2025 (6) TMI 1578 - AT - Service Tax

Classification of service - Printing of Bills - Business Auxiliary Service or not - Personalisation of Credit/Debit Cards - Business Support Service or Support Service of Business or Commerce? - E-governance/E-seva services - Business Support Service or Business Auxiliary Services? - suppression of facts or not - extended period of limitation. Bill generation/printout dispatch service - HELD THAT - In the instant matter the perusal of the agreements entered into by the appellant clearly reveals that the appellant is not assigned the task of calculation or quantification of the billing amount details to be presented in the bill and correctness of the details in the bill or recovery of the billing amount. The appellant is not at all responsible for any details in the bill or authenticity of the same and they are required to process and print the bills on the basis of data provided by its clients and thereafter to dispatch the same in envelops. The Adjudicating Authority erred in holding that the appellant had provided calculation software to their clients whereas the agreements with M/s. Birla Tata AT T Ltd. mentions that it was not calculation software but the software developed for Billing Application which is meant only for printing designing purpose and not for the purpose of calculation. The facts on record clearly demonstrates that the appellant had not undertaken billing and accounting services for their clients but the services were limited to printing of bills for clients which need to be sent to the end customers. For rendering such service there was no interaction/communication between the appellant and the end customers - somewhat identical facts in the matter of Commissioner of Central Excise Delhi v Ricoh India Ltd. 2017 (3) TMI 1159 - CESTAT NEW DELHI and also in the matter of Commissioner v Galaxy Data Processing Centre 2011 (1) TMI 598 - CESTAT NEW DELHI the coordinate Bench of this Tribunal has held that the Bill printing and despatch service could not be considered as business auxiliary service . Accordingly the demand of Service Tax raised for Bill generation/printing and dispatch service set aside. Since the appeal of the appellant is liable to succeed on this issue thus the issue regarding classification of the said service as Support Services of Business or Commerce as introduced w.e.f. 01.05.2006 is left to be decided in any other appropriate case as the period involved herein is 01.07.2003 to 24.10.2005. Card personalisation service - HELD THAT - The Adjudicating Authority while rejecting the objection of the appellant has observed that the revenue has raised demand in the 1st show cause notice dated 31.8.2006 for the period 1.7.2003 to 24.10.2005 under Business Auxiliary Services for Bill generation/realisation (E-Seva) Despatch services and for Card Personalisation services. The aforesaid finding of the adjudicating authority is totally contrary to the record and it has been rendered without looking into these two Show Cause Notices. When the revenue itself is not clear as to whether the card personalization service would fall under Business Auxiliary Service or Business Support Service due to conflicting stands in the Show Cause Notices the appellant cannot be held to be willfully mis-stating the facts with intent to evade payment of service tax and for invoking extended period of limitation in the Show Cause Notices. The adjudicating authority has held the said services to fall under Business Auxiliary Services whereas in the Show Cause Notice dated 06.04.2011 the proposal was to classify the said service as Business Support Service under Section 65(104c) of the Act therefore the impugned order insofar it relates to Show Cause Notice dated 06.04.2011 is liable to be set aside on this ground alone without going into the merits being beyond the scope of the Show Cause Notice. Whether the adjudicating authority is justified in confirming the service tax demand under Section 65(19) which defines Business Auxiliary Service ? - HELD THAT - As per Section 65(19)(v) of the Act Business Auxiliary Service means any service in relation to production or processing of goods for or on behalf of the client. However if such production or processing of goods amounts to manufacture as defined under Section 2(f) of the Central Excise Act 1944 it no longer remains service and goes out of the purview of the Act for the purpose of payment of service tax and would be leviable to central excise duty under the Central Excise Act 1944. In the present case the adjudication authority held that card personalisation service does not amount to manufacture. The Adjudicating Authority has come to the above conclusion without even perusing CETH 8523 in full which reads Discs tapes sold-state non-volatile storage devices smart cards and other media for the recording of sound or of other phenomena whether or not recorded including matrices and masters production of discs but excluding products of Chapter 37. The said CETH covers not only Cards incorporating magnetic stripe 8523 21 00 but also Smart Cards like SIM Cards 8523 52 10 Memory cards 8523 52 20 Proximity cards and tags 8523 59 10 - the conclusion arrived at by the adjudicating authority that the digital code recorded on the magnetic strips of the smart cards does not qualify as a phenomena because it is not perceptible to human senses is totally erroneous and without any basis. If the reasoning of the adjudicating authority is accepted it would mean that even the SIM cards or for that matter Proximity cards would go out of CETH 8523 even though they are specific entries in the Tariff. The adjudicating authority has also observed that the appellant is engaged in applying the necessary process on plastic cards provided by the bank in the form of flat printing indenting embossing encoding tipping photo placement etc. All the processes undertaken by the appellant are mandatory to convert a simple plastic cards into credit/debit cards. This would clearly mean that the processes adopted by the appellant to convert simple plastic cards into credit/debit card will squarely fall within the meaning of manufacture as defined under Section 2(f) of the Central Excise Act 1944. The appellant therefore is correct in its submission that the process of Card Personalization amounts