2017 (5) TMI 185 - AT - Service Tax

Court rules Explanation to Finance Act not retrospective; service tax from May 2008 onward.

M/s. Best & Co. Versus Commissioner of Service Tax, Chennai

The court ruled in favor of the appellant, holding that the Explanation added to section 65(19) of the Finance Act, 1994 should not have retrospective ... Business Auxiliary Services - service of selling of lottery tickets to State of Nagaland and Manipur alongwith other services like issuing invoice, settling the accounts and collecting the money etc - whether the services fall under the category of Business Auxiliary Services or not? - Held that: - had the case been a case of provision of lottery service after 16.5.2008 because from that date, any service provided in relation to promotion or marketing of lottery tickets etc. has been made taxable. But that is not the case in the present appeal. This appeal relates to prior period - reliance placed in the case of Union of India Vs. Martin Lottery Agencies Ltd. [2009 (5) TMI 1 - SUPREME COURT OF INDIA], where it was held that after introduction of explanation to the section 65(19) [Meaning of Business Auxiliary Service] service tax may be levied after May 2008 - appeal allowed - decided in favor of appellant. Issues:1. Interpretation of the Finance Act, 1994 regarding the liability of business auxiliary service provider.2. Retroactive application of the Explanation added to section 65(19) of the Finance Act, 1994.3. Determination of liability for service tax on activities related to lottery tickets before and after 16.5.2008.Issue 1 - Interpretation of the Finance Act, 1994:The judgment revolves around the demand made under the Finance Act, 1994 to classify the appellant as a business auxiliary service provider. The Revenue argues that the appellant falls under section 65(19) of the Finance Act, 1994. However, the appellant contends that this classification should only apply after 16.5.2008, citing the declaratory nature of the Explanation added to section 65(19). The judgment refers to the case of Union of India Vs. Martin Lottery Agencies Ltd. to establish that the Explanation should be prospective, not retrospective. The court analyzes the nature of the Explanation and the liability of the appellant, ultimately allowing the appeal based on the timing of the service provided.Issue 2 - Retroactive application of the Explanation:The judgment delves into whether the Explanation appended to section 65(19) of the Finance Act, 1994 is clarificatory or declaratory in nature, determining its retrospective effect and retroactive operation. It discusses the definition of 'goods' and the State's power to conduct business under Article 298 of the Constitution of India. The court emphasizes that a substantive law introduced by an Explanation does not have retrospective effect. Citing specific paragraphs from the judgment, it concludes that the service tax is payable only from May 2008 onwards, not retrospectively. This analysis forms a crucial part of the decision-making process in the case.Issue 3 - Liability for service tax on lottery activities:The judgment addresses the argument presented by the learned AR regarding the appellant's activities related to selling lottery tickets and other services provided to the States of Nagaland and Manipur. The court considers various activities enumerated in the adjudication order, such as issuing invoices and settling accounts, to determine if the appellant falls under the business auxiliary service category. However, the court notes that the case pertains to a period before 16.5.2008 when the taxation of lottery-related services changed. Relying on the Martin Lottery case, the court allows the appeal, emphasizing the timing of the services provided in relation to the change in tax laws.In conclusion, the judgment meticulously analyzes the interpretation of the Finance Act, 1994, the retroactive application of the Explanation, and the liability for service tax on lottery activities, ultimately allowing the appeal based on the specific timing of the services provided in relation to the changes in tax laws.