2017 (10) TMI 401 - AT - Service Tax

Tribunal dismisses revenue's appeals, toll collection not taxable as Business Auxiliary Service

Commissioner of Service Tax, Mumbai Versus M/s. Ideal Road Builders Pvt. Ltd., M/s. MEP Toll Road Pvt. Ltd.

The tribunal dismissed the appeals filed by the revenue, holding that the respondents' toll collection activity did not constitute 'Business Auxiliary ... Classification of services - collection of toll - Business Auxiliary Services or not? - Held that: - the Respondents has secured the right to toll collection in auction. The Respondents being the suitable bidder were given right to collect the toll and under the terms and conditions of such auction the Respondents were liable to pay the bid amount to NHAI/ MSRDC. Such bid price which the Respondents were liable to pay to the NHAI/ MSRDC was in no way connected with the collection of toll or quantum of toll amount. The Respondents had to pay NHAI/ MSRDC the bid amount irrespective of the fact whether such activity would earn him profit or loss. The NHAI/ MSRDC were in no way concerned with the collection made by the Respondents. As a result of same we find that though in case of Respondent M/s MEP income from toll collection was in negative during the year 2007 - 08, 2008 09 and 2011 12 but they had to pay the bid amount to NHAI/ MSRDC. This leaves no doubt, that the activity of toll collection by the Respondents was not on behalf of NHAI/ MSRDC but on their own account once they had secured the right to collect the toll. The activity of NHAI/ MSRDC is of developing, maintaining and management of national state highways which is a statutory function. They have not been engaged in the said activity as business. In such case it cannot be said that the Respondents has been providing auxiliary service to any business. NHAI/MSRDC is engaged in sovereign function and not into any business activity. It has been held in catena of judgments of Tribunal that NHAI/MSRDC is not into business activity. For this reason the Respondents cannot be said to be engaged in rendering business auxiliary services to any person. Commission Income - Held that: - The Respondent's case is not even concerned with charging commission from NHAL or MSRDC - The toll collection is not being done on commission basis or in lieu of any remuneration. All the proceeds of the toll collection belong to the Respondents with no interference or right of NHAI/ MSRDC. The income so generated is their own business income and NHAI/ MSRDC has no right over such toll collection. The toll is not collected by the Respondents as representative or agent of NHAI/ MSRDC nor any commission in terms of quantum of amount or percentage is charged by the Respondents from NHAI/ MSRDC. They are liable only to pay the bid amount installment to NHAI/ MSRDC irrespective of any collection which can in no way be said to be commission income. The toll collection is their own income and is not parted with NHAI/ MSRDC as they are concerned only with the bid amount finalized in auction and therefore cannot be termed as activity of Business Auxiliary Service - the activity of the Respondent cannot be considered as Business Auxiliary Service and cannot be taxed to service tax. Time limitation - Held that: - the demands are time barred as the show cause notices for the later period were issued earlier which clearly shows that the revenue was in knowledge of the facts - the demands are not sustainable on being time barred. Appeal dismissed - decided against Revenue. Issues Involved:1. Liability of service tax on toll collection under 'Business Auxiliary Service'.2. Interpretation of agreements and rights to collect toll.3. Application of statutory functions versus business activities.4. Applicability of Circular No. 152/3/2012 ST dated 22.02.2012.5. Time-barred demands and limitation period for raising demands.Detailed Analysis:1. Liability of Service Tax on Toll Collection under 'Business Auxiliary Service':The primary issue was whether the respondents' activity of toll collection falls under the category of 'Business Auxiliary Service' as defined in Section 65(105)(zzb) of the Finance Act, 1994. The adjudicating authority had initially set aside the demand for service tax on the grounds that the respondents were not providing any service to NHAI/MSRDC but were collecting toll on their own account. The tribunal upheld this view, stating that the respondents were not acting as agents of NHAI/MSRDC and were not receiving any commission or remuneration from these entities. Instead, they had secured the right to collect toll through an auction and paid a fixed bid price irrespective of the toll collected, indicating that the toll collection was their own business activity and not a service rendered to NHAI/MSRDC.2. Interpretation of Agreements and Rights to Collect Toll:The agreements between the respondents and NHAI/MSRDC were scrutinized to determine the nature of the toll collection rights. The tribunal found that the respondents had acquired these rights through competitive bidding and were liable to pay a fixed amount to NHAI/MSRDC, regardless of the toll collected. This arrangement showed that the toll collection was not on behalf of NHAI/MSRDC but was a business activity undertaken by the respondents at their own risk and profit or loss. The tribunal concluded that the toll collection rights were purchased in an auction and did not constitute a service provided to NHAI/MSRDC.3. Application of Statutory Functions versus Business Activities:The tribunal examined whether the activities of NHAI/MSRDC could be considered as business activities. It was held that NHAI/MSRDC were performing statutory functions related to the development, maintenance, and management of national highways, which are not business activities. Consequently, any service rendered to these entities could not be classified as 'Business Auxiliary Service'. The tribunal cited several judgments supporting this view, including the cases of Commissioner of Service Tax Delhi vs. Intertoll ICS SE CONS O & MP Ltd. and M/s Swarna Tollway (Pvt.) Ltd. vs. CCE Guntur.4. Applicability of Circular No. 152/3/2012 ST dated 22.02.2012:The revenue relied on Circular No. 152/3/2012 ST, which stated that service tax liability arises on the commission or charges retained by an independent entity engaged by the SPV to collect toll. However, the tribunal found that this circular was not applicable in the present case because the respondents were not collecting toll on behalf of NHAI/MSRDC and were not retaining any commission or charges. The toll collection was their own income, and they were only liable to pay the bid amount to NHAI/MSRDC, which could not be considered as a commission or service fee.5. Time-Barred Demands and Limitation Period for Raising Demands:In the case of M/s Ideal Road Builders Pvt. Ltd. (IRBPL), the Commissioner (Appeals) had set aside the demand on the grounds of limitation, which was not challenged by the revenue in its appeal. The tribunal upheld this view, stating that the show cause notices for the later period were issued earlier, indicating that the revenue was aware of the facts. Therefore, the demands were time-barred, and the tribunal found that the Commissioner (Appeals) had rightly set aside the demand on this ground.Conclusion:The tribunal dismissed the appeals filed by the revenue, holding that the respondents' activity of toll collection did not fall under 'Business Auxiliary Service' and was not liable to service tax. The tribunal also upheld the view that the demands were time-barred in the case of M/s IRBPL. The cross-objections were also disposed of accordingly.