2023 (7) TMI 108 - AT - Service Tax

Tribunal upholds income classification, penalty under Finance Act.

The Tribunal upheld the classification of income from legal and professional charges as 'Business Support Service' and maintenance charges as 'Management, ... Classification of service - Business Support Service (BSS) or Legal Consultancy Service - levy of service tax - Management, Maintenance and Repair Services - extended period of limitation - penalty. Classification of services - Business Support Service (BSS) or Legal Consultancy Service? - income from legal and professional charges - HELD THAT:- The bare perusal of the definitions reveal that whenever a business entity gives any opinion or offers expert or professional advice or any other business entity in any branch of law it will be called as ‘Legal Consultancy Service’. However, when advice consultancy or assistance is provided purely to the banks/ financial institutions with respect to sanctioning of loans to their clients by way of verification of documents provided by the customers of these banks/financial institutes for the purpose of availing the credit facility, the service rendered, is for the appraisal of business reports with respect to the verification of the clients, of the banks/Financial Institutions, through concerned authorities. It is observed that though appellants were drafting and preparing legal reports but only for banks/financial institutions that too for ensuring the viability of loan and for verifying the property title documents for which such verification was sought by such banks. It is opined that such activity is nothing beyond a due diligence of financial records of the customers of these banks/ financial institutions. Thus it cannot a service provided as assistance in any branch of law. It actually becomes the service provided to a business entity/a financial institute/bank, to support the business or commerce of the said bank - These observations are sufficient for us to hold that the services, in question, have rightly been held to be the ‘Business Support Service’ which is a taxable service. Any consideration received by the appellant for rendering such service is therefore liable to tax - there are no infirmity in the order under challenge when the demand of Rs. 16,19,972/- has been confirmed for the period from 2006-2007 to 2009-2010. Management, Maintenance and Repair Services - maintenance charges received for the services covered this category - HELD THAT:- Admittedly, generate income by way of maintenance charges towards the maintenance of documents and towards the security of documents by keeping the same at the premises of the appellants - the scope of the impugned service is to include reconditioning or restoration of any goods or equipments, except motor vehicles. Goods as per the dictionary meaning are the items which are meant for sale or for possession. Under Sale of Goods Act, 1930, any movable property except the actionable claims and money, stock and shares etc. are goods. The literal meaning of the word is that it connotes to anything which satisfies human desires provide utility and which can be produced or exchanged or consumed. Admittedly the appellant while maintaining and restoring those documents was charging its clients viz. banks/Financial Institutes for the same, for keeping those documents in its safe custody/security also appellant was receiving consideration - while doing this activity for their clients, the appellants were actually rendering the service of ‘Maintenance, Management or Repair Service’. Hence, there are no infirmity in the findings arrived at by the Adjudicating Authority while confirming the demand on this count. Extended period of limitation - HELD THAT:- The appellants were rendering ‘Business Support Services’ and ‘Management, Maintenance or Repair Service’. Apparently neither appellants nor their main unit M/s JNG Properties & Leasing Pvt. Ltd. are registered for providing later service, to that effect it sufficiently amounts to suppression of facts. It was definitely the obligation of the appellant to bring-forth the fact of non-registration for any other services except for Business Auxiliary Service to the notice of department. The silence definitely amount to suppression of fact, there are no infirmity when extended period of limitation has been invoked by the Department while issuing the show cause notice. Penalty - HELD THAT:- There are no infirmity in the detailed analysis given by the original Adjudicating Authority while imposing penalties under Section 76, 77 and 78 of the Finance Act which have duly been upheld by Commissioner (Appeals) in the order under challenge. However, the Commissioner (Appeals) has invoked proviso (ii) to Section 76 of the Act subject to verification on the basis of the fact that the entire demand was paid by the appellant at the initial stage only - there are no infirmity in the said realization also. Appeal dismissed. Issues Involved:1. Classification of income from legal and professional charges.2. Tax liability on maintenance charges.3. Invocation of the extended period of limitation.4. Imposition of penalties under Section 76, 77, and 78 of the Finance Act, 1994.Summary:1. Classification of Income from Legal and Professional Charges:The primary issue was whether the income from legal and professional charges falls under 'Business Support Service' (BSS) or 'Legal Consultancy Service'. The Tribunal observed that the appellant provided services to banks/financial institutions, including drafting and preparing legal reports for loan viability and property title verification. These activities were deemed as support services for the banks' business, thus falling under 'Business Support Service' as defined under Section 65 (104) (c) of the Finance Act, 1994. Consequently, the demand of Rs. 16,19,972/- for the period from 2006-2007 to 2009-2010 was upheld.2. Tax Liability on Maintenance Charges:The Tribunal examined whether the maintenance charges received by the appellant for document maintenance and security fell under 'Management, Maintenance or Repair Service'. It was found that the appellant's activities of maintaining and restoring documents for banks/financial institutions qualified as 'Management, Maintenance or Repair Service' under Section 65 (64) of the Finance Act, 1994. The demand on this count was confirmed.3. Invocation of the Extended Period of Limitation:The appellant argued against the invocation of the extended period of limitation. However, the Tribunal noted that the appellant was not registered for providing 'Business Support Services' and 'Management, Maintenance or Repair Service', amounting to suppression of facts. The invocation of the extended period of limitation by the Department was upheld.4. Imposition of Penalties:Penalties under Section 76, 77, and 78 of the Finance Act, 1994, were imposed by the original Adjudicating Authority and upheld by the Commissioner (Appeals). The Tribunal found no infirmity in the imposition of these penalties, noting that the Commissioner (Appeals) had allowed the benefit of paying 25% of the penalty amount, subject to verification that the entire demand was paid at the initial stage.Conclusion:The Tribunal upheld the order under challenge, confirming the classification of services and the associated tax liabilities and penalties. The appeal was dismissed.