2017 (11) TMI 1406 - AT - Service Tax

Tribunal confirms service tax liability for promoting lotteries as Business Auxiliary Service

The Tribunal upheld the decision of the Original Authority, confirming the service tax liability of the appellant under Business Auxiliary Service. The ... Business Auxiliary Service - Explanation to Section 65(19) treating promotion or marketing of lotteries as Business Auxiliary Service - State Government as client for services of promotion and marketing of lotteries - computation of tax on cum-tax value under Section 67(2) - penalties under Sections 76 and 77 of the Finance Act, 1994Business Auxiliary Service - Explanation to Section 65(19) treating promotion or marketing of lotteries as Business Auxiliary Service - State Government as client for services of promotion and marketing of lotteries - Appellant's activities of organizing, promoting and marketing State lotteries are taxable as Business Auxiliary Service and service tax liability arises w.e.f. 16/05/2008. - HELD THAT: - The Tribunal upheld the Original Authority's conclusion that the Explanation inserted in Section 65(19) brings services in relation to promotion or marketing of games of chance, including lotteries, within the scope of services provided by the client. Only State Governments are competent to organize or promote lotteries and, under the agreements, the State Governments authorized the appellant to organize, promote and market the lotteries. The nature of consideration (the appellant retaining a share while remitting a percentage to the State) does not negate that the appellant was providing promotion/marketing services to the State as client. Applying precedent cited by the Original Authority, the Tribunal found the ratio of the Kerala High Court decision in P. Muraleedharan applicable on the core question whether the appellant was engaged in promotion and marketing of the lottery service, and therefore upheld the liability from the date the Explanation took effect. [Paras 4, 6, 7]Taxability under Business Auxiliary Service is affirmed and liability is held to arise from 16/05/2008.Computation of tax on cum-tax value under Section 67(2) - Appellant's claim for recalculation of tax liability on a cum-tax (inclusive) basis under Section 67(2) was rejected for want of evidence that the amounts charged were inclusive of service tax. - HELD THAT: - Section 67(2) permits backward computation if the gross amount charged is inclusive of service tax. The Tribunal agreed with the Original Authority that no documentation or evidence was produced to show that the consideration taken for taxation was intended to be inclusive of service tax. In absence of such proof or an arrangement evidencing inclusive pricing, the Original Authority's mode of computation was held to be correct. [Paras 8]Claim for cum-tax computation under Section 67(2) refused for lack of evidence.Penalties under Sections 76 and 77 of the Finance Act, 1994 - Penalties imposed under Sections 76 and 77 were sustained; no penalty was imposed under Section 78 and Tribunal found no reason to interfere with the original penalty findings. - HELD THAT: - On review of the impugned order, the Tribunal noted that the Original Authority imposed penalties only under Sections 76 and 77 and did not invoke Section 78. The Tribunal found the imposition of penalties under the cited provisions to be in order and, having examined the impugned order, declined to interfere with the penalty findings. [Paras 8]Penalties under Sections 76 and 77 upheld; no interference warranted.Final Conclusion: The appeals are dismissed; service tax liability as Business Auxiliary Service on the appellant's lottery promotion and marketing activities is confirmed from 16/05/2008 to 31/03/2010, the request for cum-tax computation under Section 67(2) is rejected for lack of evidence, and penalties under Sections 76 and 77 are sustained. Issues:Service tax liability of the appellant under Business Auxiliary Service in terms of Section 65 (105) (zzb) of the Finance Act, 1994.Analysis:The case involved a dispute regarding the service tax liability of the appellant under the category of Business Auxiliary Service. The Revenue initiated proceedings against the appellant to demand and recover service tax for a specific period. The Original Authority held that the appellants are liable to service tax only from a certain date and confirmed the liability along with penalties under the Finance Act, 1994.The appellant argued that they are not engaged in providing any taxable service categorized as Business Auxiliary Service and there is no principal-agent relationship between them and the State Government. They contended that the income generated from organizing lotteries is business income/profit and not arising from providing services to the State Governments.The Revenue, on the other hand, argued that the appellants are essential for the State Governments to carry out the lottery business and that the services provided by the appellants fall under Business Auxiliary Service. They referenced a similar case before the Kerala High Court to support their position.The Tribunal examined the terms of agreements and relevant legal provisions. It noted that the explanation under the statutory provision clarified that services related to promotion or marketing of games of chance, including lotteries, are covered under Business Auxiliary Service. The Tribunal found that the appellants were indeed engaged in promoting and marketing the lotteries of the State Governments.The Tribunal rejected the appellant's argument that they were not providing services to the State Governments and that the State Governments were not their clients. It emphasized that the appellants were authorized by the State Governments to organize and promote the lotteries, making them liable for service tax under Business Auxiliary Service. The Tribunal upheld the decision of the Original Authority regarding tax liability, penalties, and calculation methods.In conclusion, the Tribunal found no merit in the appeals and dismissed them, affirming the service tax liability of the appellant under Business Auxiliary Service as determined by the Original Authority.(Order pronounced in open court on 10/11/2017)