Whether commission received from the financial institutions for giving table space in the appellant’s premises and fees charged for RTO registration from the customers taxable?

PJ/Case Law/2016-17/3352

Case:-ARPANNA AUTOMOTIVE PVT. LTD. VersusCOMMISSIONER OF CUSTOMS & C. EX.

Citation:-2016 (43) S.T.R. 397 (Tri. - Mumbai)

Brief facts:-The relevant facts that arise for consideration after filtering out necessary details are the officers of DGCEI visited to the premises of the appellant, during the scrutiny of the records it was noticed that the appellant had not discharged the Service Tax liability on the and that the appellant has not discharged the Service Tax liability on the differential amount kept back on the fees charged for RTO registration from their customers. Coming to such a conclusion show cause notice dated 20th October, 2008 was issued to the appellant directing him to show cause notice why differential tax amount be not demanded with interest and penalty be not levied. Appellant contested the show cause notice on merits as well as on limitation. The adjudicating authority after following the due process of law confirmed the demand raise with interest and also imposed penalties.

Appellant’s contention:-Learned chartered accountant would take us through the entire case records. It is her submission that the issue on merits as to Service Tax liability on the amount received as on commission from financial institutions commission, sales commission, referral insurance commission and miscellaneous commission is not disputed as same is covered by the Larger Bench decision of the Tribunal in the case of Pagariya Auto Centre v. Commissioner of Central Excise, Aurangabad - 2014 (33) S.T.R. 506 (Tri.-LB). It is her submission that since the issue involved being contested at higher forums the penalties decide. As regards the Service Tax liability on the amount which is retained by the appellant on fees charged for RTO registration, it is her submission that the said amount is not taxable under Business Auxiliary Service by any stretch of imagination

Respondent’s contention:-Learned departmental representative on the other hand could submit that the Service Tax liability on the amount of RTO fees is the amount which is collected over and above the actual charges paid to RTO authorities. It is his submission the said amount for registration of the vehicle of the client received from the purchaser. It is his submission that Service Tax liability and the interest on the amount of business commission, penalties shall be imposed as per the law.

Reasoning of judgment:-The Tribunal considered the submissions made by both sides and perused the records.
As regards the Service Tax liability on the amount received as commission from financial institution and other institutions the same is covered by the Larger Bench decision of this Tribunal in the case of Pagariya Auto Centre (supra) in favour of Revenue. Since appellant is not disputing tax amount and he has already discharged, the Tribunal upheld the tax liability with interest. As regards the Service Tax liability on the amount retained by appellant on the RTO fees paid and collected from the customers, the Tribunal found that the Service Tax liability is confirmed on the appellant and other category Business Auxiliary Service, in order to appreciate the correct position of law, the definition of Business Auxiliary Service as per Section 65(19) of the Finance Act, 1994 are reproduced (prior to and after 10-9-2004).
“Prior to 10-9-2004
”business auxiliary service” means any service in relation (19) to, -
(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or
(ii)promotion or marketing of service provided by the client; or

(iii)any customer care service provided on behalf of the client; or
(iv)any incidental or auxiliary support service such as billing, collection or recovery of cheques, accounts and remittance, evaluation of prospective customer and public relation services,
and includes services as a commission agent, but does not include any information technology service.
Explanation. - For the removal of doubts, it is hereby declared that for the purposes of this clause, “information technology service” means any service in relation to designing, developing or maintaining of computer software, or computerized data processing or system networking or any other service primarily in relation to operation of computer systems;”
After 10-9-2004
”Business Auxiliary Service” means any service in relation(19) to, -
(i)promotion or marketing or sale of goods produced or provided by or belonging to the client; or
(ii)promotion or marketing of service provided by the client; or
(iii)any customer care service provided on behalf of the client; or
(iv)procurement of goods or services, which are inputs for the client; or
Explanation.- For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, “inputs” means all goods or services intended for use by the client;
(v) production or processing of goods for, or on behalf of the client; or
(vi)provision of service on behalf of the client; or
(vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory”
It can be seen from the above definition prior to 10-9-2004 the services may not be applicable in issue in hand, as appellant may not be providing promotion or marketing of service provided by the client or any customer care service on behalf of the client. Appellant is helping their customer who purchase the vehicles with registration as per Motor Vehicle Act. Such registration is mandatory fees. The appellant, presently is working by hire, which are not in respect of any service as the enumerated in the definition of Business Auxiliary Service either prior to or post-10-9-2004.
In our considered view helping the purchaser with registration with the RTO, cannot be considered by Business Auxiliary Service, in view of the foregoing, the Tribunal held the Service Tax demand of the amount retained by the appellant in respect of RTO registration fees is not sustainable. The impugned order is set aside. This Bench in the case of Wonder Cars Pvt. Ltd. v. Commissioner of Central Excise, Pune-I - 2016-TIOL-190-CESTAT-MUM = 2016 (42) S.T.R. 1055 (Tri.-Mum.), has held that amount collected as extra charges for RTO registration is not covered under “support services of business and commerce”.
In view of the foregoing, the Service Tax liability confirmed under Business Auxiliary Service for the amount of RTO registration fees is set aside. As regards the penalty imposable, the Tribunal found the Service Tax liability of the amounts received from the various financial institutions, whether is taxable otherwise was settled by the Larger Bench, there were two different streams of the decisions contradicting each other. As the issue needs to be settled by the Larger Bench, the appellant having discharged Service Tax liability and interest thereon, this is a fit case for invoking Section 80 of the Finance Act, 1994 to set aside penalties. Invoking the provisions of the Section 80 of the Finance Act, 1994, the Tribunal set aside the penalties imposed by the adjudicating authority.
The appeal is disposed of as indicated herein above. The cross-objection filed by the Revenue is also disposed of.
(Pronounced in open Court)

Decision:-Appeal disposed of.

Comment:-The gist of the case is that the assessee receivedcommission from banks/financial institution for providing table space in appellant’s premises. Hence, Service Tax became payable. The assessee paid Service Tax along with interest. The assessee also collected RTO fees from customers for getting their vehicles registered. The assessee was just helping their customer. Further, such registration fees is mandatory. The assessee is presently working by hire which are not in respect of any service as specified in definition of Business Auxiliary Service either prior to or post-10-9-2004. Helping customer cannot be considered as Business Auxiliary Service. Hence, demand is not sustainable as. Since, the assessee had already deposited Service Tax with interest , hence the penalty is not imposable as per the provisions of Section 80 of Finance Act, 1994.

Prepared by:- Praniti Lalwani

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PJ/Case Law/2016-17/3352

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