2015 (6) TMI 543 - AT - Service Tax

Appellants' Service Tax Liability Upheld, Extended Demand Period Rejected

The tribunal held that the service provided by the appellants is liable to service tax under Business Auxiliary Service. It ruled that the extended period ... Business Auxiliary Service - appellants were providing Short Message Peer to Peer (SMPP) service to various clients but were not paying service tax thereon - Held that:- Telecommunication service defined under Section 65(109a) requires that the services, inter alia, is rendered by a person, who has been granted a licence under the first proviso to sub-section (1) of Section 4 of Indian Telegraph Act, 1985 and the appellants not having been granted such a licence are not covered thereunder. Consequently, the appellants' contention that as they are covered under Telecommunication Service, they cannot be covered under BAS is totally invalid [even if the contention that being covered under Telecommunication Service would necessarily mean they were not covered under any other taxable service earlier is presumed (without admitting) to be valid]. There is hardly any doubt that the appellants were providing service to their client's subscribers on behalf of their clients for which they were paid by their clients. If the services provided by them to their clients' subscribers were not on behalf of their clients, they (i.e., the appellants) had no reason to provide service to their clients' subscribers and there would be no reason for their clients to pay the appellants for the said service. Indeed, to whom the data/SMSs should be sent, at what time they should be sent, the priority to be attached to them etc. are all decided by the clients and the appellants are merely acting on behalf of the clients. There is an agreement between the appellants and their clients, like an agreement dated 28.08.2006. Under the agreement, the appellants have to give their client a direct SMPP connection through their network. The appellants then have to deliver the SMSs received from the clients to the latter's subscribers for which they get a fee from the clients. The clients also promise not to send any data which consider as objectionable. The terms of the agreement make it clear that the SMS which is being sent to the client's subscriber is only on behalf of the client and the appellants cannot send any material on their own. Thus it is amply clear that the service has been rendered by the appellants on behalf of the clients and is therefore clearly covered under the scope of BAS as the appellants have rendered service in relation to provision of service on behalf of the clients. Section 67(2) of Finance Act, 1994 allows cum-tax benefit only if the gross amount charged for the service is inclusive of service tax payable. In the light of the admitted fact that the price charged by the appellants did not include any service tax, the cum tax benefit cannot be extended to them. - however, penalty u/s 78 is set aside - Decided partly in favour of assessee. Issues Involved:1. Classification of the service provided by the appellants.2. Applicability of Business Auxiliary Service (BAS) under Section 65(19) of the Finance Act, 1994.3. Invocation of the extended period for demand.4. Applicability of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.5. Treatment of the amount received as cum tax.6. Allegation of suppression of facts.Detailed Analysis:1. Classification of the Service Provided by the Appellants:The appellants provided Short Message Peer to Peer (SMPP) service, which involves sending SMS to customers of their clients on a bulk basis. The adjudicating authority held that this service fell under the category of 'provision of service on behalf of clients' and was liable to tax under Business Auxiliary Service (BAS) as defined under Section 65(19) of the Finance Act, 1994. The appellants contended that they were merely acting as carriers of messages, similar to courier agencies, and thus their services should not be classified under BAS.2. Applicability of Business Auxiliary Service (BAS):The appellants argued that their services were not classifiable under BAS as they were not acting as agents for their clients. They cited the Supreme Court ruling in W.O. Holdsworth & Others Vs. State of Uttar Pradesh, which interpreted the expression 'on behalf of' to imply an agency relationship. However, the adjudicating authority found that the appellants were indeed providing services on behalf of their clients, as they were delivering SMSs to the clients' subscribers based on the clients' instructions.3. Invocation of the Extended Period for Demand:The appellants contended that the extended period of limitation could not be invoked as there was no suppression of facts with intent to evade service tax. They had disclosed the receipts on which service tax was demanded as exempted service in their returns. The adjudicating authority, however, held that the appellants had suppressed material facts regarding the SMPP service, justifying the invocation of the extended period.4. Applicability of Penalties under Sections 76, 77, and 78:The appellants argued against the imposition of penalties, stating that there was no intention to evade payment of service tax. The adjudicating authority imposed penalties under Sections 76, 77, and 78, citing suppression of facts. However, the tribunal found that the extended period was not invokable and hence the penalty under Section 78 was not sustainable.5. Treatment of the Amount Received as Cum Tax:The appellants pleaded that the amounts received should be treated as cum tax, citing the Supreme Court judgment in CCE Vs. Maruti Udyog. The tribunal, however, referred to the Supreme Court ruling in Amit Agros Vs. CCE, which held that unless it is shown that the price includes the tax element, the cum tax benefit cannot be extended. As the appellants did not charge service tax from their clients, the tribunal did not extend the cum tax benefit.6. Allegation of Suppression of Facts:The tribunal found that the charge of suppression of facts was not sustainable. The appellants had disclosed the quantum of exempted services in their ST-3 returns, and there was no legal requirement to provide detailed descriptions of exempted services. The tribunal cited the Supreme Court rulings in Gopal Zarda Udyog Vs. Commissioner of CCE and CCE Vs. Chemphar Drugs Liniments, which held that mere failure or negligence does not attract the extended period. Thus, the tribunal held that the extended period could not be invoked.Conclusion:(I) The tribunal held that:(i) The impugned service is liable to service tax under Business Auxiliary Service.(ii) The extended period is not invokable, and hence the demand beyond the normal period of one year and the penalty under Section 78 are not sustainable.(II) The tribunal allowed the appeals and remanded the cases to the primary adjudicating authority to re-compute the demand and corresponding penalties under Sections 76 and 77 in accordance with the tribunal's findings.Pronounced in the Court on 30.4.2015.