2025 (11) TMI 129 - AT - Service Tax

Appeal allowed; matter remanded for fresh adjudication to determine VCES payment status, liability, limitation and penalty issues

Shri M. Viswanathan Versus Commissioner of GST & Central Excise, Madurai

CESTAT allowed the appeal and remanded the matter to the Adjudicating Authority for fresh determination. The tribunal held that the Commissioner (Appeals) ... Non-payment of service tax on Business Auxiliary Services - commission - activation fee - Invocation of extended period of limitation - levy of penalty u/s 78 of FA - HELD THAT:- The Commissioner (Appeals) has held that the contentions of the Appellant on the basis of VCES could not be accepted as they were not raised before the Adjudicating Authority and because payments under the VCES were not fully discharged. The first of these reasons is incorrect. If the Appellant has resorted to the VCES and his application thereunder has been accepted, the fact that that was not pointed out in adjudication proceedings, especially considering that the Appellant did not appear in those proceedings, cannot deprive the Appellant of his statutory rights under the VCES. It was the obligation of the Adjudicating Authority to examine this and grant the applicable benefits notwithstanding Appellant's failure to appear. The Revenue cannot be permitted to shut its eyes to taxes paid by declarations filed with it, and proceed to demand the same taxes once again. The question of whether all dues were paid requires enquiry by the Adjudicating Authority in view of the numerous contradictions that have emerged. Matter remanded to the file of the Adjudicating Authority for redetermination of the issues - appeal allowed by way of remand. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether commission earned by an authorised non-exclusive distributor on sale of recharge vouchers constitutes consideration for 'Business Auxiliary Services' under Section 65(105)(zzb) read with Section 65(19) of the Finance Act, 1994, and thus attracts Service Tax. 1.2 Whether activation/installation fees reimbursed by the principal to the distributor for installation of DTH equipment constitute consideration for erection, commissioning or installation services under Section 65(105)(zzd) read with Sections 65(29) and 65(39a) of the Finance Act, 1994, and thus attract Service Tax. 1.3 Whether the commission/service under challenge is already taxed by the service receiver (principal) on the Maximum Retail Price (MRP) of recharge vouchers, thereby precluding a separate levy on the distributor. 1.4 Whether sums declared and paid under the Service Tax Voluntary Compliance Encouragement Scheme, 2013 (VCES) discharge the Assessee's liability so as to preclude or limit demands, and whether the Adjudicating Authority/Revenue may ignore VCES compliance not expressly raised by the Assessee before adjudication. 1.5 Whether invocation of the extended period of limitation (proviso to Section 73(1)) and levy of penalty under Section 78 are sustainable where the Assessee acted under bona fide belief or where relevant facts are ascertainable only from books of account. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Taxability of commission as 'Business Auxiliary Services' Legal framework: Service Tax liability for business auxiliary services is governed by the definition of 'Business Auxiliary Services' in Section 65(105)(zzb) read with Section 65(19) (Finance Act, 1994) as applied in the record. Precedent Treatment: The Tribunal noted earlier orders of its Bench favorable to the distributor on the commission issue (decisions of the same Tribunal cited by learned counsel). The present Court referred to those orders as covering the issue in favour of the Appellant. Interpretation and reasoning: The Commissioner (Appeals) had held there are two distinct services - broadcasting by the principal to customers, and services by the distributor to the principal - and that the latter attracts Service Tax on the commission. The Appellant relied on Tribunal precedents to the contrary and on the contention that the service had already suffered tax in the hands of the principal. Ratio vs. Obiter: The Tribunal did not finally determine the legal correctness of the Commissioner (Appeals)'s view on business auxiliary services in this order. Reference to earlier Tribunal decisions favorable to the Assessee indicates persuasive precedent treatment but the present order does not overrule or re-adjudicate the substantive point; the remarks are essentially supportive of the Appellant's position and thus operate as guidance rather than a dispositive ratio on that point in this appeal. Conclusion: The Court acknowledged existing favorable Tribunal orders and the Appellant's submissions but did not decide the substantive taxability definitively here because the appeal was remanded for VCES-related factfinding which could dispose of the demands. The commission issue remains subject to adjudication consistent with the noted precedents and the outcome of VCES determination (see cross-reference to Issue 4 and remand directions). Issue 2 - Taxability of activation/installation fee as erection/commissioning/installation services Legal framework: Liability for erection, commissioning or installation services falls within Section 65(105)(zzd) read with Sections 65(29) and 65(39a) of the Finance Act, 1994. Precedent Treatment: The Adjudicating Authority characterized the activation fee as consideration for erection/installation services and recorded that some Service Tax had been paid under that head. The Commissioner (Appeals) sustained the demand in part; the Tribunal did not expressly re-decide the substantive classification in view of factual issues arising from VCES payments. Interpretation and reasoning: The Adjudicating Authority and Commissioner (Appeals) treated activation fee reimbursements as taxable consideration for installation services. The Appellant contended that VCES payments (cum-duty value) and other factors render the demand extinguished or reduced. Ratio vs. Obiter: The Court did not lay down a new legal ratio on classification of activation/reimbursement fees; findings of the lower authorities stand subject to further adjudication on VCES consequences. Statements as to classification are therefore treated as interlocutory/obiter for present purposes. Conclusion: The question whether activation/installation fees remain exigible depends on the outcome of the remand directed to determine VCES compliance and appropriation; substantive classification was not finally decided here (see remand directions under Issue 4). Issue 3 - Whether tax already paid by the service receiver (principal) precludes separate levy on distributor