2007 (11) TMI 181 - AT - Service Tax

Tax Tribunal Rules in Favor of Taxing Amounts Received by Respondents under Business Auxiliary Services Agreement

The Tribunal held that amounts received by the Respondents under an agreement with ICICI Home Loan Finance Ltd. are taxable under Business Auxiliary ... Respondents have agreement with ICICI Home Loan Finance Ltd. for verifying the credentials of Applicants & processing their applications for loan and issue of Credit Card - Respondents are promoting and marketing services provided by the ICICI for which they are being paid by ICICI – since bank is not receiving any amount from assessee as franchisor so impugned amount received by them is taxable under Business Auxiliary Services – Penalty not justified as there is no suppression Issues:1. Taxability of amounts received by Respondents under an agreement with ICICI Home Loan Finance Ltd.2. Classification of services provided by Respondents under the Service Tax law.3. Imposition of penalty on the Respondents.Analysis:1. The judgment addresses the issue of the taxability of amounts received by the Respondents under an agreement with ICICI Home Loan Finance Ltd. The Lower Appellate Authority categorized the Respondents as a franchisee and suggested that if the amounts are taxable, the tax should be paid by ICICI, the franchisor. However, the Tribunal referred to Section 65 of the Finance Act, 1994, specifically clause 105 (zze) dealing with services provided by a franchisor to a franchisee. The Tribunal noted that the Respondents were promoting and marketing services provided by ICICI, as per the agreement, and receiving payments for the same. Consequently, the Tribunal held that the amounts received are taxable under Business Auxiliary Services under Section 65 of the Finance Act, 1994. The Tribunal clarified that since ICICI, the franchisor, did not receive any amount from the Respondents, the question of sub-section 105 (zze) being applicable did not arise. Therefore, the Tribunal set aside the previous order and upheld the demand for tax from the Respondents under the category of Business Auxiliary Services.2. Regarding the classification of services provided by the Respondents under the Service Tax law, the Tribunal emphasized that the Respondents were engaged in promoting and marketing services provided by ICICI, as evident from the agreement. The Tribunal highlighted that the Respondents were paid by ICICI for these services, indicating that the impugned amounts received by the Respondents fall under the category of Business Auxiliary Services as per Section 65 of the Finance Act, 1994. By analyzing the nature of the services and the payment structure, the Tribunal concluded that the Respondents' activities align with Business Auxiliary Services, leading to the decision to demand tax from the Respondents under this classification.3. The judgment also deliberated on the imposition of penalties on the Respondents. The Lower Appellate Authority acknowledged in her order that the Respondents had provided all necessary information accurately and did not have any intention to evade payment of Service Tax. Considering these factors, the Tribunal deemed it inappropriate to impose penalties on the Respondents. Consequently, while allowing the appeal filed by the Department regarding the tax demand from the Respondents, the Tribunal waived the penalties that were initially imposed on the Respondents under the order-in-original. This decision was based on the assessment of the Respondents' conduct and compliance with tax regulations, leading to the conclusion that penalties were not warranted in this particular case.