2025 (5) TMI 488 - AT - Service Tax

Classification of service - Business Auxiliary Service (BAS) or Business Support Service (BSS) - invocation of extended period of limitation - HELD THAT - In the instant case as has been brought out from the records various documents etc. were being prepared by the appellants they were charging commission they were responsible for arranging finance on old cars and also were arranging various documents including RTO registration etc. Such activities cannot be stated to be a rent of any kind and it has to come within the ambit of Business Auxiliary Service . To fortify the matter against the appellants despite Larger Bench decision in M/S PAGARIYA AUTO CENTER VERSUS CCE AURANGABAD 2014 (2) TMI 98 - CESTAT NEW DELHI (LB) the Learned Commissioner (Appeals) has correctly relied upon the statement of Shri Suresh Vishandas Ramani which clearly indicates that Clause 19 (ii) of Section 65 of the Finance Act 1994 clearly brought this kind of service within the ambit of Business Auxiliary Service . It was also pointed out by Shri. Ramani during the course of the statement that sometimes other sub brokers also bring business to them in which case they pay them with some commission out of the commission to be earned by them. From the show cause notice it is also analyzed that renting of space was never an issue made out in the matter as was the case before the Larger Bench. Therefore for the kind of activities which were being performed by the appellants there cannot be any doubt about the same not being covered under Business Auxiliary Services. Hence notion that there was confusion in their mind despite admission by the owner of the business clearly indicates that it is a figment of imagination to take advantage of a case law which is not applicable to them in any case in its entirety. The order of Commissioner (Appeals) is sustainable both on merits as well as on the point of limitation. Conclusion - i) The appellant s activities involving commission-based purchase and sale of old cars acting as DSA for banks arranging finance and handling RTO and other documentation clearly fall within the ambit of Business Auxiliary Service not Business Support Service or mere rent. ii) The extended period of limitation is rightly invoked due to suppression of facts and absence of bona fide belief. Appeal dismissed.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the service rendered by the appellant during 2003-2004 to 2005-2006 falls under "Business Auxiliary Service" (BAS) as defined under Section 65(19)(ii) of the Finance Act, 1994, or under "Business Support Service" which came into existence from 01.04.2008.

- Whether the extended period of limitation for service tax recovery was correctly invoked against the appellant on the ground of suppression of facts and absence of bona fide belief about tax liability.

- Whether the appellant's contention of bonafide belief that service tax was not chargeable during the relevant period is sustainable in light of available evidence and legal precedents.

- Whether the activities performed by the appellant, including acting as Direct Selling Agent (DSA) for financial institutions, arranging finance, and handling related documentation, amount to BAS or merely constitute rent for space or other non-taxable activities.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Classification of Service Rendered - Business Auxiliary Service vs. Business Support Service

Relevant Legal Framework and Precedents:

Section 65(19)(ii) of the Finance Act, 1994 defines Business Auxiliary Service (BAS) to include services that assist or facilitate business operations of another, such as acting as agents for arranging finance or related activities. Business Support Service was introduced later, effective 01.04.2008, and thus could not apply to the period in question.

The Larger Bench decision in Pagariya Auto Center Vs. Commissioner of Central Excise clarified the distinction between BAS and other services such as mere rent for space. It held that if the transaction involves substantial activities falling within the BAS definition, it qualifies as BAS; mere provision of space with furniture for financial institution representatives does not amount to BAS.

Court's Interpretation and Reasoning:

The Court examined the nature of the appellant's activities, which included purchase and sale of old cars on commission, acting as DSA for banks, arranging finance, ensuring hypothecation/hire purchase in favor of banks, handling RTO registration, and obtaining necessary documents from customers. These activities involve substantial facilitation and assistance in business operations of financial institutions and customers.

The Court rejected the appellant's argument that their services fell under Business Support Service, noting that this category did not exist during the relevant period. The Tribunal relied on the Larger Bench's ruling to distinguish the present case from mere rent-for-space scenarios, emphasizing the substantive nature of the appellant's services.

Key Evidence and Findings:

The statement of the proprietor, Shri Suresh Vishandas Ramani, admitted that their services were taxable under BAS from 01.07.2003. Documentary evidence showed commission charges, finance arrangement, and processing of related documentation, which collectively fell within BAS.

Application of Law to Facts:

Applying the test from the Larger Bench, the Tribunal found that the appellant's activities clearly fell within the ambit of BAS. The nature of services was not limited to provision of space but involved extensive facilitation and business auxiliary functions.

