2025 (11) TMI 123 - AT - Service Tax

Commission to direct selling agents taxable as BAS on gross commission; reimbursements not excluded; ss. 76-78 invoked.

CESTAT (AT) upheld that commission paid to direct selling agents is taxable as BAS on the gross commission; expenses claimed as reimbursements cannot be ... Levy of service tax - Management, Maintenance and Repair services on reimbursement of electricity charges - Business Auxiliary services on the Direct Selling agent Commission - invocation of extended period of limitation - penalty. Management, Maintenance and Repair services on reimbursement of electricity charges - HELD THAT:- It is found from the SCN, the Managing partner has furnished the details of receipt of income from the maintenance of complexes month wise and year wise after giving abatement for expenditure incurred towards electricity charges The SCN alleged that there was no provision to deduct expenditure toward TNEB charges and computed the service tax on gross amounts received - it is found that though levy of service tax on maintenance of Immovable property came into effect from 16.05.2005, the Appellant has registered themselves with the Service Tax Commissionerate, Chennai only in the month of January 2008 though they were in receipt of consideration for rendering such services even prior to 'the period of registration. The Appellant on his own accord furnished the details of income from maintenance of complexes. The Order-in-Original and the impugned order is perused where the classification of services rendered was done under MMR Services (Immovable property services). The Appellant has already paid Tax and Interest for part of the period in dispute - the matter is remanded for re-computation of demand. Demand of service lax on sales commission under the category of BAS service - HELD THAT:- It is unambiguously clear that commission paid to sales agents is taxable under the category of BAS. This aspect has been discussed in detail in the Impugned Order. The expenses incurred for procuring viable clients cannot be adjusted against the consideration, treating part of the commission as 'reimbursements of expenses'. There was no obligation on the financial institutions to pay salary and other expenses for the staff of the Appellant. On the contrary, the salary and other expenses are to be borne by the Appellant and 'sales commission' paid was the sole and gross Consideration for procuring clients. It is settled law that cost of providing a taxable service cannot be excluded as 'reimbursement' of expenses from the ambit of taxable value. Service tax is chargeable on gross amount received as consideration for providing the service - the Commission received from Banks and Financial Institutions are rightly classified under BAS in the impugned order. Time limitation - penalty - HELD THAT:- It is observed that the fact of suppression of facts and misstatement of facts was clearly established. It is found that, but for the intervention of the Department, the misclassification, nonpayment of Service Tax would not have seen the light of the day. The fact of Suppression is clearly established in this case. On going through the impugned orders/OIO and there are no reason to differ from the above findings and we are in total agreement with their findings - there are no hesitation in holding that extended period is rightly invoked in this case and Penalties imposed under Section 77 and 78 for the First SCN and under Section 76 for the demand covered under SECOND SCN is in order - there are no hesitation in holding that invocation of extended period and imposition of penalty as above is justified. Appeal disposed off. Levy of service tax - management, maintenance and repair services is security agency services resulting in overlapping demand or not - extended period of limitation - penalty - HELD THAT:- There is only MMR service involved in this Appeal which has been held as Taxable in Appellant’s own case decided in this Cluster of Appeals and on following the same, it is held that the demand is tenable. However, the whole issue is centred around the non-inclusion of electricity charges in the gross value of the service for payment of Tax. In the SCN/OIO, the Non included amount is mentioned as electricity charges. In Appellants own case in Appeals No ST/42319/14 and ST/40453/15 this is an already decided issue and decided in favour of Appellants. On applying the ratio of the same decisions, the impugned order is set aside and therefore the imposition of Interest and penalty will not arise. Tthere is no requirement to visit the other issued - appeal allowed. Confirmation of demand on electricity charges without giving the benefit of deduction of reimbursable electricity charges under MMR Services - HELD THAT:- As electricity charges were not included, the 4 SOD/SCN’s were issued by the Department. The Appellant has relied upon several decisions in support of their claim - there are no hesitation in holding that electricity charges are not includible under the category of MMR Services and set aside the demand. As the demand of Tax fails, the consequent interest and penalty automatically get extinguished. Appeal disposed off. ISSUES PRESENTED AND CONSIDERED 1. Whether services rendered as composite bundled maintenance of residential/commercial complexes (including security, cleaning, gardening, repairs and utilities management) are classifiable as 'management, maintenance or repair' service (MMR) or separately as 'security agency' service, and whether duplicate demands for the same service/period are sustainable. 2. Whether commissions/fees received as consideration for procuring or facilitating financial products for banks/financial institutions fall within 'business auxiliary service' (BAS). 