2014 (8) TMI 856 - AT - Service Tax

Tax Dispute Resolved: ICICI Bank Marketing Services Appeal Succeeds on Procedural Grounds and Bonafide Misconception Principle

M/s SMART FINANCE Versus COMMISSIONER OF CENTRAL EXCISE, JAIPUR

SC allowed the appeal against Commissioner (Appeals) Jaipur's order. The case involved allegations of marketing services for ICICI Bank without proper ... Extended period of limitation - bonafide belief - marketing agent service - Business Auxiliary Service - Held that:- The order of the appellate authority is equally misconceived as there is no provision for an assessee to seek advisory opinion from departmental officers nor is any statutory provision brought to our notice which authorises departmental officers to provide advice on interpretation of provisions of the Act; assessment of transactional facts qua the provisions of the Finance Act, 1994 and provide guidance on taxability or otherwise. The perception of the learned appellate Commissioner that every departmental officer is a sui generis advance ruling authority is a misconception that has no legislative basis. Since the primary authority had clearly recorded the finding that the appellant was under bonafide misconception as to the liability to tax and had dropped penalty under Section 77 for that reason, that finding equally covers the case in favour of the assessee both with regard to imposition of penalty under Section 78 as well initiation of proceedings by invoking the extended period of limitation. Revenue has not preferred any appeal against the order of the primary authority against dropping of penalty under Section 77 of the Act. impugned order of learned appellate Commissioner is unsustainable and is quashed - Decided in favour of assessee. 1. ISSUES PRESENTED and CONSIDERED- Whether the appellant's activities as a marketing agent for loan products of a bank constitute 'Business Auxiliary Service' under Section 65(19) of the Finance Act, 1994, thereby attracting service tax liability.- Whether the extended period of limitation for initiating proceedings under the Finance Act, 1994 was validly invoked given the timing of issuance of the show cause notice.- Whether penalty under Section 78 of the Finance Act, 1994 can be imposed on the appellant despite a finding of bona fide misconception regarding tax liability and the dropping of penalty under Section 77.- Whether the appellant's failure to seek departmental clarification on taxability impacts the validity of penalty imposition.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Taxability of the appellant's services as Business Auxiliary Service under Section 65(19) of the Finance Act, 1994The show cause notice alleged that the appellant, acting as a marketing agent for loan products of ICICI Bank Limited during 13.01.2005 to 10.04.2008, provided Business Auxiliary Services within the meaning of Section 65(19) of the Finance Act, 1994, thereby attracting service tax liability. The Assistant Commissioner and the Commissioner (Appeals) considered the nature of the appellant's activities to determine taxability.While the judgment does not elaborate extensively on the detailed legal framework for this classification, it is implicit that the appellant's role as a marketing agent falls within the ambit of auxiliary services supporting the business of the bank, which are taxable under the Finance Act. The Court accepted that the appellant had earned commission income from these activities, which prima facie attracts service tax.Issue 2: Validity of invoking extended period of limitationThe proceedings were initiated by a show cause notice dated 11.03.2010, which was issued beyond the normal one-year limitation period from the relevant date of filing returns, thus invoking the extended period of limitation. The Court considered whether this invocation was justified.The appellate authority upheld the extended limitation invocation, but the Court found contradictions and incoherences in both primary and appellate orders on this point. The primary authority had recognized the appellant's reasonable cause for delay, given the appellant's small scale and unawareness of the statutory provisions, and had accordingly dropped penalties under Section 77. This finding of bona fide misconception undermines the justification for invoking extended limitation, as the appellant did not deliberately evade tax but was under a genuine misunderstanding of liability.Issue 3: Imposition of penalty under Section 78 despite bona fide misconception and dropping of penalty under Section 77The Assistant Commissioner dropped penalty under Section 77, acknowledging the appellant's reasonable cause and lack of willful default. However, penalty under Section 78 was imposed alongside confirmation of service tax demand.The appellate authority justified penalty under Section 78 on the ground that the appellant had a doubt about taxability but failed to approach the department for clarification, thereby deliberately avoiding payment and suppressing facts.The Court rejected this reasoning, holding that there is no statutory provision empowering an assessee to seek advisory opinions from departmental officers, nor any obligation to do so before payment. The assumption that departmental officers serve as advance ruling authorities is a misconception without legislative basis. Therefore, the appellant's failure to seek departmental clarification cannot be construed as deliberate evasion or suppression.Given the primary authority's finding of bona fide misconception and dropping of penalty under Section 77, the Court held that penalty under Section 78 is unsustainable.Issue 4: Treatment of appellant's failure to seek departmental clarificationThe appellate authority's view that the appellant's doubt about taxability was irrelevant and that failure to seek departmental guidance amounted to deliberate avoidance was critically examined.The Court emphasized that no statutory mechanism exists for such advisory clarifications by departmental officers, and hence the appellant cannot be faulted for not obtaining such guidance. This reasoning was treated as a fundamental error in the appellate order.3. SIGNIFICANT HOLDINGS- 'The perception of the learned appellate Commissioner that every departmental officer is a sui generis advance ruling authority is a misconception that has no legislative basis.'- The Court affirmed that a bona fide misconception about tax liability, especially when recognized by the primary authority leading to dropping of penalty under Section 77, precludes imposition of penalty under Section 78.- The invocation of extended limitation period is not justified where the appellant is under reasonable cause and bona fide misconception, as found by the primary authority.- The appellant's failure to seek departmental clarification on taxability cannot be construed as deliberate evasion or suppression of facts in the absence of any statutory provision mandating or authorizing such advisory opinions.- The appellate order imposing penalty under Section 78 and confirming service tax demand is quashed as unsustainable.- The appeal is allowed with no order as to costs, and pre-deposit requirements are waived considering the narrow compass of the issue and bona fide nature of the appellant's position.