2012 (7) TMI 255 - AT - Service Tax

CESTAT rules services not 'Business Auxiliary Service' under Finance Act, 1994.

M/s SMART CHIP LTD Versus COMMISSIONER OF CENTRAL EXCISE, BHOPAL

The Appellate Tribunal CESTAT, New Delhi, allowed the appeal as the services provided by the appellant were found not to qualify as 'Business Auxiliary ... Business Auxiliary Service - procuring blank cards, loading operating system on these cards, obtaining photo/thumb impression and other information, storing and printing the said information in the card, and ultimately dispatch the loaded cards to the customers on behalf of the transportation authority on B.O.T. basis.- assessee contested that it operated under a contract to build a system for benefiting the Regional Transport Authority and District Transport Authority as well as the consumers - Held that:- Looking into the functional specifications and reading all these clauses states that the appellant carried out specific independent activities with different kinds of remuneration, package for such works. There was also no split of the contract made to examine different aspects to ascertain taxability - when there is no effort made to judge the activity carried out by the appellant in accordance with the letters of law, adjudication fails to sustain. Revenue also fails to get helping piecemeal reading of the law without proving that the services provided by the appellant was auxiliary in nature to serve the purpose of business of client - in favour of assessee. Issues:Interpretation of 'Business Auxiliary Service' under the Finance Act, 1994. Determination of taxability of services provided under a contract. Examination of specific activities carried out by the appellant. Application of Section 65(19)(iv) of the Finance Act, 1994. Assessment of whether the services provided fall within the scope of 'Business Auxiliary Service.'Issue 1: Interpretation of 'Business Auxiliary Service' under the Finance Act, 1994:The appellant contended that the services provided did not fall under the definition of 'Business Auxiliary Service' as per the Finance Act, 1994. The appellant argued that the agreement entered into was for building a system to benefit the Regional Transport Authority and District Transport Authority, not for providing business auxiliary services. The authorities failed to establish a specific incidence of levy under the category of 'Business Auxiliary Service,' rendering the adjudication order unsustainable.Issue 2: Determination of taxability of services provided under a contract:The Departmental Representative argued that the services provided by the appellant, as detailed in the impugned order, fell within the scope of 'Business Auxiliary Service' under Section 65(19) of the Finance Act, 1994. The activities performed by the appellant, such as procuring blank cards, loading operating systems, and dispatching loaded cards, were considered taxable services. It was contended that the primary activity of issuing Smart Cards with readable chips fell within the category of services taxable under the Act.Issue 3: Examination of specific activities carried out by the appellant:The Tribunal analyzed the scope of activities carried out by the appellant as per the agreement terms. It was observed that the appellant's obligations included establishing a central server and operational work related to the transport department. The Tribunal noted that the contract did not specify independent activities with different remunerations, and there was no effort to segregate the contract for tax assessment purposes. The lack of detailed examination of the activities in accordance with the law led to the failure of the adjudication to sustain.Issue 4: Application of Section 65(19)(iv) of the Finance Act, 1994:The Tribunal considered whether the activities performed by the appellant, particularly the procurement of goods as input for the State of Madhya Pradesh, fell within the purview of Section 65(19)(iv) of the Finance Act, 1994. It was argued that the issuance of Smart Cards with readable chips constituted a service falling under this category. However, the Tribunal found no legal infirmity in the adjudication order based on this argument.Issue 5: Assessment of whether the services provided fall within the scope of 'Business Auxiliary Service':The Tribunal emphasized that the contract's objective was to build a system, not to provide 'Business Auxiliary Service.' Referring to a judgment of the Hon'ble High Court of Delhi, the Tribunal highlighted that building a system could not be considered as falling under 'Business Auxiliary Service.' The Tribunal concluded that the services provided by the appellant did not qualify as auxiliary in nature to serve the client's business purpose, leading to the allowance of the appeal based on the provided reasoning.This comprehensive analysis of the judgment highlights the key issues addressed by the Appellate Tribunal CESTAT, New Delhi, regarding the interpretation of 'Business Auxiliary Service' and the taxability of services provided under a specific contract.