2016 (11) TMI 641 - AT - Service Tax

CESTAT Confirms Service Tax on Bank Commissions as Business Auxiliary Service

The Appellate Tribunal CESTAT MUMBAI confirmed the demand of service tax on commissions earned from banks and financial institutions, holding that the ... Confirmation of tax levied on commissions from banks and financial institutions - restoration of penalties - ‘business auxiliary service’ - reliance placed on the decision of case of South City Motors Ltd v. Commissioner of Service Tax [2011 (11) TMI 408 - CESTAT, NEW DELHI] where it was held that the entries for “Business Auxiliary Service” and “Business Support Service” have different objects. After the introduction of the new entry, there can be argument as to which entry covers the activity more appropriately - The Higher Courts have been taking the view that in such situations the extended period of time cannot be invoked for raising demand. Held that: - the impugned order has erred in setting aside the tax demand of ₹ 20,72,830/- for providing ‘business auxiliary services’ under section 65 (105) (zzb) of Finance Act, 1994. However, that amount has been paid before the issue of show cause notice. It is settled by the above decisions that the lack of clarity in the tax leviable under section 65 (105) (zzb) would detract from the liability to be imposed with penalties under the Finance Act, 1994. We find that the present issue is also one such. Tax on commissions from banks and financial institutions confirmed - penalties set aside - appeal disposed off - decided partly in favor of Revenue. Issues:1. Confirmation of demand of service tax2. Liability on commission received from banks and financial institutions3. Applicability of penalties under section 76 and 78 of Finance Act, 1994Issue 1: Confirmation of demand of service taxThe case involved a car dealer who also acted as a direct selling agent for banks and financial institutions. The Commissioner of Central Excise had modified the demand of service tax, interest, and penalties under the Finance Act, 1994. The appellant contested the liability of tax on the grounds of providing 'business auxiliary service' and sought restoration of penalties. The first appellate authority discharged the tax liability on receipts related to the sale of vehicles and parts, stating that liability on commission from banks and financial institutions arose after May 1, 2006. The impugned order relied on various decisions to support its findings.Issue 2: Liability on commission received from banks and financial institutionsThe Tribunal analyzed the activities of the appellant in promoting services provided by banks and financial institutions, particularly in the context of 'business auxiliary service.' Citing relevant precedents, including the decision in South City Motors Ltd v. Commissioner of Service Tax, the Tribunal concluded that the services rendered fell within the scope of 'business auxiliary service' during the relevant period. The Tribunal also referred to the decision in Roshan Motors Ltd v. Commissioner of Central Excise, Meerut, emphasizing the nature of the appellant's services in marketing and promoting the services provided by the finance companies. Consequently, the Tribunal held that the demand of service tax on commission earned from banks and financial institutions was valid.Issue 3: Applicability of penalties under section 76 and 78 of Finance Act, 1994While the Tribunal upheld the demand of service tax on commission from banks and financial institutions, it noted that the lack of clarity in the tax leviable under the relevant section could detract from the imposition of penalties under the Finance Act, 1994. Relying on previous decisions, the Tribunal found that the issue at hand was subject to such lack of clarity. Therefore, the Tribunal allowed the appeal of Revenue to the extent of tax on commissions from banks and financial institutions and upheld the quashing of penalties as per the impugned order.This detailed analysis of the judgment highlights the key issues addressed by the Appellate Tribunal CESTAT MUMBAI regarding the confirmation of service tax demand, liability on commissions from banks and financial institutions, and the applicability of penalties under the Finance Act, 1994.