Promotion of funding business of Bank - Service is BAS as provided to Bank

PJ/Case laws/2012-13/1062

Case: - S.K JALENDAR & ASSOCIATES Vs COMMISSIONER OF C. EX., JAIPUR-I

Citation: - 2012 (26) S.T.R. 135 (Tri-Del)

Issue:- Demand of Service Tax for providing promotion of funding business of bank under BAS – held, service is BAS as provided to bank and not to prospective buyers.

For computing limitation, the date of knowledge and the date of issuance of SCN is relevant.

Brief Facts:- Appellant arranges documents from prospective buyer of the bank and submits profile basing on those documents to the bank which results in disbursement of the loan to the borrower.

Revenue alleged that this service was classifiable under the category of 'Business Auxiliary Service’ and raised demand. The Adjudicating Authority confirmed the demand and also imposed penalty.

In appeal, the Commissioner (A) upheld Adjudication order.

Hence, appellant is before the Tribunal raising following issues: -

(1) Whether service provided by the Appellant can be classified under the category of 'Business Auxiliary Service' and tax and penalty leviable?

(2) Whether amendment made by Finance Act, 2004 coming into force with effect from 10-9-2004 read with Notification No. 14/2004 dated 10-9-2004 granted immunity to the Appellant from levy.

(3) Whether Show Cause Notice issued on 22-8-2006 for the period from 1-7-2003 to 31-3-2005 is time-barred.

(4) Whether the Appellant is entitled to double taxation relief.

Appellant’s Contention:- Appellant submit that they arranges documents from prospective buyer of the bank and submits profile basing on those documents to the bank which results in disbursement of the loan to the borrower. There is no relationship between the Appellant and the borrower to provide any service to call that service as 'Business Auxiliary Service' provided and taxable. Only because there was a visit by investigating officers on 20th Jan. 2005, a Show Cause Notice was issued making allegation that they received commission amounting to Rs. 41,34,000/- and that has escaped levy of service tax of Rs. 3,64,801/-.

Appellant submit that they did not prefer to litigate as a peace loving and bona fide assessee but on protest, paid the service tax, interest element and 25% of the penalty, if any, imposable before Adjudication was completed. Law being newly introduced bringing the provision of certain services to be called as 'Business Auxiliary Service' for taxation under the Act, the Appellant deserves to be exonerated from penalty if any imposable and tax liability, if any arises. He further submitted that Section 78 of the Act grants concession in penalty when dues to the Government is discharged within 30 days of intimation to the assessee and such period having been extended up to 90 days by the Finance Act, 2011, the Appellant also deserves consideration when 25% of penalty was paid within 35 days of service of Adjudication order. The Appellant therefore should not be denied of concession in levy of penalty when the tax dues to the Government has been discharged prior to Adjudication except the penalty element discharged within 35 days of the receipt of Adjudication order. Tribunal has ample power to condone the five days delay to consider the case of the Appellant for the concessional penalty. However, even such a penalty is not imposable in absence of essential ingredients relating to loss of revenue.

Respondent’s Contention:- Revenue supports the order of the Commissioner (A) but disputes the quantum and payment of tax and penalty element submitting that the same is subject to verification, since they do not have information about such payment. It was also submitted that at page-7 of the written submissions filed by the Appellant having described the nature of activity carried out, that fulfils the requirement of the taxing entry bringing the Appellant to the fold of BAS. Revenue submits that intelligence was also gathered to put to test with the proprietor of the Appellant concerned to find out what the Appellant understood about the liability. Para-4 of SCN indicates about the exercise of the Authorities demonstrating their mind for issuance of the summons calling for information. The proprietor of the Appellant concerned in his statement recorded under Section 14 of the Central Excise Act, 1944 admitted that they are not registered with the department nor paid service tax due to ignorance of law. Therefore for the clear cut admission of the liability which of course is subject to provisions of law, the Appellant was fairly dealt in Adjudication.

Reasoning of Judgment:- The Tribunal noted that it is undisputed that appellant was service provider to the financing bank arranging documents for the bank to evaluate credibility, eligibility and financial status of the prospective customer for funding by the bank. No evidence of being appointed is produced or an agreement was entered showing there relationship. Therefore, in the absence of cogent material, role of appellant as service provider remains unchanged and his contention of providing service to prospective buyers remain unchanged.