3. Whether amounts recovered from clients for electricity (and related electrical works) are taxable receipts forming part of the gross value of MMR/BAS or are non-taxable reimbursements/deductions from taxable value. 4. Whether the extended period of limitation may be invoked (i.e., whether there was suppression of facts with intent to evade tax), and whether second/overlapping SCNs for the same facts/period can be issued. 5. Whether penalties under Sections 76/77/78 are warranted and whether relief under the proviso to Section 80 (reasonable cause) is available. 6. Procedural relief: whether matters require remand for arithmetic recomputation or fact-finding where records lack necessary particulars. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Classification: Composite MMR vs Security Agency Service; overlapping demands Legal framework: Definitions of 'management, maintenance or repair' service, 'security agency' service and the concept of composite/bundled services as contained in the statutory scheme governing service tax. Precedent treatment: The Tribunal considered earlier authorities and departmental practice regarding composite contracts for apartment/complex maintenance being treated as MMR which may incorporate security and other component services. Prior decisions establishing that a composite contract cannot be dissected to levy duplicate tax on component services for the same period were applied. Interpretation and reasoning: Where the contract price is for an integrated package (security, housekeeping, electrical/plumbing, gardening, preventive maintenance, etc.) and the ledger/agreements show a composite maintenance receipt, the service is MMR and cannot be separately taxed again as security agency service for the same period and same receipts. The Tribunal analyzed the contracts, ledgers and earlier findings and concluded that security services were held to be part of composite MMR; issuing a second demand as security agency service on the same facts and period would amount to overlapping/double taxation and be unsustainable. Ratio vs. Obiter: Ratio - composite maintenance contracts encompassing security are taxable as MMR and duplicate SCNs for same facts/period cannot be sustained. Obiter - incidental observations on commercial character of bundled billing and costing were ancillary. Conclusions: Demand framed as MMR upheld where supported by composite contract and records; an ensuing demand framed separately as security agency service on the same facts/period is quashed for overlap and limitation where already covered by MMR proceedings. Cross-reference: This conclusion is applied across multiple appeals where the Department sought separate taxation as security agency service after having categorised identical receipts under MMR. Issue 2 - Taxability of commissions for facilitating bank/financial product sales (Business Auxiliary Service) Legal framework: Statutory definition of 'business auxiliary service' expressly includes promotion, marketing or sale of services of the client and services as a commission agent; concept of consideration received for procuring clients. Precedent treatment: Tribunal followed prior authorities and tribunal/board positions holding commission received by agents for sourcing/marketing financial products to banks/non-bank financial institutions is taxable as BAS. Interpretation and reasoning: The Tribunal examined agreements (which often stated sourcing fees inclusive of service tax and obligations on associates to bear tax) and admissions by the appellant that such activities were undertaken as business associates/DSAs for banks. The service constituted promotion/marketing/procurement on behalf of the client and represented gross consideration (not mere reimbursement). Reimbursements or internal costs borne by the agent cannot be recharacterised to reduce taxable consideration where the commission is the sole consideration payable for procuring clients. Ratio vs. Obiter: Ratio - commissions/fees received by business associates for sourcing financial products are taxable as BAS; costs claimed as 'reimbursements' cannot reduce taxable gross consideration unless the payer was under an independent legal/contractual obligation to pay third parties and the provider truly paid on behalf of the recipient. Conclusions: Demands under BAS for commission receipts are sustained where agreements and admitted facts demonstrate agency/sourcing activity and receipt of commission as gross consideration. Issue 3 - Taxability of electricity charges and reimbursements Legal framework: Service value determination rules require tax on gross consideration for taxable services, subject to legitimate deductions; general principle that charges which are reimbursements for goods supplied/paid for by provider on behalf of client are not taxable service consideration. Precedent treatment: The Tribunal applied authorities holding that electricity charges recovered from tenants/associations which represent amounts actually paid to the electricity board (goods) and not consideration for providing taxable service are excludible; previous decisions within the cluster and other tribunal rulings were followed to the same effect. Interpretation and reasoning: Where appellant paid electricity bills to the electricity board and subsequently recovered the exact amounts from clients (with ledger entries and documentary proof), such recoveries amounted to reimbursements of expenditure and not consideration for service. Inclusion of electricity as taxable service would amount to taxing a supply of goods and double