Service classification turns on invoice substance, exemption bars levy for the covered period, and penalty was set aside.

Taxability depends on the true nature of the service as reflected in invoices and accounts, not on a mistaken bookkeeping entry. On that basis, receipts described as commission were treated as software consultancy charges, so the demand under Business Auxiliary Service failed. For the 2004-05 period, the relevant commission agent service was held to be covered by the unconditional exemption under Notification No. 13/2003-ST up to 08.07.2004, so the levy could not survive. Penalty was also set aside because the amount involved was small, had already been discharged, and the dispute was confined to penalty.

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Issues: (i) Whether receipts shown as commission were liable to service tax under Business Auxiliary Service or were toward Software Consultancy Service; (ii) whether the demand for the period 2004-05 was covered by exemption under Notification No. 13/2003-ST dated 20.06.2003; (iii) whether penalty was sustainable in relation to the small demand of Rs. 2,363/-.

Issue (i): Whether receipts shown as commission were liable to service tax under Business Auxiliary Service or were toward Software Consultancy Service.

Analysis: The invoices for the relevant period described the work as Software Consultancy Charges. The entry in the profit and loss account as commission was treated as a bookkeeping mistake, and the nature of the service was found from the invoices and accounts to be software consultancy, not commission agency activity.

Conclusion: The demand under Business Auxiliary Service was not sustainable; the issue was decided in favour of the assessee.

Issue (ii): Whether the demand for the period 2004-05 was covered by exemption under Notification No. 13/2003-ST dated 20.06.2003.

Analysis: The invoices relied upon for the period 2004-05 were dated 15.04.2004 and 15.05.2004, and the relevant commission agent service was held to be unconditionally exempt under the notification up to 08.07.2004.

Conclusion: The demand for the period 2004-05 was covered by exemption and could not survive; the issue was decided in favour of the assessee.

Issue (iii): Whether penalty was sustainable in relation to the small demand of Rs. 2,363/-.

Analysis: The amount had already been discharged, the appellant did not dispute the tax, and the dispute was confined to penalty. Considering the limited amount and the circumstances, waiver of penalty was found justified.

Conclusion: The penalty was not sustainable; the issue was decided in favour of the assessee.

Final Conclusion: The impugned order was modified and the appeal succeeded on the substantive tax dispute as well as on penalty.

Ratio Decidendi: The true nature of a taxable service must be determined from the substance of the invoices and accounts, and where the service is not the one alleged, the demand cannot be sustained; an applicable exemption notification also bars levy for the covered period.

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