Procurement services for clients qualify as business auxiliary service but demand fails on limitation grounds

CESTAT Kolkata held that appellant's procurement services for clients constituted business auxiliary service under service tax law. Appellant procured goods on behalf of customers and received predetermined commission rather than trading profits. Services fell under business auxiliary service definition as procurement of inputs for clients. However, CESTAT set aside the entire demand and penalty on limitation grounds. Notice issued in 2009 for 2005-07 period exceeded normal one-year limitation period. Extended limitation period was inapplicable as suppression with intent to evade tax was not established against the government undertaking. Appeal allowed solely on limitation grounds.

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Issues Involved:

1. Liability to pay Service Tax on the commission received for procurement of goods.
2. Classification of the activities under 'Business Auxiliary Service'.
3. Applicability of the extended period of limitation for raising the demand.

Issue-wise Detailed Analysis:

1. Liability to pay Service Tax on the commission received for procurement of goods:

The appellant, M/s. State Trading Corporation of India Limited, entered into various agreements for procuring goods on behalf of their clients, such as NTPC and SGJHPL, and received commissions for these services. The Department alleged that the appellant did not pay Service Tax on these commissions during the period from 2005-06 to 2006-07. The appellant argued that these commissions were trading profits and not liable for Service Tax. However, the Tribunal observed that the remuneration received was pre-determined and equivalent to a commission fixed for rendering a service, thus liable for Service Tax under the category of 'Business Auxiliary Service'.

2. Classification of the activities under 'Business Auxiliary Service':

The Department considered the services of procuring goods on behalf of clients as 'Business Auxiliary Service' under Section 65(19) of the Finance Act, 1994. The Tribunal upheld this classification, noting that the appellant's activities fell under sub-clause (iv) of the definition, which covers procurement of goods or services as inputs for the client. The Tribunal referenced the agreements and found that the consideration received was a fixed component, indicating it was a commission for services rendered. The Tribunal also relied on previous decisions, such as Gupta Chemicals Ltd. v. Commissioner of Customs, Jaipur, to support this classification.

3. Applicability of the extended period of limitation for raising the demand:

The appellant contended that the extended period of limitation was not invokable as there was no suppression of facts. They argued that all transactions were reflected in their Sales Tax returns and that they were under a bona fide belief that no Service Tax was payable. The Tribunal agreed, noting that the appellant had not registered for 'Business Auxiliary Service' or filed S.T.-3 Returns due to this belief. The Tribunal found that the appellant's actions were bona fide and that there was no intention to evade tax. Consequently, the Tribunal held that the extended period of limitation was not applicable, rendering the demand for Service Tax and penalties unsustainable.

Conclusion:

The Tribunal set aside the impugned order on the ground of limitation, allowing the appeal filed by the appellant. The demand for Service Tax and penalties was found to be barred by limitation and hence not sustainable. The Tribunal emphasized that the appellant's bona fide belief and the interpretative nature of the issue justified the non-invocation of the extended period of limitation.

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