2016 (9) TMI 1024 - AT - Service Tax

Appellants' Liability Upheld for Service Tax under BAS with Limitation on Demand Period

The Tribunal upheld the appellants' liability for service tax under Business Auxiliary Services (BAS) but limited the confirmation of the demand to the ... Business Auxiliary Services - taxability of sub-contractor/service provider - revenue sharing arrangement does not preclude service tax liability - extended period of limitation under Section 73 - bonafide belief/interpretation of law as defence to extended period - availability of credit to main service providerBusiness Auxiliary Services - taxability of sub-contractor/service provider - revenue sharing arrangement does not preclude service tax liability - Whether the appellants rendered taxable services under the category of Business Auxiliary Services and are liable to service tax on the consideration received from RSIC. - HELD THAT: - A plain reading of the agreements shows the appellants contracted to perform and were obligated to render marketing, collection/realisation and various services in relation to import/export operations as listed in Schedule 3. Those activities fall within the scope of Business Auxiliary Services as defined under the Finance Act. The fact that RSIC collected gross amounts from ICD users and paid service tax thereon does not, by itself, extinguish the appellants' liability for tax on the consideration they received for services rendered. The revenue sharing or cost sharing character of payment is a mode of payment and does not alter the legal nature of the appellants' activities as taxable services. Earlier Board circulars and decided cases addressing revenue sharing or sub contractor liability do not compel a different conclusion; subsequent clarifications indicate that revenue sharing does not preclude service tax liability and that services provided by a sub contractor remain taxable even if used as input by the main provider. Accordingly, the appellants' receipts for services rendered to RSIC constitute taxable consideration liable to service tax under BAS. [Paras 5, 7]Appellants are liable to service tax under the category of Business Auxiliary Services in respect of consideration received from RSIC for services rendered.Extended period of limitation under Section 73 - bonafide belief/interpretation of law as defence to extended period - availability of credit to main service provider - Whether the demand was barred by limitation and whether invocation of the extended period under Section 73 proviso was sustainable. - HELD THAT: - Although the appellants were held liable on merits, the facts show RSIC raised invoices, collected gross consideration from ICD users and discharged service tax thereon; appellants received a share pursuant to the same agreement. Given the state of law and earlier Board circulars, a bonafide belief could exist that amounts received by a sub contractor need not be separately taxed where the main provider has discharged tax on the gross receipt. The department's assertion of willful suppression relied on delayed filing of certain balance sheets and departmental investigation, but the tax liabilities of RSIC and the appellants arise from a common source (the agreement) and the evidence indicates a plausible bonafide interpretation rather than deliberate concealment. Further, any tax paid by the appellants would be available as credit to RSIC. In these circumstances, imposition of demand by invoking the extended period is not sustainable. [Paras 11, 12]Demand can be confirmed only within the normal period; invocation of the extended period is not sustainable in the facts of this case.Final Conclusion: The appeal is disposed of by upholding that the appellants rendered taxable Business Auxiliary Services and are liable to service tax on the consideration received, but the demand can be confirmed only within the normal limitation period; the extended period and attendant penal consequences are not sustainable. Issues Involved:1. Whether the appellants rendered taxable services under the category of Business Auxiliary Services (BAS).2. Whether the demand for service tax was made within the permissible time limit.3. Whether the appellants were liable for service tax in a cost/revenue sharing arrangement.4. Whether the appellants' services were already subjected to service tax by RSIC.5. Whether the demand is hit by limitation and the invocation of the extended period for recovery is justified.6. Whether the appellants' liability for service tax results in double taxation.7. Whether the appellants had a bonafide belief regarding their service tax liability.Detailed Analysis:1. Taxability under BAS:The appellants entered into agreements with RSIC for services related to the operation of Inland Container Depots (ICDs). The Department considered these services as 'business auxiliary services' (BAS) rendered to importers and exporters on behalf of RSIC. The agreement explicitly stated that the appellants were to render services in relation to import and export operations, including marketing activities for ICD services. The definition of BAS under Section 65 (19) of the Finance Act, 1994, includes services related to the promotion or marketing of services provided by the client. The Tribunal concluded that the appellants' activities fell within the scope of BAS, making them liable for service tax.2. Permissible Time Limit for Demand:The show cause notice dated 18/10/2010 demanded service tax for the period from 01/4/2005 to 31/3/2009 by invoking the extended period under proviso to Section 73 (1) of the Finance Act, 1994. The Tribunal found that the appellants had a bonafide belief that no further service tax was liable due to the revenue sharing arrangement and the fact that RSIC had already paid service tax on the gross amount. The Tribunal held that the demand for the extended period was not sustainable, as the appellants' actions were based on a reasonable interpretation of the law and there was no intention to evade tax.3. Cost/Revenue Sharing Arrangement:The appellants argued that their agreement with RSIC was on a cost and revenue sharing basis, working on a principal-to-principal basis, and not providing services to RSIC. The Tribunal rejected this argument, stating that the agreement clearly outlined the appellants' obligations to render services, which constituted taxable services under BAS. The revenue sharing model was deemed a method of payment and did not alter the tax liability.4. Services Already Taxed by RSIC:The appellants contended that RSIC had already discharged service tax on the gross amount collected from importers and exporters, and taxing the same amount again was not legally sustainable. The Tribunal found that the appellants were providing input services (BAS) to RSIC, enabling RSIC to provide overall services to ICD users. The tax liability confirmed was only on the consideration received by the appellants, not the gross value received by RSIC, thus no double taxation occurred.5. Limitation and Extended Period:The Tribunal noted that all invoices and amounts collected by RSIC were subjected to service tax, and the appellants' belief that their share of revenue was not liable to further tax was reasonable. The issue involved interpretation of law, and there was no intention to evade tax. The Tribunal found that invoking the extended period was not justified, as the tax liability on the appellants would be available as credit to RSIC, resulting in no loss to the government.6. Double Taxation:The appellants argued that taxing their share of revenue would result in double taxation. The Tribunal clarified that the appellants' services were taxable under BAS, and the tax liability confirmed was only on the consideration received by them. RSIC's payment of service tax on the gross value did not exclude the appellants' tax liability.7. Bonafide Belief:The Tribunal acknowledged the appellants' bonafide belief that no further service tax was liable due to the revenue sharing arrangement and RSIC's payment of service tax on the gross amount. The Tribunal held that the appellants had a strong ground regarding the question of time bar, and the demand for the extended period was not sustainable.Conclusion:The Tribunal upheld the appellants' liability for service tax under BAS but limited the confirmation of the demand to the normal period of limitation, rejecting the extended period demand. The appeal was disposed of accordingly.