Whether the toll collection on highway would fall under the category of Business Auxiliary Service?

Case-IDEAL ROAD BUILDERS P. LTD. Versus COMMR. OF S.T., MUMBAI

Citation-2015 (40) S.T.R. 480 (Tri. - Mumbai)

Brief Facts-This appeal is directed against Order-in-Original No. 46/BR-42/ST/TH-1/2009, dated 19-11-2009.The relevant facts that arise for consideration are the officers of DGCEI collected intelligence that the appellant were providing various services to National Highway Authorities of India (NHAI) in relation to collection of toll which was chargeable to service tax under Business Auxiliary Service. After investigation, recording of the statement of General Manager, authorities came to a conclusion that the 3 toll plaza which were managed and operated by the appellant were in respect of the operation expenses borne by them and they were collecting toll on behalf of NHAI and were getting payments from NHAI and they were not registered with the service tax authorities. Coming to such a conclusion, a show-cause notice dated 10-4-2007 was issued for demand of service tax liability for the period 1-7-2003 to 31-1-2007 under the head “Business Auxiliary Service” as also for demanding interest and for imposition of penalty. Appellant contested the show-cause notice on merits inter alia pleading that NHAI is Government of India and are providing sovereign service through them. In any case, the service or collection of toll and repatriating the same to NHAI will not be covered under Business Auxiliary Service.
A plea on limitation was also taken before the Adjudicating Authority. The Adjudicating Authority after following the due process of law did not agree with the contention raised and confirmed the demands raised along with interest and also imposed penalties.

Appelants Contention-Ld. CA appearing on behalf of the appellant would take us through the contracts/agreements signed by the appellant with NHAI. He would also take us through the entire case records and submit that NHAI is not in the activity of development, maintenance and management of National highway, which is a statutory function/body towards public welfare and not a business activity. Hence service, if any, provided by the appellant to NHAI cannot be said to be auxiliary to “business”. According to him appellant activity of toll collection is not liable for service tax under the category of Business Auxiliary Service has been settled by the Tribunal in the following cases : -
•      CST v. Intertoll ICS CE Cons O & M P. Ltd. - 2013 (31)S.T.R.477 (Tri-Del)
•      PNC Construction Co. Ltd. v. CCE - (2012) 28 Taxmann.com 182 (New Delhi-CESTAT)
•      Patel Infrastructure P. Ltd. v. CCE - 2014 (33)S.T.R.701 (Tri-Ahmd).
It is his alternative argument that appellant’s activity as such does not come under any clause of Business Auxiliary Service for the purpose of which he relies upon decision of the Tribunal in similar set of facts in the case of Intertoll India Consultants P. Ltd. v. CCE - 2011 (24)S.T.R.611 (Tri-Del). It is also his submission that the Toll Right Contract, which have been awarded to the appellant, there is no service provided to NHAI as toll is collected on appellant’s own account for conducting its own business of toll collection; appellants are not agent/representative of NHAI for collection of toll; and under Toll Right Contract, by Rule 9 of National Highway Rules, appellant collect and retain the toll for themselves. It is his further submission that no consideration is flowing from NHAI to the appellant. In the entire contract, the money flows from the appellant to NHAI. After successfully bidding the right for toll collection. Hence appellant cannot be considered as agent/representative for levying service tax.
It is further alternative argument if toll collection is considered as a service, benefit of Notification 13/2004-S.T.,dated 10-9-2004 would be available as toll is a specie of tax and is enforced contribution imposed by Central Government and remitted to Pay and Accounts officer (National Highway), Ministry of Surface Transport, New Delhi.
It is his further submission that as per clause (iv) of the erstwhile definition of Business Auxiliary Service the services rendered by the appellant are not extendable to any of the three clauses nor do they relate to marketing or selling function of any business of NHAI. Same would be the situation for the inclusion of clause (iv) after 10-9-2004 when the definition of Business Auxiliary Service underwent a change.