to manufacture and thus would fall outside the purview of service tax. It is also relevant to mention that w.e.f. 01.01.2007 personalization smart cards were classifiable under heading 8523 5290 Smart Cards Others which were fully exempted from payment of central excise by insertion of Sl. No. 22A in the master Notification No. 06/2006 dated 01.03.2006 vide Notification No. 31/2007-CE dated 19.07.2007. Therefore the Adjudicating Authority erred in confirming service tax demand on the said activity under section 65(19)(v) (vi) and (vii) as the same is not service but involves process of manufacture of excisable goods. Accordingly the demand of Service Tax under Card Personalisation service is set aside. E-Governance/E-Seva services - HELD THAT - On the issue e-governance module for and by agreements with respective State governments the adjudicating authority has held the consideration to be taxable as service described in section 65(105)(zzzq) of Finance Act 1994 which was included as support service of business or commerce with effect from 1st May 2006 and defined in section 65(104c) of Finance Act 1994. To render the finding of the contracted activity as taxable the adjudicating authority has in the absence of definition of business fallen back on dictionary meaning to conclude that even non-commercial activity that involves employment of persons is business as intended by the taxing entry; effectively the charge is built upon the argument that business includes functions of governance and not just for profit - It also appears that the emphasis on employed in the dictionary meaning is misplaced; the definition does not on the face refer to hiring of persons but of engagement in. The erroneous reliance by the adjudicating authority on the meaning assigned to business in the dictionary strikes at the foundation of the conclusion that the taxable entry covers the activity. From the activities set out in section 65(104c) ibid there can be no doubt that the intent is to tax outsourcing of elements of operations of a business or commercial entity to another. The activities intended in the agreement between the appellant and respective State governments are seen to be those that inhere in the State to undertake. Collection of fee is from those citizens or residents to whom the services are provided. For that be to be treated as consideration received by appellant without examination of the nature of the agreement is an erroneous conclusion - Moreover from Circular No.89/7/2006- ST dated 18th December 2006 of Central Board of Excise Customs which was also included in Circular No. 96/7/2007-ST dated 23rd August 2007 it can be seen that authorities are not liable to be taxed for any service which has a statutory mandate. In the absence of identification of any of these activities as not being statutory in the show cause notices supposition and/or inference cannot be an acceptable substitute. It is deemed proper to mention here that a co-ordinate Bench of the Tribunal in the matter of Sukhmani Society for Citizen Services vs. CCE ST Chandigarh 2016 (9) TMI 588 - CESTAT CHANDIGARH while dealing with the similar issue of e-governance service wherein the Commissioner has taken the view that the e-governance services provided by the appellant therein to various government departments of State of Punjab is covered under the category of Business Auxiliary Service which is chargeable to tax has held that the activities facilitated by the appellant therein such as issue of birth and death certificate marriage certificate vehicle registration etc are undoubtedly in the nature of the statutory functions of the government and CBE C vide circular No.96/07/2007-ST dated 23.8.2007 has clarified that services which are in the nature of statutory duties of the Government are not to be treated as services provided for consideration and hence no service tax will be chargeable on the same therefore same is not covered under the Business Auxiliary Service . Time limitation - HELD THAT - The 1st show cause notice dated 31.08.2006 involving all the three services in issue herein has been issued invoking the extended period therefore the alleged irregularity has come to the knowledge of the department. But the subsequent show cause notices dated 06.04.2011 for the period 2006 to 2009 for card personalisation service and dated 10.05.2011 for the period 01.05.2006 to 30.09.2010 for E- Governance/E-seva service which covers substantial amount out of the total service tax claimed under this category have also been issued after invoking extended period which is not sustainable on limitation ground as well since the said fact was within the knowledge of the revenue in the year 2006 itself when the 1st show-cause notice dated 31.08.2006 was issued. Revenue is not permitted to raise the plea of suppression just in order to invoke the extended period when they were already aware about the alleged irregularity. Therefore demand of service tax for the period covered in the above show cause notices is not sustainable both on merits as discussed in preceding paragraphs as well as on the ground of limitation. Otherwise also when the department itself was confused in classifying the services and was taking divergent views in different show-cause notices no fault or mensrea can be attributed on the part of the appellant. Interest - penalty - HELD THAT - Since the demands raised in the show-cause notice set aside there is no question of any interest or penalty. Conclusion - i) The service tax demand on bill generation/printing and dispatch service is set aside as the activity does not constitute a taxable Business Auxiliary Service. ii) The service tax demand on card personalisation service is set aside as the activity amounts to manufacture and falls outside the scope of service tax. iii) The service tax demand on e-governance/e-seva services is set aside as these are sovereign/statutory functions of government and not taxable under Business Auxiliary Service or Support Service of Business or Commerce. iv) The invocation of extended period of limitation and penalties is not sustainable and set aside. The demand made in the show-cause notice is not sustainable. Accordingly the impugned order is set aside by allowing the instant appeal - Appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