Legal framework: The statutory scheme contemplates taxation based on defined taxable services; payment of Service Tax by one person on a component (e.g., MRP of vouchers) does not ipso facto exempt another person from liability unless the taxed service and taxable event are identical and the law/records demonstrate no double taxation. Precedent Treatment: The Commissioner (Appeals) rejected the Appellant's contention that tax paid by the principal on face value of recharge coupons saves the Appellant from tax liability on commission, distinguishing the types of services and service valuation. Interpretation and reasoning: The Court recorded the Commissioner (Appeals)'s reasoning that different service tracks and the nature of services supplied (broadcasting by principal vs. distributor's services to principal) make the tax paid by the principal not determinative for the distributor's liability. The Tribunal referred to its own prior orders favourable to the Appellant on similar facts but did not finally resolve the conflict in this appeal because of the remand on VCES facts. Ratio vs. Obiter: Observations about differing service tracks and non-applicability of the principal's payment as a complete answer to distributor's liability are part of the record of lower authorities; the Tribunal preserved the significance of earlier favourable precedents but did not lay down a binding new ratio in this judgment. Conclusion: Whether the distributor's liability is extinguished by tax paid by the principal remains an open question to be addressed after the Adjudicating Authority determines the effect of VCES payments and whether any tax consequence survives; the Tribunal did not uphold the Commissioner (Appeals)'s rejection of the contention as a final matter. Issue 4 - Effect of VCES declarations/payments on pre-existing demands and entitlement to benefits not raised in adjudication Legal framework: VCES provides for voluntary declaration and payment of tax dues; acceptance/completion of the VCES process and actual payment determine whether declared dues are discharged and whether adjudication proceedings are rendered infructuous to the extent of paid liabilities. Precedent Treatment: The Court relied on submissions and authorities cited by the Appellant on bona fide belief and VCES treatment (cases cited to the Court). The Commissioner (Appeals) rejected VCES reliance because payments were allegedly incomplete and because the plea was not raised before the Adjudicating Authority. Interpretation and reasoning: The Tribunal held that the Adjudicating Authority cannot ignore or overlook VCES compliance merely because the Appellant did not appear in adjudication; it is the Adjudicating Authority's obligation to examine declarations made under VCES and payments recorded by Revenue. The Tribunal identified contradictions in the record regarding amounts paid and dates (payment entries of Rs. 2,47,940/- on 07.08.2013 and entries in VCES declaration), concluding that factual enquiry is necessary. The Tribunal found the Commissioner's first reason for rejection (non-raised before Adjudicating Authority) incorrect as a legal proposition: statutory rights under VCES cannot be defeated by the Assessee's failure to press them in adjudication. The second reason (alleged non-payment) required fresh enquiry due to record inconsistencies. Ratio vs. Obiter: The holding that VCES compliance must be examined by the Adjudicating Authority notwithstanding an assessee's failure to raise it in adjudication is a ratio in this judgment and directs administrative procedure; it is a binding procedural conclusion for the remand. Observations about record contradictions and need for enquiry are also operative directions rather than mere obiter. Conclusion: The matter is remanded. The Adjudicating Authority is directed to determine whether VCES declaration was accepted, whether payments were made and in what amount, to which demands VCES payments are attributable, whether completion of VCES disables the Assessee from resisting demands, and, if VCES is complete, to take consequential steps including termination of adjudication where required. If VCES is incomplete or not accepted, the Adjudicating Authority shall proceed in accordance with law after opportunity to be heard, including appropriation issues. Issue 5 - Extended limitation and penalty under Section 78 where bona fide belief or concealment is alleged Legal framework: Extended period (proviso to Section 73(1)) and penalties under Section 78 are invoked where concealment or fraud is shown; bona fide belief and disclosure affect penalty and limitation applicability. The Revenue's ability to invoke extended period depends on whether material facts are concealed or not readily ascertainable without scrutiny of books. Precedent Treatment: The Commissioner (Appeals) upheld invocation of extended limitation and penalty reasoning that non-availability of facts to Revenue due to self-assessment justified extended period and Section 78 penalty. Interpretation and reasoning: The Court noted the Commissioner (Appeals)'s view that short-payment/non-payment would not have come to light but for scrutiny of books, justifying extended limitation and penalty. However, in view of remand on VCES, the Tribunal considered it unnecessary and potentially futile to decide merits and limitation questions until VCES consequences are ascertained, since those may render the tax consequence nil. Ratio vs. Obiter: The Tribunal did not endorse or reverse the invocation of the extended period or penalties on the merits; its decision to refrain from addressing these matters pending VCES determination is an interlocutory procedural ruling rather than a ratio on the substantive applicability of Section 73 proviso or Section 78. Conclusion: Determination of extended limitation and penalty issues is deferred to the Adjudicating Authority after it follows the remand directions and resolves VCES-related facts; the Tribunal allowed the appeal for statistical purposes and set aside the impugned order to enable that enquiry. Cross-References and Disposition All issues of substantive taxability (Issues 1-3) and consequences under limitation/penalty (Issue 5) are remitted for fresh adjudication in light of the VCES findings (Issue 4). The Adjudicating Authority must follow the directions enumerated by the Tribunal, consider the effect of VCES declarations/payments on each demand, afford opportunity to be heard, and take appropriate steps including termination of proceedings if VCES is found complete. The Tribunal expressly allowed the appeal for statistical purposes and set aside the impugned order pending the Adjudicating Authority's compliance with the directions above.