member(Technical)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
No
2.
Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3.
Whether their Lordship wish to see the fair copy of the Order?
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
Yes
M/s. United Telecoms Ltd.
..Appellant(s)
Vs.
CST, Hyderabad
..Respondent(s)
Appearance Mr. B.N. Gururaj, Advocate for the appellant.
Mr. M.M. Ravi Rajendran, JDR for the Revenue.
Coram:
Honble Mr. M.V. Ravindran, Member(Judicial) Honble Mr. P. Karthikeyan, Member(Technical) FINAL ORDER No._______________________2010 Per P. Karthikeyan This appeal filed by M/s. United Telecoms Ltd. (UTL), Hyderabad challenges an order of the Commissioner(Appeals). The Commissioner(Appeals) sustained demand of service tax confirmed against UTL to the tune of Rs.15,68,451/- found due from them for providing services classifiable under Business Auxiliary Services(BAS) during the period November, 2007 to September, 2008. The interest demanded on the tax amount confirmed is also sustained.
2.1. Facts of the case are that UTL, an assessee registered with the Department as a provider of services falling under Commercial Training or Coaching Center was found to have established e-Seva Technology application system on Built, Own, Operate and Transfer (BOOT) basis to facilitate payment of utility bills, tax payments, issue of certificates, permits, licences etc. The e-Seva project run by the Andhra Pradesh State Government provided counters for payment of electricity bills, water and sewerage bills, telephone bills, property taxes etc. It also issued certificate of registration of births and deaths, encumbrance certificate etc. The Director, e-Seva had entered into an agreement dt. 19/5/2003 with UTL. As per the agreement, the scope of the e-Seva project intimated by UTL to the Department is as follows:-
(i) Procurement and installation of hardware like servers for setting up 51 Integrated Citizens Service Centers (ICSC) in all three districs spanning 23 municipalities.
(ii) Networking the different ICSCs and connecting the backend services of the associated departments and agencies.
(iii) Implementation of the solution and training of the project personnel in running the application.
(iv) Owning and maintaining of the system on a turn key basis including supply of consumables stationary and media, and other material essentially to provide the services and meeting the cost of electricity, telecommunication, water, house keeping, security and connectivity charges at the e-Seva centre for entire contract period of five years.
(v) At the end of five years, all the hardware and software to be handed over to the Government in working condition.
(vi) The electricity connection and leased lines required for connectivity have to be obtained in the name of the Government.
(vii) Servers of the participating departments like Transco, Municipalities etc. have been procured and installed and managed by the concerned departments themselves.
2.2. The project undertaken by UTL on BOOT basis covered East Godavari, West Godavari and Krishna districts in Andhra Pradesh. As per the show cause notice dt. 12/12/2008, UTL maintained e-Seva centers which were nothing but multi-purpose cash counters where payments of various bills like telephone bills, electricity bills, property tax bills, road tax bills could be paid by any person. The center also sold cinema tickets, bus tickets etc. The scheme had been implemented by the State Government to provide a single window for facilitating various statutory payments such as utility bills, obtaining of certificates, permits, licences etc. The work involved has been outsourced and is being got done through UTL. In order to carry out the contractual obligation, UTL installed network related equipment such as routers, firewalls, switches, etc. for accessing the data base belonging to various central and state government departments when transactions were carried out at e-Seva counters, the database of the concerned participating department was updated. In the show cause notice, it was indicated that incidental or auxiliary service such as billing, issue or collection or recovery of cheques, payments etc., are taxable under the category Business Auxiliary Service(BAS) or Business Support Service(BSS). UTL raised monthly bill on Director, e-Seva for collecting their service charges. After reproducing the definition of the entry BAS of clause 19 of Section 65 of the Finance Act, 1994(the Act), the notice also indicated that the services rendered by UTL equally merited classification under BSS of clause 104C of Section 65 of the Act. The notice stated that a show cause notice dt. 8/1/2008 had been issued to UTL for demanding service tax of Rs.1,06,23,697/- pertaining to the period 2003-2004 to October, 2007 and the same had been adjudicated confirming the demand vide Order-in-Original No.22/2008-ST dt. 25/11/2008. Adjudicating the show cause notice, the Jt. Commissioner relied on the findings of the Commissioner contained in the above Order-in-Original No.22/2008-ST dt. 25/11/2008. He reproduced and relied on the findings of the Commissioner in his order. The Jt. Commissioner noted that he was entirely in agreement with the findings of the Commissioner. The Commissioner had found UTL to be a commission agent who had maintained accounts of entities participating in the e-Seva project. However, the Original Authority decided the show cause notice in the instant case holding that the demand of service tax raised in the notice is sustainable under BAS and BSS. Accordingly, he confirmed demand of Rs.15,68,451/- plus interest and imposed penalties on UTL under Sections 76 and 77 of the Act.
