2013 (9) TMI 109 - AT - Service Tax

Tribunal Upholds Business Auxiliary Service Classification, Reverses Commissioner's Decision

CCE, Kanpur Versus M/s Agra Computers

The Tribunal overturned the appellate Commissioner's decision and upheld the adjudicating authority's classification that the services provided by the ... Service tax liability - Classification - Bundled service - Business Auxiliary service - operating specified Spot Billing Centres and their maintenance. - processing bills and receiving payments through cheques and for issuing bills cum receipts to consumers - Several agreements between the assessee and Dakshinanchal Vidyut Nigam Ltd. (DVVNL) revealed that it was providing BAS to DVVNL; that for the period in issue - 10.9.2004 to 31.3.2006, the assessee failed to obtain registration as a service tax provider; to remit tax for the taxable services provided; and the assessee is consequently liable to remit service tax, interest and penalties as specified in the Show-cause Notice - Adjudicating authority concluded that the assessee was providing the taxable BAS and confirmed liability of service tax – Subsequently, the appellate authority on independent analysis of the agreements which are the basis for the services provided by the assessee, concluded that services provided are comprehended within support service of business or commerce and not BAS. Held that:- the bundled services provided by the assessee require to be analysed for identifying the appropriate classification, in accordance with the guidance provided by provisions of Section 65A (2)(b). The assessee has offered a bouquet comprising different services which include information technology services and Business Auxiliary Services as well. Which of this complex of services provides the essential character to the asessee’s transaction is the issue. Exclusion of information technology service from BAS - Held that:- from the definition of BAS qua Section 65(19) of the Act, it is clear that to fall within (the excluded) information technology service, the service should primarily be a service in relation to designing or developing software or system networking or any other services in relation to operation of computer system. If however, the designing or developing of computer software or systems networking or services in relation to operation of a computer system is a mere adjunct of another or other substantial raft of services to be provided, the service would not amount to information technology service within the meaning of the expression and the context in which this exclusionary clause is designed in the frame work of the definition of BAS, under Section 65(109) The activities of the assessee relate back office services, to lead tax services, international assignment services and other business activities and not related to development of software. The generic nature of the assessee’s operations was held to fall within BAS and not Information Technology Service. Relying upon the judgment in the case of CCE, Vs. Deloitee Tax Services India Pvt. Ltd [2008 (3) TMI 35 - CESTAT, BANGALORE]; Phoenix IT solutions Ltd. Vs. CCE [ 2011 (1) TMI 642 - CESTAT, BANGALORE], it is held that reasons recorded above that the ld. Appellate Commissioner erred in concluding that the transactions of the assessee constituted support services for business or commerce and not business auxiliary services, as held by the adjudicating authority. This conclusion of the appellate Commissioner is misconceived and is predicated on an erroneous analysis of provisions of Section 65(19) of the Act, applied to the facts and the material on record – Decided in favor of Revenue. Issues Involved: Classification of services provided by the assessee; applicability of Business Auxiliary Service (BAS); applicability of support service for business or commerce; applicability of information technology service; correctness of the appellate authority's decision.Issue-wise Detailed Analysis:1. Classification of Services Provided by the Assessee:The core issue revolves around whether the services provided by the assessee to DVVNL fall under Business Auxiliary Service (BAS), support service for business or commerce, or information technology service. The adjudicating authority concluded that the services were BAS, while the appellate Commissioner classified them as support services of business or commerce, rejecting the information technology service classification.2. Applicability of Business Auxiliary Service (BAS):BAS is defined under Section 65(19) of the Finance Act, 1994, and includes services like promotion or marketing of goods or services, customer care, procurement of goods or services, and other auxiliary services such as billing, collection, and maintenance of accounts. The adjudicating authority found that the services provided by the assessee, including processing of electricity bills and maintaining software, fell within the scope of BAS. The Tribunal emphasized that the essential character of the services provided was aligned with BAS, as 91% of the total consideration was allocated for processing electricity bills, which is a significant component of BAS.3. Applicability of Support Service for Business or Commerce:Support services of business or commerce are defined under Section 65(104c) and include activities like evaluation of prospective customers, processing of purchase orders, and customer relationship management. The appellate Commissioner initially concluded that the services provided by the assessee were support services for business or commerce. However, the Tribunal found this conclusion erroneous, emphasizing that the primary function of the assessee was processing electricity bills, which aligns more closely with BAS.4. Applicability of Information Technology Service:Information technology service is defined as services related to designing, developing, or maintaining computer software or systems. The appellate Commissioner rejected the assessee's claim that their services fell under this category. The Tribunal agreed with this rejection, noting that the software-related activities were ancillary to the primary service of processing electricity bills, which is a component of BAS.5. Correctness of the Appellate Authority's Decision:The Tribunal found that the appellate Commissioner erred in classifying the services as support services for business or commerce. The Tribunal emphasized that the essential nature of the services provided by the assessee was more aligned with BAS. The Tribunal cited previous judgments, including CCE vs. Deloitte Tax Services India Pvt. Ltd. and Phoenix IT Solutions Ltd. vs. CCE, which supported the classification of similar services under BAS.Conclusion:The Tribunal concluded that the appellate Commissioner's decision was based on an erroneous analysis of the provisions of Section 65(19) of the Act. The Tribunal quashed the appellate Commissioner's order and restored the adjudicating authority's order, confirming that the services provided by the assessee fell under BAS. The appeal was disposed of without costs, and the cross-objections were also disposed of in terms of the appeal.