Authorised Service Station & BAS service to Banks & Fin. Institutions – Dealer of Maruti cars – no service tax paid on free services provided to Maruti vehicle - Whether liability arise to pay interest on service tax and penalty when Service tax is paid p

PJ/Case Laws/2011-12/1265

Case: Commissioner of C. Ex., Mangalore V/s Abharan Motors Pvt. Ltd.

Citation: 2011 (23) S.T.R. 72 (Tri.-Bang.)

Issue:- Authorised Service Station & BAS service to Banks & Fin. Institutions – Dealer of Maruti cars – no service tax paid on free services provided to Maruti vehicle - Whether assessee liable to pay interest on service tax and liable to penalty when he paid Service tax prior to issue of SCN and when acting under Bona fide belief?

Brief Facts:- Respondent were dealer of Maruti vehicles and were an Authorized Service Station for Maruti vehicles. They were found to have rendered services classified under “Business Auxiliary Services” (BAS) and “Authorized Service Station” (ASS) during the period July 2001 to March 2006 without following statutory formalities including payment of Service tax due. M/s Maruti Udyog Ltd had a tie up with Non Banking Finance Companies and Insurance Companies for providing respectively loans and vehicle insurance to buyers of Maruti vehicles. They received commission for promoting Insurance Auxiliary Services (IAS) and Banking & Financial Services (BAF) rendered by the insurance companies and NBFCs respectively. The Respondents received a part of commission received by Maruti Udyog Ltd. for promoting insurance auxiliary services. Respondents did not pay service tax on ASS in respect of free services provided to Maruti vehicles as per MUL’s agreement with its customers.

The Original Authority confirmed the demand of service tax on commission received by the respondent during the material period under BAS and ASS. The extended period of Limitation was invoked. Interest was demanded and penalties imposed on respondent under different Sections of the Finance Act, 1994.

In appeal, the Commissioner (Appeals) found that larger period could not be validly invoked in the instance case. Department had made enquiries and ascertained the nature of transactions involved as early as in 2004. The records of the assessee were audited by the internal audit wing of the department in August 2005 and show cause notice was issued in June 2006. The Commissioner found that the department was aware of the transactions, the taxable value and tax involved and not paid by the assessee for the period from July 2001 to June 2004, in 2004. Yet the notice was issued only in 2006. The assessee had paid the Service tax found due from them prior to the issue of show cause notice. The Commissioner restricted the demand for one year period finding that no case of suppression of facts etc. was made out against the assessee to invoke larger period of limitation. Reliance was placed on the Apex Court’s Decision of M/s. Nizam Sugar Factory [2006 (197) E.L.T. 465(S.C.)]. The Commissioner (Appeals) also held that the assessee was not liable to pay interest on demand confirmed and was not liable to penalty as the assessee had discharged its tax liability prior to issue of show cause notice.

Against this order, Revenue is in appeal before the Tribunal.

Appellant’s Contention:- Revenue contended that since the assessee had accepted its liability and paid the tax for the entire period, it was incorrect on the part of the Commissioner (Appeals) to have not imposed penalties under Section 76 and 78 of the Act. He had wrongly relied on the decisions of the Tribunal in the case of Mass Marketing and Advertising Services-2006(3) S.T.R. 333 (Tri.-Bang.) and Final Order No. 1378/2006 dated 31.8.2006 in the case of M/s. Shakti Motors. It was further submitted that these authorities were passed relying on the Larger Bench decision of the Tribunal in the case of Machino Montell (I) Ltd.[2004(168) E.L.T. 466 (Tri.-LB)] and Karnataka High Court in the case of Shree Krishna Pipe Industries [2004(165) E.L.T. 508 (Kar.)] as also the Apex Court’s judgment in the case of Rastriya Ispat Nigam Ltd. [2004(165) E.L.T. A53 (S.C.)].

It was submitted that these authorities were no longer good law in the wake of the judgment of the Apex Court in the case of Dharmendra Textiles Processors [2008 (231) E.L.T. 3 (S.C.)] and Rajasthan Spinning Mills [2009 (238) E.L.T. 3 (S.C.)]. As per these judgments, an assessee who evaded excise duty by fraud, willful misstatement, suppression of facts etc. was liable to equal amount of penalty under Section 11C of the Central Excise Act. Payment of duty due prior to issue of show cause notice did not absolve the assessee from the penal liability u/s 11AC. The provisions of Section 78 were pari mateia to the provisions of Section 11AC of CEA, 1944. And the ratio of these judgments clearly applied to cases of evasion of service tax. It was settled that when Service tax was found due from a person for any past period, arrears could be recovered alongwith applicable interest. Provisions of Section 75 enabled recovery of interest in such cases.

Respondent’s Contention:- Respondent argued that in their case the Commissioner had not found that larger period of limitation could not be invoked. No suppression of facts could be alleged against the assessee. Despite obtaining all the relevant information as early as in October 2004, a show cause notice was issued only in June 2006. The Commissioner had rightly reduced the demand applicable to the longer period. In the circumstances, no penalty could be imposed on the assessee under Section 78 of the Act.

Respondent fairly conceded that they were liable to pay the interest for delay in payment of tax due.

Reasoning of Judgment:- The Tribunal held that there is no dispute that the assessee had rendered taxable services without following the relevant statutory formalities and had incurred liability for service tax under “Business Auxiliary Service” for the period from July 2003 to March 2006 and under “Authorized Service Station” for the period July 2001 to March 2006. The assessee paid the tax though under protest before issuance of show cause notice. Since the appellants had made a strong case on account of time bar.

The Tribunal further found that suppression of taxable value was noticed by Audit in October 2004. Correspondence between Range Superintendent and the appellants subsequent to audit did not result in issue of show cause notice. As regards interest liability, as rightly argued in the appeal, the Commissioner erred in waving the same under Section 75 of the Act. Only demands pertaining to period within one year of the date of issue of show cause notice remain sustainable. It was noted that there was confusion among trade for a long time regarding the liability to pay service tax on the mandatory services rendered by the assessee as a dealer and authorized service station of Maruti vehicles. The confusion was cleared in 2006 by Board circular no. 87/05/2006-ST dated 06.11.2006. Thus, it was held that respondent were under bona fide belief that service tax was not payable by them on the Authorised service station on the value of free services rendered to customers of Maruti vehicles for the reason that the said amounts had formed part of the value of the vehicle and suffeed excise duty.

With regard to BAS service, the Tribunal found that dispute is pending before various authorities. No case made out for imposition of penalty under Section 76 or 78 on the charge of evading payment of service tax.

Decision:- Appeal partly allowed.

Comment:- When there is bonafide belief that the tax is not payable then penal provision cannot be imposed. The High Court has laid down the above principle in this decision and has rightly done so.

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PJ/Case Laws/2011-12/1265

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