2.3. In the impugned order, the Commissioner(Appeals) observed that the Original Authority himself was not clear under which category of service the activity of the appellants was liable to service tax. The Commissioner(Appeals) reproduced Section 65A(2), the statutory provision for classification of a taxable service prima-facie classifiable under two or more sub-clauses of Clause 105 of Section 65 and observed as follows:-
The lower authority has obviously not followed principles detailed supra and clearly erred in holding that the services rendered by the appellants are classifiable under both Business Auxiliary Service as well as Business Support Service. Having reproduced the findings of the Commissioner in the impugned order and having observed that I am in agreement with the aforesaid findings of the Commissioner, there was no need to come to such a weird conclusion of classifying the service under more than one head. 2.4. As regards the merits of the demand, the Commissioner recorded the following findings:-
As seen from the case records, the various participating entities such as BSNL, AP Transco, Airtel etc. enter into an agreement with the e-Seva for collection of bill amounts on payment of service charges to the latter. In turn the Director, e-Seva enters into an agreement with the appellants and the latter as a Technology Partner provides online transaction access or facility in respect of uitility bills / tax payments, issue of certificates & permits to the citizens. For the services so rendered, the appellants get paid by the Director, e-Seva on a monthly basis based on the number of transactions. As contended by the appellants, there is no contract between them and the citizen and no consideration flows from the citizen to them. Nevertheless the fact remains that they provide service on behalf of the client i.e. Director, e-Seva for a consideration and hence the services rendered by them fall under the category of Business Auxiliary Service and thus liable to service tax. Hence, I hold that the appellants are liable to pay service tax with appropriate interest. He set aside the penalties imposed by the Original Authority but sustained the demand.
3. In the appeal filed before the Tribunal, UTL raised the following grounds:-
a. The impugned order deserved to be set aside as the Commissioner had ignored most of the submissions made by the appellants. After finding the decision on classification of the Original Authority as a weird conclusion, the Commissioner should have set aside the Order-in-Original. The Director, e-Seva merely provided certain facilitation measures to the citizens at large though the Government itself earned no revenue from e-Seva. The appellant was engaged for providing facility to the citizens instead of the Government providing such facility itself. The appellant was compensated by payments for the transactions put through as per the agreement. Certain services involved were sovereign services like issue of driving licence by RTO, issue of birth and death certificates and trade certificate from municipality etc. The impugned service was not classifiable under any entry in the Act. Therefore, no service tax could be imposed.
b. The appellants had challenged the demand claiming that the impugned activity was not covered under any of the sub-clauses (i) to (vii) of clause (19) of Section 65 of the Act. The appellate authority had ignored these arguments. Under the e-Seva scheme the relevant data were maintained by the participating entities themselves. The appellants right was limited to accessing the data of the participating entities and update them upon payment of cash and issue receipts. In the absence of contract between the appellant and the citizens or consideration flowing from them, e-Seva could not be held as taxable service. It is submitted that the UTL neither provided services to the Director, e-Seva nor acted as their agent. There was no principal agent relationship among the participating entities in the e-seva scheme and therefore there was no basis for the appellate authority to treat the appellant as the technology partner.
The appellants sought to vacate the impugned demand and penalties.
4. During hearing, the ld. Counsel for the appellants submitted that the impugned order wrongly sustained the demand after finding that the show-cause notice had proposed to confirm demand against the appellants for services classified under BAS and BASS. The Commissioner(Appeals) found that the demand of service tax under BAS and BSS confirmed by the Original Authority was weird. The show-cause notice also contained this weird proposal. The impugned order passed on such a show-cause notice with vague proposals as to the liability of the assessee was not liable to be sustained. The ld. JDR reiterates the findings contained in the impugned order.
5. We have carefully perused the records and considered the rival submissions. We find that in the instant case, the show-cause notice basic to the proceedings had proposed to classify the activity rendered by the appellants under BAS and BSS. In the order of the Original Authority, that authority held that the activity involved fell under BAS and BSS. He had reproduced the findings of the Commissioner contained in Order-in-Original No.22/2008-ST which had classified the impugned activity under BAS. In the impugned order, the Commissioner(Appeals) observed that the Original Authority had arrived at a weird conclusion by classifying the service under more than one head. However, he found that various participating entities such as BSNL, AP Transco, Airtel etc. entered into an agreement with e-Seva for collection of bill amounts on payment of service charges. In turn the Director, e-Seva entered into agreement with UTL and the latter provided online transaction access or facilities in respect of payments, issue of certificates and permits to the citizens as a technology partner. For the services so rendered, Director, e-Seva paid UTL on a monthly basis based on the number of transactions. This constituted service on behalf of the client i.e. Director, e-Seva for a consideration. Hence, the services rendered by them fell under the BAS. Accordingly, he upheld the demand.
6. We find that no demand can be confirmed against any person towards service tax liability unless he/it is put on notice as to its exact liability under the statute. In the show-cause notice basic to the proceedings, the impugned activities were proposed to be classified under BAS and BSS. This proposal was confirmed by the Original Authority. We find that this order is not in accordance with the law. The impugned order held that UTL provided services on behalf of the client i.e. Director, e-Seva and sustained the demand. We find that under BAS, there are seven sub-clauses. Demand under sub-clause (vii) could be on activities relatable to either one of the preceding six sub-clauses. Therefore, if a notice issued proposing demand under BAS, the noticee will not be aware as to the precise ground on which tax is proposed to be demanded from him unless the sub-clause is specified. In the instant case, service tax was proposed to be demanded for an activity under BAS and BSS. Under BSS also several activities are listed as exigible under that head. In the absence of proposal in the show-cause notice as to the liability of the assessee under the precise provision in the Act, we find the demand to be not sustainable.
6.1. The Commissioner(Appeals) found the decision of the Original Authority to classify the impugned services under BAS and BSS as weird. We find that that was the proposal in the show-cause notice. The impugned order could not have confirmed the demand under BAS based on a weird and vague proposal. As argued by the appellants, the Commissioner(Appeals) could not have upheld the demand after finding that the demand of the Original Authority followed a weird conclusion.
7. Accordingly, we vacate the demand and penalties imposed on the appellants and allow this appeal.
(Pronounced in court on ..) (P. KARTHIKEYAN) MEMBER (TECHNICAL) (M.V. RAVINDRAN) MEMBER (JUDICIAL) Nr 9