2017 (11) TMI 1296 - AT - Service Tax

Tribunal upholds tax liability for Business Auxiliary Service, limits penalties

M/s Jaypee Vasant Continental Versus CST, Delhi-I

M/s Jaypee Vasant Continental Versus CST, Delhi-I - 2018 (10) G.S.T.L. 464 (Tri. - Del.) Issues:Liability of service tax for activities as a person engaged in Restricted Money Changing (RMC); Whether appellants acted as agents of the bank; Interpretation of contract terms; Taxability under Business Auxiliary Service; Sustainability of demand for extended period; Imposition of penalties.Analysis:1. Liability of service tax for activities as a person engaged in Restricted Money Changing (RMC):The dispute in the appeals pertained to the appellants' liability to service tax for their activities as a person engaged in Restricted Money Changing. The appellants, managing a hotel, were registered with the service tax department under various categories. The Revenue contended that the consideration received by the appellants from the Bank of Punjab for accepting and passing on foreign exchange was liable to service tax under the category of Business Auxiliary Service (BAS) as per Section 65(19) of the Finance Act, 1994. The lower Authorities held in favor of the Revenue, stating that the appellants promoted the business of the bank by accepting and transferring foreign exchange.2. Whether appellants acted as agents of the bank:The appellants contested the finding that they were agents of the Bank of Punjab. They argued that the agreement in question was a franchisee agreement, and they could not be considered as partners, agents, or parties of a joint venture. They emphasized that they were not authorized by the RBI to act as foreign exchange brokers. The appellants maintained that they were only involved in Restricted Money Changing (RMC) with limitations on buying or accepting foreign exchange from customers and passing it on to the bank. The appellants' position was that they were acting as extended representatives of the bank for a limited purpose and receiving commission for their services.3. Interpretation of contract terms and Taxability under Business Auxiliary Service:The terms of the agreement between the appellants and the Bank of Punjab were crucial in determining the nature of their relationship. The Revenue argued that specific clauses in the contract indicated that the appellants were acting on behalf of the bank and receiving consideration for their services. They contended that the appellants' activities fell within the scope of Business Auxiliary Service (BAS) and were rightly taxed as such. The Tribunal, after considering the agreement and the activities of the appellants, agreed with the lower Authorities that the tax liability of the appellants under BAS was sustainable.4. Sustainability of demand for extended period and Imposition of penalties:The Tribunal addressed the issue of the sustainability of the demand for an extended period and the imposition of penalties on the appellants. It noted that the appellants, acting in accordance with the franchisee agreement, may have had a genuine belief in their non-liability to service tax for the activity in question. The Tribunal found that invoking the extended period with allegations of willful misstatement or suppression was not justified in this case. Considering the appellants' status as a public limited company with knowledgeable staff, the Tribunal held that the reasons provided did not support the allegations of fraud or suppression. Consequently, the Tribunal upheld the tax liability of the appellant within the normal period of limitation and set aside the penalties imposed.In conclusion, the Tribunal upheld the tax liability of the appellants under Business Auxiliary Service for their activities related to Restricted Money Changing, while restricting the liability to the normal period of limitation and setting aside the penalties.