2012 (3) TMI 284 - AT - Service Tax

Tribunal grants waiver on service tax demand, interest, penalties. Recovery stayed pending appeal. Appeal set for final hearing.

The tribunal granted a complete waiver of the pre-deposit of service tax demand, interest, and penalties imposed against the applicants. The recovery of ... Waiver of pre-deposit - Stay of recovery - Prima facie case for waiver - Business Auxiliary Services - Business Support Services - Principal-to-principal transaction - Infrastructural support serviceBusiness Auxiliary Services - Principal-to-principal transaction - Prima facie case for waiver - Liability to service tax on IPO financing fees charged as revenue share with NBFCs - HELD THAT: - The Tribunal examined the MOU between the applicants and sister NBFCs and found that the applicants arranged finance through the NBFCs and shared profit after expenses; the applicants also agreed to compensate NBFCs for any demand. On these facts the applicants did not act as commission agents but dealt on a principal-to-principal basis and shared profits. Consequently the activity did not constitute rendering of a service under the head Business Auxiliary Services, and the applicants established a strong prima facie case against the demand adjudged for IPO financing fees. [Paras 3]Prima facie not liable to service tax under Business Auxiliary Services; case for waiver of pre-deposit made out.Business Auxiliary Services - Prima facie case for waiver - Liability to service tax on interest share received by applicants for deposits collected on behalf of IPO-issuing companies - HELD THAT: - The Tribunal found that applicants collected money on behalf of the IPO-issuing company and deposited it in a designated bank; the bank earned interest and shared that interest with the applicants. The interest share arose from the bank's earnings on deposits and not because the applicants were promoting or marketing the bank's services. Therefore the transaction did not prima facie fall within Business Auxiliary Services, and the applicants established a case for complete waiver of pre-deposit in respect of this processing fee activity. [Paras 3]Prima facie not liable to service tax under Business Auxiliary Services; case for 100% waiver of pre-deposit made out.Business Support Services - Infrastructural support service - Prima facie case for waiver - Liability to service tax on recovery of common expenses from co-users of premises - HELD THAT: - The Tribunal observed that the applicants incurred common expenses for the premises and recovered those expenses from co-users on actual usage basis. As the recoveries were reimbursement of actual expenses incurred on behalf of co-users and not a separate service provision, the activity did not prima facie amount to rendering Business Support Services or Infrastructural support service. On that basis the applicants were held not to be rendering any taxable service in this respect and established a prima facie case for waiver. [Paras 3]Prima facie not liable to service tax under Business Support Services; case for 100% waiver of pre-deposit made out.Final Conclusion: The Tribunal found prima facie absence of liability under the challenged service categories for the IPO financing fees, processing fee interest share, and recovery of common expenses, and accordingly granted complete waiver of the pre-deposit of the service tax demand, interest and penalties and stayed recovery during the pendency of the appeal; appeal listed for final hearing on 06.03.2012. Issues:1. Waiver of pre-deposit of service tax demands confirmed under 'Business Auxiliary Services' and 'Business Support Services'.Analysis:The judgment pertains to the waiver of pre-deposit of service tax demands confirmed against the applicants under the categories of 'Business Auxiliary Services' and 'Business Support Services.' The first issue addressed is regarding IPO Financing Fees. The demand was confirmed against the applicants for IPO finance under 'Business Auxiliary Services.' The applicants were financing their clients through Non-Banking Finance Companies (NBFCs) and sharing the income of interest earned by these NBFCs on a revenue-sharing basis. The department contended that the applicants were promoting the business of the NBFCs, thus falling under 'Business Auxiliary Services.' However, the tribunal found that the applicants were not acting as commission agents but were doing business on a principal-to-principal basis, sharing profits. Consequently, the tribunal held that the applicants were not rendering any service under 'Business Auxiliary Services,' warranting a waiver of pre-deposit.Moving on to the second issue of Processing Fee, the applicants collected money on behalf of a company issuing IPOs and deposited it in a designated bank. The revenue claimed that this activity promoted the business of banks, making the applicants liable for service tax under 'Business Auxiliary Services.' The tribunal observed that the interest income shared by the bank with the applicants was not due to promoting the bank's services. Therefore, the tribunal concluded that the applicants were not liable to pay service tax under this category, justifying a 100% waiver of pre-deposit.Lastly, the issue of Recovery of Common Expenses was considered. The expenses recovered by the applicants from co-users of premises were deemed by the department as infrastructural support services falling under 'Business Support Services.' However, the tribunal found that the applicants were not providing any service, as they were merely recovering expenses incurred on all premises from co-users based on actual usage. Consequently, the tribunal ruled in favor of a 100% waiver of pre-deposit for this issue as well.In conclusion, the tribunal granted a complete waiver of the pre-deposit of service tax demand, interest, and penalties imposed against the applicants. The recovery of dues adjudged in the impugned order was stayed during the pendency of the appeal. Additionally, due to the substantial revenue involved, the appeal was directed to be listed for final hearing on a specified date.