charging. Where records were ambiguous or parties disputed nature of receipts (reimbursement versus charge for electrical works), the Tribunal remanded issues for fact verification and arithmetic recomputation, requiring documentary substantiation and adherence to natural justice. Ratio vs. Obiter: Ratio - reimbursements of electricity paid to third parties are excludible from taxable value of MMR; demand on such amounts is to be set aside where documentary evidence of true reimbursement exists. Obiter - discussion of pricing/bundling rationale for maintenance charges. Conclusions: Electricity charges properly established as reimbursements are deductible from taxable value; where documentary proof is absent or facts are disputed, remand for fact-finding and recomputation is required. Resulting demands, interest and penalties tied to such wrongly included amounts are extinguished if reimbursement is established. Issue 4 - Extended limitation, suppression and overlapping SCNs Legal framework: Statutory proviso permitting invocation of extended period where suppression, fraud or collusion exists; principle that suppression must be established and the doctrine that repeated SCNs on same facts/period may not sustain if facts were already in departmental knowledge. Precedent treatment: The Tribunal examined authorities supporting strict construction of 'suppression' and holdings that extended limitation cannot be mechanically invoked where earlier SCNs or departmental knowledge existed; it also applied authorities supporting extended period where documentation/returns understated receipts and statements by appellant admitted non-disclosure. Interpretation and reasoning: The Tribunal found on facts (admissions by managing partner that services provided prior to registration were not disclosed; voluntary belated payment for part of period only after departmental intervention; ledger evidence) that suppression of material facts with intent to evade tax had been established for certain earlier periods. Accordingly, invocation of extended period for those SCNs was justified. However, where a later SCN sought to tax the same service/period already covered by an earlier SCN/OIO, issuance of a second demand was impermissible and the later demand was set aside on grounds of overlap and limitation. Ratio vs. Obiter: Ratio - extended period may be invoked when suppression of material facts is proved; but issuing multiple SCNs on the same facts/period such that department already possessed requisite information is not permissible. Obiter - commentary on standards of proof for suppression. Conclusions: Extended limitation sustained where suppression admitted or otherwise established; overlapping/duplicative SCNs for identical periods/services are vulnerable and were set aside where they duplicated prior MMR proceedings. Issue 5 - Penalty and reasonable cause under Section 80 Legal framework: Statutory penalty provisions for non-payment/suppression and proviso allowing relief from penalty where reasonable cause for failure is shown. Precedent treatment: The Tribunal relied upon adjudicatory findings and authorities recognizing that penalty is automatic where suppression is established; Section 80 relief requires demonstration of reasonable cause. Interpretation and reasoning: Given the record evidence of non-registration, non-disclosure prior to registration date and admissions by the appellant's partner, the Tribunal agreed with the adjudicating authorities that suppression existed and that reasonable cause was not made out. Consequently penalties under applicable sections were sustained where suppression related to the demand; however, where primary tax demand was set aside (e.g., electricity reimbursements), corresponding interest/penalty fell away. Ratio vs. Obiter: Ratio - penalties upheld where suppression with intent to evade is established; Section 80 relief denied where deliberate non-disclosure is shown. Obiter - reconciliation of multiple penalty provisions so that imposition under one may suffice in interests of justice. Conclusions: Penalties were upheld where suppression was proved; Section 80 relief rejected on the facts. Penalties and interest tied to amounts later found not taxable were set aside as consequential relief. Issue 6 - Remand for recomputation and verification Legal framework: Principles of natural justice and requirement that adjudicatory orders be reasoned and supported by arithmetic computation and documentary evidence. Precedent treatment: The Tribunal remanded portions of appeals where impugned orders failed to compute deductions/arithmetic or where factual disputes (nature of electricity receipts) required fresh enquiry. Interpretation and reasoning: Where the lower appellate order acknowledged exclusion of electricity charges but failed to effectuate recomputation, the Tribunal remanded for arithmetic recalculation. Where parties made conflicting claims without documentary proof, limited remand was ordered to ascertain the true nature of receipts and to permit the adjudicating authority to pass reasoned orders after following principles of natural justice within a defined timeframe. Ratio vs. Obiter: Ratio - remand appropriate where impugned orders omit necessary computation or where factual disputes need evidence; final tax/penalty consequences to follow recomputation. Obiter - guidance on time limits for remand and adherence to natural justice. Conclusions: Several appeals were remanded for recomputation of tax after excluding reimbursable electricity charges or for verification of documentary evidence; where reimbursements were established, demands and consequent interest/penalty were set aside.