Whether non refundable registration fees is leviable to service tax?

PJ/CASE LAW/2015-16/2910

Case:- COMMISSIONER OF SERVICE TAX, MUMBAI VERSUS DIOTECH INDIA LTD.

Citation:- 2014 (36) S.T.R. 96 (Tri. - Mumbai)

Brief Facts:-Brief facts of the case are that the respondents are registered under the Service Tax as provider of “On-line information and database access or retrieval or both” for providing website and e-learning service in electronic form through computer network and also carries out trading activity in the consumer goods and branded products. During the course of verification of records of the respondents, it was observed that the registration fee collected by the respondent was not declared in the ST-3 returns filed by them and that the registration fee formed part of the correct value of the taxable service. Therefore a show cause notice dated 10-6-2004 for the period July, 2001 to July, 2003 was issued to the respondent demanding Service Tax amount of Rs. 32,00,857/- interest and also for imposition of penalties on the ground that the registration fees collected was not declared in the ST-3 returns filed by the respondent. The registration fee formed part of correct value of the taxable service in terms of the provisions of Section 67 of the Finance Act, 1994. The adjudicating authority confirmed the demand with interest and also imposed penalties.

Appellant’s Contention:-The contention of the Revenue is that the registration fee collected by the respondent is part of the value of taxable service provided in respect of the activity of online information and data base access or retrieval or both on which the respondent is liable to pay Service Tax. The amount of Rs. 200/- received from their clients as registration fee in fact is not refundable and is to be adjusted in the first purchase of the goods by the clients and if no purchase is made the registration fee is not to be refunded as such. As the registration fee is not an amount refundable, the said amount is to be added to the value of taxable service provided by the respondent.
In respect of the time bar the contention of the Revenue is that the registration fee collected from the client was never declared to the department nor reflected in the ST-3 returns filed by the respondent. It is only when the matter was examined it had come to the notice that the respondents are not paying Service Tax in respect of Rs. 200/- collected from their clients as registration fee. Hence the impugned order cannot be sustained.

Respondent’s Contention:-Ld. counsel appearing for the Respondent contended that the registration fee is refundable in nature and hence the they are not liable to pay Service Tax in respect of this amount. Further, the contention is that the they are regularly submitting ST-3 returns and were accepted and paid Service Tax regularly and the Revenue has not raised any objection.

Reasoning of Judgement:- Submissions of both were considered and it was found that the respondents were paying Service Tax as provider of online information and data base access or retrieval or both. The respondents are not disputing the taxability of their service. The only issue is whether the registration fee charged from their clients are to be added to the value of taxable service on which the respondents are liable to pay Service Tax. The registration fee is not refundable as such. The registration fee will be adjusted to the first purchase made by the clients in case no purchase is made the registration fee is not to be refunded. In view of this, the registration fee is not refundable as such, hence is required to be added to the gross value of taxable service on which the respondents are liable to pay Service Tax.
In respect of time bar issue, it is found that the respondent has not disclosed this fact regarding collection of registration fee in the ST-3 returns. It is only during the scrutiny of records it was found that the registration fee is not added to the gross value of the taxable service. Hence the allegation of suppression with intent to evade tax is also sustainable.

Decision:-The appeal is allowed.

Comment:-The crux of the case is that the registration fees collected for providing website and e-learning service in electronic form through computer network, if non refundable is to be taxable. Therefore, fee non-refundable ought to be added to gross value of taxable service and should also be reflected in ST-3 return.

Submitted By:- Somya Jain

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PJ/CASE LAW/2015-16/2910

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