willful suppression of facts can be alleged-department audit team has made audit of the assessee

PJ/Case Laws/2011-12/1238

Case:M/s Marikar Motors Ltd. versus Commissioner of Central Excise, Thiruvananthapuram

Citation:2011-TIOL-823-CESTAT-BANG

Issue:(a)Whether willful suppression of facts can be alleged when department audit team has made audit of the assessee?
(b) Whether services of renting of immovable property service, authorized service station service and maintenance and repair service can be classified as ‘Business Auxiliary Service’ for the dealer of engaged in trading of vehicles manufactured by various different manufacturer?

Brief Facts: The appellant is an authorized service station and a dealer in vehicles manufactured by M/s Hindustan Motors Ltd, M/s Eicher Ltd, M/s Premier Automobiles Ltd. and M/s Honda Motorcycle & Scooters India Pvt. Ltd. The appellant was found to have engaged in rendering services classifiable under 'Business Auxiliary Services', renting of immovable property services, authorized service station services and maintenance & repair services.
In impugned order, the Commissioner held that the appellant provided services of authorized service station in relation to motor cars and bikes sold by it as a dealer and rendered free service for which it was compensated by the automobile manufacturers. The appellant received commission from the manufacturers of motor vehicles and bikes for promoting their sales by undertaking customer care. It received commission for promoting their respective business of sale of insurance and grant of vehicle loans. The assessee undertook promotion of insurance business. The Commissioner rejected the assessee's arguments during adjudication that incentives received by it from automobile manufacturers based on volume of its purchase was in the nature of discount and not commission taxable as business auxiliary service (BAS). The Commissioner found that under self assessment; the department relied solely on ST-3 returns filed by the assessee for the nature of services rendered and the tax liability of the assessee. As the ST-3 returns had not reflected receipts relatable to the impugned service rendered by the assessee, it was guilty of suppression of facts thereby attracting proviso to Section 73 (1) of the Act enabling invocation of larger period.

Appellant’s Contention: The assessee submitted that all the relevant records pertaining to its activities had been scrutinized by the Internal Audit party of the department. The impugned demand has been raised on the basis of the same records which had been scrutinized by the Internal Audit party.
It is also submitted that the impugned demand pursuant to Show Cause Notice was barred by limitation as there was no willful mis-statement or suppression on the part of the assessee. The records were studied in detail during the audit conducted by the internal audit party of the department.
Appellant relied upon Popular Vehicles & Services Ltd. Vs. CCE, Kochi [2010 (18) S.T.R. 493 (Tri.-Bang.)]
Appellant relied on the following cases in support of the plea that no BAS was involved in recommending particular Insurance Company or Bank / Finance Company to the buyers of the vehicles sold for obtaining respectively Insurance Policy and loans.
It was submitted that considerable confusion prevailed on the liability to tax on the value relatable to free service rendered to buyers of vehicles by the dealers till 6.11.2006 when vide Circular No. 87/05/2006-S.T. dated 6.11.2006, CBEC clarified that free servicing was an activity liable to service tax.
As regards the rendering of immovable property service found to have been rendered by them, appellant relies on the following judgments:
-      Infiniti Retail Ltd. Vs. Union of India [2010 (19) S.T.R. 801 (Bom.)]
-      Home Solutions Retail Ltd. Vs. Union of India [2011 (21) S.T.R. 109 ( Del. )]
-      Maverick Ventrues Vs. Union of India [2010 (20) S.T.R. 757 (Kar.)]
It is submitted that vide judgment of the Delhi High Court in Home Solutions Retail Ltd. case (supra) their lordships had held that renting of immovable property as such was not liable to service tax.

Respondent’s Contention: Respondent opposed the stay application and submits that ST-3 returns filed by the appellants did not reflect the impugned activity and the proceeds realized. Therefore the Commissioner had rightly invoked extended period to confirm the demands.
Respondent submits that the appellants should be put to strict terms.

Reasoning of Judgment:-The Tribunal finds considerable force in the submission by the learned Counsel for the appellants that there was no suppression on its part. Since all the financial records relating to the activities in question had been subjected to scrutiny by the Internal Audit party of the department, there were no additional material based on which show cause notice was issued and adjudication proceedings concluded.
The Tribunal also finds substance in the claim that prima facie extended period could not have been validly invoked in the instant case as regards the demand of tax relatable to free service, the promotion of insurance business and financing as well as renting of immovable property.
CBEC clarified the liability of the service station to service tax under the head "authorized service station" in respect of free service only in November 2006 to clear the confusion over the issue. As regards BAS involved in promoting business of the Insurance Company and the Banks/Finance Company, the Tribunal in Popular Vehicles and Services Ltd. case (supra) had decided the dispute in favour of the assessee.
As regards renting of immovable property, the authorities cited by the appellant justify its holding bonafide belief that renting of immovable property did not attract service tax.
The Tribunal finds that the assessee has made out a strong prima facie case against the demands on the ground of limitation. Considering the totality of the case, the Tribunal allows this application for waiver of pre-deposit and stay of recovery of the dues adjudged pending decision in the appeal.

Decision: Appeal was Allowed.

Comment:- This is very good decision on the point of limitation. Normally the audit party raised the point on the basis of records and then invokes extended period. But this decision clearly say that the extended period cannot be invoked. But there is amendment on this score in this budget. They say that extended period can be invoked when the transaction is recorded in books of accounts. Hence, this amendment will have far reaching effect.

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PJ/Case Laws/2011-12/1238

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