It was held that remuneration received by appellant from bank was for promoting funding business of the banker by gathering documents and preparing profiles to enable the bank to consider its funding activity. All these facts and attendant circumstances bring the Appellant and the bank to the understanding as taxable service provider and recipient of such service. The recipient being identified by the understanding of the parties in accordance with recorded fact, no plea contending that the Appellant has not served the bank is tenable. Therefore, deciding the first issue raised by the Appellant, the Tribunal held that the Appellant provided 'Business Auxiliary Service' to the bank and resulted in liability to service tax under the Act. Demand was upheld.

With regard to show cause notice being time barred, the Tribunal proceeded to enquire the date of visit by the investigating agency and date of issuance of the Show Cause Notice. Being guided by the Apex Court's judgment in C.C.E., Visakhapatnain v. Mehta & Co. [2011 (264) E.L.T. 482 (S.C.)], it was found that when investigation was made escapement of tax of levy came to the knowledge of the department from the documents and information gathered during investigation on 20-1-2005. That date is material date since that was date of knowledge, to decide the issue of limitation following Apex Court decision cited above. Tribunal examined the case of the Appellant in that light. The Appellant having been issued Show Cause Notice on 22-6-2006 i.e. after a year of the visit by the investigating agency the proceeding is not time-barred for escapement of levy and for the reasons attributable to the Appellant who made a gross receipt of Rs. 41,34,000/- during the impugned period. There is no provision in law prescribing time limit for issuance of the Show Cause Notice except law stating that the Show Cause Notice in normal cases is issued within one year of the relevant date (relevant date explained in law) and in cases of subterfuge to Revenue within five years of the relevant date.

It was noted that the Apex Court in para-24 of the judgment dealt the cause of action in the case of Mehta & Co. in the decision. The Appellant falls within the fold of para-24 of the judgment of the Apex Court. Therefore issuance of the Show Cause Notice dated 22-6-2006 is well within time for the period escaping levy. In the present case, limitation can be reckoned from the date of knowledge of the department.

The second issue raised was that the amendment by the Finance Act, 2004 read with Notification No. 14/2004 grants immunity to the Appellant from taxation. The period of Adjudication is 1-7-2003 to 31-3-2005. If the service is provided by the Appellant to the borrower, in that circumstance, it can be said that service was provided to such borrower on behalf of the client of the Appellant and notification applies to such case. But service provided by the Appellant in the present case was to the financing bank but not to the borrower. Relation between the Appellant and the bank proves that there was quid pro quo between the Appellant and the bank to meet the requirement of funding. The Appellant had only served the bank but not acted on behalf of the bank. Borrower was not privy to the contract between the Appellant and the bank. So also in absence of any letter of appointment and agreement, the Tribunal were unable to extend the benefit of Notification No. 14/2004 dated 10-9-2004 to the Appellant and that issue is answered negatively. The Appellant has no scope to be benefited by the amendment of law.

Fourth issue raised was that if at all an attempt is made to tax the service provided by Appellant, the processing fee recovered by the bank having included the commission paid to the Appellant and tax thereon having been paid by the bank, such attempt will amount to double taxation and no tax can be collected from the Appellant. There is no evidence produced to appreciate pleading of the Appellant on such count. Also in absence of the appointment letter the Tribunal were unable to understand how the processing fees collected by the bank included commission paid to the Appellant and that has suffered tax. Therefore, the plea of double taxation being unsound is unsustainable and decided against the Appellant.

There is no material to appreciate that the Appellant is innocent for the other reasons that the Appellant is capable of preparing the profile of the borrowers studying their various documents provided by borrowers. There is no element of illiteracy of the appellant coming out to say that the Appellant was not literate. These handicaps to grant any immunity from penalty for the suppression of the fact made to the department and contravention of law made consciously. When nothing was within the knowledge of the department before 20- 1-2005 till investigation was conducted, penal consequences of law followed and that has rightly been adjudicated by Authorities below invoking Section 76 and 78 of the Finance Act, 1994. The Tribunal did not find any reasonable cause on the part of the Appellant to grant it immunity under Section 80 of the Act. But while appreciating the levy was new imposition of penalty under Section 78 and 76 of the Act, simultaneously shall be harsh. Therefore levy of penalty under Section 78 shall be proper dose to prevent the Appellant from recurrence of the contravention of law and loss of revenue. The Tribunal therefore upheld the penalty under Section 78 as has been imposed by the Adjudication order. The Tribunal have confirmed the first Appellate order in relation to the tax and interest and except penalty is to be reduced to 25% of the tax demand as stated above. Thus, the Appellant gets partial relief and Appeal is partly allowed.

Decision:- Appeal partly allowed.

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PJ/Case laws/2012-13/1062

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