Whether Financing fees, Processing fees, Recovery of common expenses chargeable to service tax?

PJ/Case Laws/2012-13/1303

Case:- J. M. FINANCIAL SERVICES P. LTD. versus COMMR. OF SERVICE TAX, MUMBAI

Citation:- 2012 (27) S.T.R. 49 (Tri. – Mumbai)

Brief Facts:-This is stay application for waiver of pre-deposit of service tax along with interest & penalties imposed under the category of “Business Auxiliary Services” and “Business Support Services”.

Financing Fees: The demand has been confirmed against the applicants for IPO Finance under the head “BAS” to the tune of Rs. 84,81,472/-. The Appellant are financing to their clients through Non Banking Finance Company which are sister concerns or of the appellant’s and share the income of interest earned by these NBFC on revenue sharing basis. There was a MOU between the appellant and the NBFC in terms of which NBFC were to arrange finance for the appellant’s clients. The appellant and the NBFC Company were to share the income earned from this activity after deducting the expenses. The Department is of the view that said activity is covered under the "Business Auxiliary Services" because the appellant were promoting the business of these NBFC's by way of performing the activity of introducing its corporate clients to their NBFC's.

Processing Fees: The appellant are collecting money on behalf of the company who issues IPO. The money collected by the appellant is to be deposited in a designated bank assigned by the IPO issuing company. The appellant deposited the money in the bank and as the bank earns interest on the deposit made by the appellant. Therefore, bank shares interest earned by them with the appellants. The Revenue is of the view that it is an activity of promotion of the business of the bank, therefore, they are liable to pay service tax under “BAS.”

Recovery of common expenses: The expenses are recovered by the appellant from the co-user of the premises on actual basis. The appellant are doing these expenses on behalf of co-user, and recovering the same from their co-user as per their usage. The department is of the view that the recovery of the expenses are covered under the category of infrastructural support service as the appellant are providing infrastructural support services to their co-user.

Reasoning of Judgment:-We have considered arguments on both the sides. We find that as per MOU, the appellant have agreed to compensate these NBFC’s, if any demand arises. In that situation, the appellant have not acted as a commission agent, therefore, these are doing business with these NBFC’s on principal to principal basis and sharing the profits. Therefore, the appellants are not rendering any service under “BAS” and have made out a strong case for waiver of pre-deposit of demands adjudged by the impugned order for this activity.

We find that prima facie the activity undertaken by the appellant is the investments in bank assigned by the IPO issuing company. The amount of interest income which the bank shares with the appellant is not because the appellant is promoting or marketing any of the services provided by the bank. Therefore, the appellants are not liable to pay service tax under this category also and have made out a case for 100% waiver of pre-deposit.

On going through the records, it is found that the activity is also not covered under the "Business Support Services" as the applicants are paying the expenses incurred by them on all the premises and thereafter recovered from the co-user on actual usage basis. Therefore, prima facie we are of view that the applicants are not rendering any service at all, they have made out a case for 100% waiver of pre-deposit.

Decision: -Stay Application Allowed.

Comment: The analogy drawn from the above case is that revenue cannot demand service tax on each and every activity by deeming it to be a service under the category of BAS or BSS as these are not residuary services that if any activity cannot said to be made taxable under any other service category, it is covered under BAS or BSS.

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PJ/Case Laws/2012-13/1303

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