Customs, Excise and Gold Tribunal - Delhi
Commissioner Of Central Excise vs Chambal Motors (P) Ltd. on 29 October, 2007
ORDER
R.K. Abichandani, J. (President)
1. In these three appeals, the common order of the Appellate Commissioner made on 16-2-2006 setting-aside the orders of the adjudicating authority have been challenged by the Revenue.
2. In Service Tax Appeal No. 239/2006, the adjudicating authority has confirmed the demand of Rs. 1,67,278/- being the amount of Service Tax not paid on the services rendered by the respondent under the head 'Business Auxiliary Service'. The respondent-assessee had received commission from the Bank as per their balance-sheet for the period from July, 2003 to March, 2004 in connection with advancing loans to the customers of the assessee who wanted to purchase vehicles for which the assessee was the dealer. In this case, the assessee had not filed ST-3 Return of 'Business Auxiliary Service', though such registration was taken. According to the Revenue, the assessee had deliberately suppressed the factual information with an intention to evade Service Tax on the "pay out" received by them from the bank for their services. The case of the assessee was that, in order to facilitate their customer to avail finance from the bank, they had been acting under an agreement with the bank by which they were required to process loan applications of such customers and after scrutinizing the same to forward them to the bank. It was their case that, while they received 3% to 5% of the financed amount for this service from the bank, they retained only 1% to 2%, and passed on the remaining amount to the customer as discount.
2.1 The adjudicating authority confirmed the demand of Rs. 1,67,278/ under Section 73(1) of Chapter V of the Finance Act, 1994, adjusted the amount of Rs. 58,954/-, which was already paid by the assessee, and directed the assessee to pay the remaining amount of Rs. 1,08,324/-, while imposing penalty of the like amount under Section 78 of the Act. Separate penalty was also imposed under Section 76 @ Rs. 100/- per day, besides penalty of Rs. 1,000/- under Section 77. Interest on delayed payment was also demanded.
3. In Service Tax Appeal No. 240/2006, the Revenue challenges the same impugned order of the Commissioner (Appeals) by which the order-in-original dated 20-10-2005 confirming the demand of Service Tax of Rs. 1,58,265/-imposing the penalty of the like amount under Section 78, a penalty of Rs. 100/-per day under Section 76 of the Act and ordering payment of interest was set-aside.
3.1 In this case, the facts and nature of agreement are similar to the facts and nature of agreement involved in the Service Tax Appeal No. 239 of 2006, with a slight difference that, in this case the assessee had filed the return but only of the net amount i.e. after deducting a portion of the commission passed on to the consumers of the assessee for whom the assessee had arranged for the finance from the banks.
4. In Service Tax Appeal No. 241 of 2006, the Revenue has challenged the same impugned order of the Commissioner (Appeals) setting-aside the order-in-original made on 18-10-2005 confirming the demand of Rs. 3,87,941/-, appropriating the Service Tax of Rs. 2,04,604/-, and directing payment of the balance amount of Rs. 1,83,337/-, and imposing penalty of the like amount under Section 78 of the Act, besides also imposing penalty @ Rs. 100/- per day under Section 76 of the Act, penalty of Rs. 1,000/- under Section 77 and demanding interest on the delayed payment.
5. The learned authorized representative for the Department submitted that, the Appellate Commissioner has proceeded on the footing as if only Banks can have clients and 'Business Auxiliary Service Provider' cannot have clients. He submitted that, the Appellate Commissioner has without going into the merits of the case, in all these three matters, decided the appeals only on the footing that, the Bank cannot be a client of a 'Business Auxiliary Service' provider. He referred to the relevant provisions of Section 65(19) and 65(105)(zzb) of the Act, to point out that even 'Business Auxiliary Service' provider can also have a client. He also referred to the nature of services falling in the category of 'Business Auxiliary Services' and pointed out that the services provided by the assessee squarely fell under Sub-clause (ii) "promotion or marketing of service provided by the client", of Clause (19) of Section 55. He also submitted that, since the evaluation of the customers who required loans was to be done under the agreements which were the subject matter of the first two appeals, wherein the assessees were dealers, the services would also be covered under Sub-clause (vii) of the said Clause (19). He drew our attention to the definition of 'Banking and other Financial Services' under Clause (12) of Section 65 of the Act and to Section 65(105)(zm), for appreciating the nature of services provided by a Banking Company or a Financial Institution to a customer.
6. The Appellate Commissioner has allowed the appeals of the assessees and set-aside the adjudicating orders mainly on the ground that, the Banks are not the clients of the assessees. In paragraph 10 of the impugned order, he refers to the definition of 'Business Auxiliary Services' by observing that the tax is on the commission received from the client. It is observed that the assesses were not getting any remuneration or fees directly from the client and, therefore, they did not satisfy the requirement of the definition of 'Business Auxiliary Services'. It is further observed that there was no value addition by these assessees who had only been getting the share of income from the Bank out of their income and out of which some amount was passed on to the customers as held in the adjudicating orders. It was further observed that, there was no input or output service concept in the context of Banks providing the service to their customers. The Commissioner (Appeals) held that the service provided by the present respondent-assessee was not covered under the category of 'Business Auxiliary Services'. He also found force in the contention of the assessee that there was double taxation and agreed with the contention that there was no value addition by the respondents-assessees and that there was no allegation in the show cause notices that, the Banks were not discharging their service tax liability.
7. is obvious from the reasoning adopted by the Commissioner (Appeal's) mat he has proceeded on totally an erroneous footing that, a bank cannot avail of 'Business Auxiliary Services' as a client. From the nature of agreements on record including the franchisee agreement in the third appeal, it is clear that the assessees were, under an agreement with the bank had undertaken to provide service in relation to promotion or marketing of the 'Banking and Financial Services' provided by the banks. The banks were providing services under the category 'Banking and Other financial services' falling in Clause (12) of Section 65. In relation to those services, the respondent - assessees were providing services for promotion or marketing of the banking and other financial services provided by the banks. The banks were, therefore, their clients being recipient of such services from the respondents. It has come in evidence that the respondents were required to obtain loan applications from their customers who desired to avail loans from the banks. The respondents had undertaken to process those applications and after scrutiny forward them to the bank. Admittedly, for such services, they were paid commission by the bank, which was reflected in their account. Once consideration accrued to them, as against the services provided by them to the bank, by way of commission, it was hardly of any consequence how a portion of that commission, which as per the particulars provided by the Bank was given as "pay out" to assessees in respect of which even the TDS was deducted, was spent by them. If they chose to give some amount from that gross commission amount to their customers either directly or through the bank, it would not change the nature of the receipts in their hand. However, since the Commissioner (Appeals) did not go into merits, the question that is required to be examined by the Commissioner (Appeals), is, about the nature of arrangement that existed under the agreement and whether, in reality, any commission was being passed on at the instance of the bank, or by the bank. The question would also remain whether the amount was directly given to the customers of the assessees under some tripartite agreement and whether it became actually payable to the respondents and, if so, at what stage?
8. We, therefore, set-aside the impugned order of the Commissioner (Appeals) in all these three matters and remand the matters to the Commissioner (Appeals) for reconsidering of all three appeals on merits and decide them afresh, in accordance with law and in light of the observations made in this judgment. The appeals are, accordingly, allowed by way of remand.
(Dictated and pronounced in open court on 29-10-2007)