Treatment of Competing Arguments:

The appellant's reliance on Business Support Service classification was dismissed as inapplicable for the period. The claim that their activities were limited to rent or non-taxable support was rejected based on factual matrix and legal precedent.

Conclusion:

The Court held that the services rendered by the appellant during the relevant period were rightly classified as Business Auxiliary Service under Section 65(19)(ii) of the Finance Act, 1994.

Issue 2: Applicability of Extended Period of Limitation and Bona Fide Belief

Relevant Legal Framework and Precedents:

The Finance Act provides for extended limitation period where there is suppression of facts or willful attempt to evade tax. The principle that bona fide belief may not always entitle waiver of penalty was reiterated by the Supreme Court in Jain Exports Pvt Ltd, which held that bona fide action does not automatically warrant full waiver unless facts justify it.

Court's Interpretation and Reasoning:

The adjudicating authority and Commissioner (Appeals) found that the appellant was aware of the taxability of their services, as evidenced by the proprietor's statement admitting that the services fell under BAS from 01.07.2003. The claim of bonafide belief was held to be a mis-statement and afterthought, indicating suppression of facts.

Key Evidence and Findings:

The proprietor's statement explicitly acknowledged the taxable nature of the services. There was no evidence of genuine ignorance or confusion. The department also relied on specific intelligence leading to discovery of appellant's activities.

Application of Law to Facts:

Given the admission and intelligence, the extended period was validly invoked. The appellant's argument of bonafide belief was rejected as inconsistent with the facts.

Treatment of Competing Arguments:

The appellant contended that the issue was disputed and that there was a legitimate belief that tax was not applicable. The Tribunal, however, found this untenable in light of the proprietor's admission and legal precedents.

Conclusion:

The extended period of limitation was correctly applied, and the appellant's plea of bonafide belief was dismissed.

Issue 3: Validity of Show Cause Notice and Recovery of Service Tax

Relevant Legal Framework and Precedents:

Service tax liability arises if the service rendered falls within taxable categories under the Finance Act. The procedural safeguards require issuance of show cause notice and adjudication.

Court's Interpretation and Reasoning:

The show cause notice was issued on 19.10.2006, covering the period 2003-2006, alleging service tax liability under BAS. The adjudicating authority confirmed the tax demand, interest, and penalty. The Commissioner (Appeals) upheld these findings after remand and examination of limitation and classification issues.

Key Evidence and Findings:

Records and statements demonstrated commission-based services as DSA, finance arrangement, and documentation handling. No evidence suggested invalidity of the show cause notice or procedural lapses.

Application of Law to Facts:

The Tribunal found no merit in the appellant's challenge to the show cause notice or recovery process. The classification and limitation issues having been resolved against the appellant, the recovery was justified.

Treatment of Competing Arguments:

The appellant argued that the service was not taxable and that limitation barred recovery. These contentions were rejected based on evidence and legal analysis.

Conclusion:

The show cause notice and consequent recovery of service tax, interest, and penalty were valid and sustainable.

3. SIGNIFICANT HOLDINGS

- "From the above statement of the proprietor, it is crystal clear that there were no such 'bona fide belief' as claimed by the appellant and they were in fact aware of the taxability of their service. Therefore, it is very clear that their claim of 'bona fide belief that service was not chargeable is a mis-statement and afterthought." (Para 11)

- The Tribunal applied the Larger Bench test from Pagariya Auto Center, stating: "Where mere space is provided along with furniture for facilitating accommodation of representatives of financial institutions in the premises of an automobile dealer and consideration is received for that singular activity, such consideration may perhaps constitute a rent for the provision of space and associated amenities. Such restricted relationship/transaction may not amount to BAS. If on the other hand, the transactional documents and other evidence on record indicates a substantial activity falling within the contours of any of the integers of the definition of BAS, spelt out in Section 65(19), then it would be legitimate to conclude that BAS is provided." (Para 4)

- The Court concluded that the appellant's activities involving commission-based purchase and sale of old cars, acting as DSA for banks, arranging finance, and handling RTO and other documentation, clearly fall within the ambit of Business Auxiliary Service, not Business Support Service or mere rent.

- The extended period of limitation was rightly invoked due to suppression of facts and absence of bona fide belief, supported by the proprietor's admission and applicable legal principles from Supreme Court precedents.

- The appellant's appeal was rejected, affirming the classification of service, applicability of extended limitation, and validity of tax recovery along with interest and penalty.