• Whether the service of printing, generation, and dispatch of telephone bills provided by the appellant falls within the ambit of "Business Auxiliary Service" under Section 65(19) read with Section 65(105)(zzb) of the Finance Act, 1994, and is liable to service tax.
• Whether the activity of personalisation of credit and debit cards undertaken by the appellant amounts to a taxable service under "Business Auxiliary Service" (Section 65(19)) or "Support Service of Business or Commerce" (Section 65(104c)) or whether it constitutes manufacture and thus falls outside the purview of service tax.
• Whether the e-governance/e-seva services rendered by the appellant to various State Governments and government bodies constitute taxable "Business Auxiliary Services" or "Support Services of Business or Commerce" or are exempt as sovereign/statutory functions of the government, and thus not liable to service tax.
• Whether the extended period of limitation for demanding service tax under the proviso to Section 73 of the Finance Act, 1994 is invokable against the appellant based on allegations of suppression or misstatement.
• The applicability and correctness of penalties imposed under Sections 76, 77, and 78 of the Finance Act, 1994 in the facts of this case.

2. ISSUE-WISE DETAILED ANALYSIS

Bill Generation/Printing & Dispatch Service

Legal Framework and Precedents: The demand was raised under the definition of "Business Auxiliary Service" under Section 65(19) read with Section 65(105)(zzb) of the Finance Act, 1994. The relevant clauses invoked were Sections 65(19)(vi) and (vii), which cover services provided on behalf of the client and services incidental or auxiliary to such activities, including billing.

Court's Interpretation and Reasoning: The adjudicating authority held that the appellant's activity was not mere printing but involved processing of data and provision of billing-related software, thus qualifying as "billing" and falling within the ambit of Business Auxiliary Services. The Tribunal disagreed, emphasizing that "billing" in common parlance involves financial activities such as calculation, quantification, and recovery of amounts, none of which were undertaken by the appellant.

Key Evidence and Findings: The agreements showed that the appellant only printed bills based on data provided by the clients, without any responsibility for calculation or validation of billing data. The appellant had no direct interaction with end customers. The software provided was for printing design and not for billing calculations.

Application of Law to Facts: The Tribunal applied the ordinary meaning of "billing" and found that the appellant's role was limited to printing and dispatching bills, which does not amount to "billing" or "business auxiliary service" under the statute. The appellant did not provide services "on behalf of" the client as they had no customer interface.

Treatment of Competing Arguments: The Tribunal rejected the revenue's contention that the appellant's activities amounted to billing and business auxiliary service, relying on precedents where similar printing and dispatch services were held not taxable.

Conclusion: The demand of service tax on bill generation, printing, and dispatch service was set aside as the activity did not constitute a taxable service under the Finance Act.

Card Personalisation Service

Legal Framework and Precedents: The service was variously classified by the revenue under "Business Auxiliary Service" (Section 65(19)) and later under "Support Service of Business or Commerce" (Section 65(104c)). The appellant contended that the activity amounted to manufacture under Section 2(f) of the Central Excise Act, 1944 and thus outside the scope of service tax.

Court's Interpretation and Reasoning: The adjudicating authority held that card personalisation did not amount to manufacture and was taxable as business auxiliary service. However, the Tribunal examined the nature of the processes involved-magnetic strip encoding, embossing, printing, lamination, etc.-and found these processes effect a transformation of the plastic card into a credit/debit card, thereby amounting to manufacture.

Key Evidence and Findings: The Tribunal referred to the Supreme Court's test on manufacture involving change in character or use of a product. It also examined Central Excise Tariff Heading 8523, noting that smart cards, whether recorded or not, fall under this heading and are subject to excise duty, not service tax. The appellant's activities were thus manufacturing processes.

Application of Law to Facts: The Tribunal applied the legal test of manufacture and held that the appellant's card personalisation is manufacture, not service, and therefore not liable to service tax. The revenue's flip-flop in classifying the service was also noted as indicative of lack of clarity.

Treatment of Competing Arguments: The appellant's reliance on exemption notifications and the definition of manufacture was accepted; the revenue's contrary position was rejected.

