2024 (8) TMI 599 - AT - Service Tax

Service tax demand on miscellaneous income set aside due to failure to identify service recipient and income source

M/s Rohan Motors Ltd. Versus Commissioner, Service Tax, Noida

CESTAT Allahabad allowed the appeal against service tax demand on miscellaneous income under Business Auxiliary Service category. The tribunal held that ... Liability of service tax - Business Auxiliary Service - Appellant have received certain amounts under the category of ‘Miscellaneous Income’ and they have not paid any service tax in respect of such receipts - HELD THAT:- From the perusal of the SCN and the order of the Original Authority and Appellate Authority it is found that the demand has been made by referring to certain incomes reflected in the ledger of the Appellant. However, show cause do not specify the source of income i.e. the person who has made these payments to the Appellant i.e. demand stands made without specifying the service recipient. The definition of Taxable service itself contemplates that service should be provided to an identified client and consideration should have been received from the said client or on his behalf. In the absence of such an identification at any stage of proceeding the demand made under this category cannot be upheld. Reliance placed in the case of M/S. THE MADHYA PRADESH STATE MINING, CORPORATION LIMITED VERSUS PR. COMMISSIONER, CGST & CENTRAL EXCISE, BHOPAL (M.P.) [2023 (4) TMI 1075 - CESTAT NEW DELHI] where it was held that 'There is no mention of any service which would be performed by the appellant in exchange of such amount. Thus, allocation of area development charges by the State Government can be regarded as income of the appellant, but it cannot be treated as consideration towards a service.' There are no merits in the impugned order though in both the order the Commissioner (Appeals) very strenuously tried to establish that these services are finally going to benefit Maruti Udyog Ltd. We do not find any merit in the same arguments. In the absence of any such agreement to provide specific service between the appellant and Maruti Udyog Limited there are no merits in the findings so recorded by the Commissioner (Appeals). The impugned order is set aside and appeal is allowed. Issues Involved:1. Service tax liability on miscellaneous income received by the Appellant.2. Identification of service recipient for service tax purposes.3. Validity of demand under Business Auxiliary Service category.4. Applicability of service tax on specific services provided.Analysis:Issue 1: Service tax liability on miscellaneous incomeThe Appellant, an Authorized Service Station of a car manufacturer, received certain amounts under 'Miscellaneous Income' during an audit. The auditors claimed these receipts were in relation to 'Business Auxiliary Service' and demanded service tax. Two Show Cause Notices (SCNs) were issued for different periods, demanding payment and imposing penalties. The Original Authority upheld the demand, which was further dismissed by the Commissioner (Appeals), leading to the present appeals.Issue 2: Identification of service recipientThe Tribunal found that the demand lacked specificity as it did not identify the service recipients for the income reflected in the Appellant's ledger. The definition of taxable service requires identification of the client or recipient for the service provided. Without establishing this connection, the demand under the 'Business Auxiliary Service' category could not be upheld.Issue 3: Validity of demand under Business Auxiliary ServiceThe Tribunal referred to relevant legal provisions and precedents to emphasize the necessity of a clear service provider-recipient relationship for a service to be taxable. Citing cases where demands were set aside due to lack of clarity on service recipients, the Tribunal highlighted the importance of identifying the nature of taxable services and recipients. Without this essential identification, the demand under 'Business Auxiliary Service' could not be sustained.Issue 4: Applicability of service tax on specific servicesIn the absence of a specific agreement to provide services between the Appellant and the car manufacturer, the Tribunal rejected the arguments presented by the Commissioner (Appeals) that the services would benefit the manufacturer. Relying on previous judgments and the lack of evidence establishing a service provision agreement, the Tribunal set aside the impugned order and allowed the appeal.In conclusion, the Tribunal set aside the demand for service tax on the miscellaneous income, emphasizing the importance of identifying service recipients and specific services provided for taxation purposes. The decision was based on legal provisions, precedents, and the lack of evidence supporting the imposition of service tax in the absence of clear service agreements.