Respondents Contention-Ld. Departmental Representative, on the other hand, would draw our attention to the very same agreement and submit that the said agreement clearly indicates that appellant is appointed as a firm for collection of fee/toll for users on highway and shall be done through open system of collection. He would submit that the entire agreement if it is read holistically, it would indicate appellant being appointed as agent for collection of toll and remittance thereof, by directing him to retain as commission a portion of the amount collected as toll and for the services rendered of toll collection. He would also submit that the argument of the appellant for not being included the services under Business Auxiliary Service is incorrect as there has been a service of NHAI to the user of National Highway and appellant are in turn providing service, that are incidental or auxiliary to the provisions of such service by collection of toll by issuing fees, depositing of toll collection in the designated bank, maintaining books of relevant toll collection, reporting of frequency maintenance records. It is submitted that the scope of words “incidental or auxiliary” will have to be considered from the activity which has been undertaken by the appellant. It is also his submission that the appellant were acting as representative of NHAI for the collection of tolls from the users of National Highway and for such service having received consideration from NHAI they are liable to discharge service tax liability.

Reasoning Of Judgement-The tribunal have considered the submissions made at length by both sides and perused the records.
Undisputedly, appellant are awarded contract by NHAI for collection of tolls on three various National Highways which has been awarded by two contracts (i) Fixed Remuneration contract and (ii) Toll right contracts. In both the contract, the appellant is collecting the toll and depositing the same with NHAI and either retains part of the amount which has been collected as toll or gets paid from NHAI by a fixed amount.
On the background such a factual matrix, they have to consider whether any services are provided by the appellant to NHAI by collection of toll, and rendered on behalf of NHAI under the category of Business Auxiliary Service or otherwise”.
Before recording our finding on the issue it is necessary to reproduce the provisions of Section 65(19) of the Finance Act, 1994 prior to and post 9-9-2004, which is as under:
“Business Auxiliary Service” means any service in relation to, (w.e.f. 1-7-2003 to 9-9-2004) -
(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 relations services and includes services as a commission agent, but does not include any information technology services.
“Business Auxiliary Service” means any service in relation to, (w.e.f. 10-9-2004) -
(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
(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 management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes services as a commission agent, but does not include any information technology service and any activity that amounts to “manufacture” within the meaning of clause (f) of Section 2 of the Central Excise Act, 1944 (1 of 1944).
Explanation.- For the removal of doubts, it is hereby declared that for the purposes of this clause, - (a) “commission agent” means any person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration, and includes any person who, while acting on behalf of another person -
(i) deals with goods or services or documents of title to such goods or services; or (ii) collects payment of sale price of such goods or services; or (iii) guarantees for collection or payment for such goods or services; or (iv) undertakes any activities relating to such sale or purchase of such goods or services;”
The above reproduced definition of Business Auxiliary Service talks about the services to be rendered to be covered under the specific head. It is to be noted that the appellant herein is not promoting or marketing or selling goods produced by a client nor is he promoting or marketing services provided by the client, inasmuch that undisputedly NHAI is a statutory body which has been constituted by the National Highway Authorities of India Act, 1988; has been in force from 1988 and it gives the NHAI a statutory position. On perusal of the said Act, they find that NHAI is a statutory body for development, maintenance and management of national highway and other highway power which were to be exercised by the Government of India. It is also seen that the said Act also authorises the NHAI to collect an amount as a fees from the users.