Conclusion: The service tax demand on card personalisation was set aside as the activity constituted manufacture and not taxable service.

E-Governance/E-Seva Services

Legal Framework and Precedents: The revenue initially classified the services under "Business Auxiliary Service" but later under "Support Service of Business or Commerce" (Section 65(104c)). The appellant argued these services were sovereign/statutory functions of the government and thus not taxable. The relevant legal provisions include Section 65(104c) and the negative list introduced w.e.f. 01.07.2012.

Court's Interpretation and Reasoning: The adjudicating authority confirmed the demand under "Support Service of Business or Commerce," relying on dictionary meanings of "business" to include governance activities. The Tribunal rejected this reasoning, finding that the taxing authority erred in equating sovereign functions with taxable business activities. The Tribunal emphasized that the services rendered were statutory functions of government departments, not commercial activities.

Key Evidence and Findings: The appellant's agreements with various State Governments showed that the services involved delivery of statutory services such as issuance of licenses, certificates, tax collection, and other government functions. The appellant acted as a technical partner providing infrastructure and software but did not engage in business or profit-making activities. The Tribunal also noted circulars clarifying that statutory functions are not taxable services.

Application of Law to Facts: The Tribunal applied the principle that services rendered in discharge of statutory or sovereign functions are not taxable. It relied on judicial precedents holding that services to government departments in discharge of statutory duties do not constitute business auxiliary or support services liable to service tax.

Treatment of Competing Arguments: The revenue's reliance on dictionary definitions and the argument that the services involved employment of persons was rejected as misplaced. The Tribunal also noted the absence of evidence of consideration or profit motive in the appellant's agreements.

Conclusion: The demand of service tax on e-governance/e-seva services was set aside as these were sovereign functions not liable to service tax.

Extended Period of Limitation and Penalty

Legal Framework: The extended period of limitation under the proviso to Section 73 of the Finance Act can be invoked only on proof of suppression or misstatement with intent to evade tax.

Court's Interpretation and Reasoning: The Tribunal found that the revenue was aware of the appellant's activities since 2003 and had issued the first show cause notice in 2006. Subsequent show cause notices invoking extended limitation were not sustainable as the revenue was already aware of the facts. The inconsistent classification of services by the revenue negated any mens rea on the appellant's part.

Application of Law to Facts: The Tribunal held that no suppression or misstatement was established and thus extended limitation could not be invoked. Penalties were also not sustainable in the absence of confirmed tax liability.

Conclusion: The extended period of limitation and penalties imposed were set aside.

3. SIGNIFICANT HOLDINGS

"Billing involves a number of processes of services providers on whose behalf bills are to be raised i.e. collecting details of customers, collection of consumption data of customers, calculate charging and billing information, produce bills to customers etc. In other words, billing is more of a financial activity involving quantification of amount, methodology of providing information in the bill and reaching it to the customer and following it up for collection."

"The appellant was only engaged for the purpose of printing and stuffing bills in envelopes... the said activity of the appellant cannot be equated with 'billing' and, thus, would not fall as business auxiliary service under any clause of Section 65(105)(zzb)."

"If by a process, a change is effected in a product, which was not there previously, and which change facilitates the utility of the product for which it is meant, then the process is not a simple process, but a process incidental or ancillary to the completion of a manufactured product... When adopting a particular process, if a transformation takes place, which makes the product have a character and use of its own, which it did not bear earlier, then the process would amount to manufacture under Section 2(f)."

"The recording of digital code on the magnetic strips of the smart cards does not amount to manufacture under Note 10 of Chapter 85 as recording of phenomena on smart cards" - held erroneous and without basis by the Tribunal.

"Services which are in the nature of statutory duties of the Government are not to be treated as services provided for consideration and hence no service tax will be chargeable on the same."

"The business auxiliary service would become chargeable to service tax only if the service is rendered in relation to the business of the recipient. In the present case, the service of facilitation has been rendered to the Govt. departments, which are engaged not in business but in rendering public service."

"The erroneous reliance by the adjudicating authority on the meaning assigned to 'business' in the dictionary strikes at the foundation of the conclusion that the taxable entry covers the activity."

"Revenue is not permitted to raise the plea of suppression just in order to invoke the extended period when they were already aware about the alleged irregularity."

Final determinations:

• The service tax demand on bill generation/printing and dispatch service is set aside as the activity does not constitute a taxable "Business Auxiliary Service."
• The service tax demand on card personalisation service is set aside as the activity amounts to manufacture and falls outside the scope of service tax.
• The service tax demand on e-governance/e-seva services is set aside as these are sovereign/statutory functions of government and not taxable under "Business Auxiliary Service" or "Support Service of Business or Commerce."
• The invocation of extended period of limitation and penalties is not sustainable and set aside.