2011 (6) TMI 129 - AT - Service Tax

Tribunal decision: Partially upholds department's claim, reduces demand. Ruling on services related to debentures and reimbursable expenses.

The Tribunal partially upheld the department's claim regarding mobilizing deposits under Sahara Swarn and Rajat Yojna, reducing the demand to Rs. ... Waiver of pre-deposit - Real Estate Agent Service' and 'Business Auxiliary Services - applicants prima facie are liable to pay the sum of Rs. 2,69,16,641 on account of mobilising fund under Sahara Swarn and Rajat Yojana under the category of real estate agent services - applicants are having a running account with M/s SICCL and most of the times they are making the transactions in their accounts on the basis of book entry, the applicants are collecting the money on behalf of M/s SICCL and paying the same to M/s SICCL - applicants are directed to make a pre-deposit of Rs. 34,20,74,427 within 8 weeks from today and report compliance on 12-9-2011. On such compliance balance amount of service tax, interest and penalties shall remain stayed during the pendency of appeal Issues Involved:1. Mobilizing deposits under Sahara Swarn and Rajat Yojna.2. Land Procurement Charges.3. Mobilizing applications for Sahara Debentures.4. Personalized Services provided to Debenture holders.5. Excludability of reimbursable expenses.Detailed Analysis:Issue No. 1 - Mobilizing deposits under Sahara Swarn and Rajat Yojna:The applicants were mobilizing deposits under Sahara Swarn and Rajat Yojna schemes. The department argued that these services fall under 'Real Estate Agent Service' as the schemes gave depositors the option to purchase real estate. The applicants contended that the mobilization of deposits did not have any nexus with real estate sales, as 90% of the deposits were not used for purchasing immovable property. The Tribunal found that 10% of the funds mobilized were utilized towards the purchase of immovable property, thus partially falling under 'Real Estate Agent Service.' The Tribunal also noted that reimbursable expenses should not form part of the taxable value, as they were not received towards rendering taxable services. Therefore, the demand under this head was reduced to Rs. 2,69,16,641.Issue No. 2 - Land Procurement Charges:The applicants provided services related to the verification of land/title documents, which the department classified under 'Real Estate Agent Service.' The applicants contended that they had not received any payment towards land procurement charges during the relevant period. They supported their claim with certificates from their Chartered Accountant and statements from their auditor. However, the Tribunal found that the applicants had a running account with SICCL and that the transactions were recorded as book entries. Therefore, the demand under this head was considered prima facie sustainable, amounting to Rs. 31,51,57,786.Issue No. 3 - Mobilizing applications for Sahara Debentures:The department classified the services provided in mobilizing applications for Sahara Debentures under 'Business Auxiliary Service,' arguing that debentures constitute 'goods.' The applicants contended that debentures are actionable claims and not goods, relying on the Supreme Court judgment in R.D. Goyal v. Reliance Industries Ltd. The Tribunal agreed with the applicants, noting that debentures are actionable claims and thus excluded from the definition of 'goods' under the Sale of Goods Act, 1930. Therefore, the demand under this head was not sustainable.Issue No. 4 - Personalized Services provided to Debenture holders:The department argued that the services provided to debenture holders fell under 'Business Auxiliary Service.' The Tribunal, however, noted that since debentures are not 'goods,' any service related to debentures would not attract service tax under 'Business Auxiliary Service.' Therefore, the demand under this head was also not sustainable.Issue No. 5 - Excludability of reimbursable expenses:The applicants argued that reimbursable expenses should not form part of the taxable value. The Tribunal noted that the Commissioner had agreed in principle that reimbursable expenses are outside the taxable value but had included them due to lack of documentary evidence. The Tribunal found that the applicants had offered to provide all supporting documents for verification and that the denial of reimbursable expenses was not convincing. Therefore, the demand of service tax on reimbursable expenses was not sustainable.Conclusion:The Tribunal directed the applicants to make a pre-deposit of Rs. 34,20,74,427, which includes Rs. 2,69,16,641 for mobilizing deposits under Sahara Swarn and Rajat Yojna and Rs. 31,51,57,786 for land procurement charges. The balance amount of service tax, interest, and penalties shall remain stayed during the pendency of the appeal. The Tribunal also noted that the extended period of limitation was invocable as the applicants had not disclosed their activities to the department.