Tribunal find that the main argument of the ld. Departmental Representative and that the finding of the Adjudicating Authority for imposing service tax liability is on the ground that the appellant is appointed as an agent or a representative of NHAI and is providing services on behalf of NHAI. The said argument needs to be discarded inasmuch NHAI is not providing any services to any of the users of the National Highway but is doing a sovereign function of developing, maintaining of the highway. On perusal of the agreement with the appellant and NHAI, they find the said agreement does not indicate anywhere that the appellant is appointed as an agent/representative and the said agreement talks of collection of amount as “fee” to be known as “toll.” In view of this, they find that the appellant is not rendering any service which is incidental or auxiliary on behalf of NHAI. This view of ours is fortified by the decision of the Tribunal in CST v. Intertoll ICS CE Cons O & M P. Ltd. (supra) wherein the bench has held as under : -
“6. On merits of the matter, we find that National Highway Authority of India has availed services of the respondents. Fundamentally, the said National Highway Authority of India (NHAI) is not established by Revenue to be business concern nor a commercial concern not being engaged in any business activity. Therefore providing business auxiliary services by respondents to such NHAI is inconceivable. Therefore, for such reason, we dismiss the appeal of the Revenue without approving reasons given by the adjudicating authority.”
They also find in the case of PNC Construction Co. Ltd. v. CCE (supra), an identical view has been taken which is as under :-
“4. After hearing both the sides, we note that identical issues were the subject matter of the Tribunal’s decisions. In this case of Intertoll ICS CE Cons O&M P. Ltd. vide Final order no. ST/A/34/12-Cus., dated 23-12-11, the Tribunal observed that NHAI has availed the services of respondent and the said NHAI is not established by Revenue to be business concern or a commercial concern engaged in any business activities. Therefore, providing BAS to such NHAI is not conceivable. Accordingly appeal filed by the Revenue was dismissed.
Similarly in the case of Intertoll India Consultants P. Ltd. v. CCE, (2011) 32 STT 269/12 taxmann.com 296 (CESTAT-Delhi), the Tribunal held that toll tax and fee for use of bridge, by retaining the percentage of such collection, the activity cannot be held to be falling under BAS. In the case of Swarna Tollway P. Ltd. v. CC & CE [2011] 32 STT 162/12 Taxmann.com 49 (Bang-CESTAT), again the same status was reiterated. As regards limitation, they find that the Tribunal in the case of Brij Motors P. Ltd. v. CCE [Final Order No. ST/601/2011 (PB), dated 22-11-2011] has held that when the issue is interpreted by judicial forums in different ways, the extended period cannot be invoked in such a situation.
5. By applying the ratio of all the above decisions to the present case, we find that the activities of the appellants in respect of toll fee collection cannot be held to be a service provided to NHAI falling under the category of BAS. As such we set aside the impugned order and allow the appeal with consequential relief to the appellants.
In the recent judgment in the case of Patel Infrastructure P. Ltd. v. CCE (supra) the issue as to whether the toll collection on highway would fall under the category of Business Auxiliary Service or otherwise was agitated and the bench took the following view : -
“10. As regards the Service Tax liability under the Business Auxiliary Service on collection of toll, we find that the order of the Tribunal in the case of Intertoll India Consultants (P) Ltd. (supra) (wherein one of us was the Member) and Swarna Tollway (P) Ltd. (supra) covers the issue in favour of the assessee. Accordingly, respectfully following the ratio laid down in these two decisions, we find that the Service Tax liability under the Business Auxiliary Service for toll collection is liable to be set aside and we do so.”
It can be seen from the above reproduced authoritative judicial pronouncements on the issue, the collection of tolls by the appellant is not considered as Business Auxiliary Service provided to NHAI. Since they have discussed the matter on the merits of the case, also relying on various judicial pronouncements, they are not recording any finding or observation on various other submissions made before us both sides. In view of the foregoing, in the facts and circumstances of this case, they set aside the impugned order and allow the appeal with consequential relief, if any.

Decision-Appeal allowed

Comment-The crux of the case is that before introduction of negative list, Business Auxilary Service [Section 65(19) of Finance Act, 1994] covers the service in relation to Promotion or Marketing or Selling goods produced or services provided by a client. But as in the given case the NHAI is not providing any services to any of the users of the National Highway but is doing a sovereign function of developing, maintaining of the highway therefore the argument that the assessee is appointed as an agent or a representative of NHAI and is providing services on behalf of NHAI needs to be discarded. And accordingly the toll charges collected by the assessee would not be classified under Business Auxiliary Services. This was based on the remarkable decisions in the case of Intertoll India Consultants (P) Ltd. and Swarna Tollway (P) Ltd.

Prepared By-Neelam Jain

Comments

PJ/CASE LAW/2015-16/2967

Post a Comment

Query