CASE STUDY

Prepared By: CA Preksha Jain

Introduction:-

M/S K.D. MOTORS (hereinafter referred to as appellant) are engaged in providing the taxable service namely “Servicing of Motor Vehicles” and have been registered as authorised service station having Service Tax Registration No. AANPD4934FST001. It has been alleged in this case that the assessee has not paid service tax for letting of table space to various financial institutions by automobile dealers under the category of “Business Auxiliary Service”. The adjudicating authority confirmed the allegations of the show cause notice and passed order upholding the demand of service tax along with interest and penalty. The assessee also filed appeal to the Commissioner Appeals but could not succeed there. Subsequently, the assessee filed an appeal before the tribunal where the appeal was allowed in their favour. The outcome of the Final Order passed by the Tribunal is the subject matter of the present case study.

M/S K.D. MOTORS

[FINAL ORDER NO. 56886/2017 DATED 26.09.2017]

Relevant Legal Provisions:

i)      Section 65(19) and Sec 73 of the Finance Act, 1994

ii)    Penalties under Section 76, 77 and Section 78 of the Finance Act, 1994

iii)   Interest under Section 75 of the Finance Act, 1994

iv) Section 35C of Central Excise Act, 1944

v)   Section 11AC of the Central Excise Act, 1944

vi) Section 35C of Central Excise Act, 1944

Issue Involved:-

Whether table space provided to financial institutions liable to service tax under BAS?

Brief Facts:-

A show cause notice no. V (ST) SCN/64/JDR/2012/2888, dated 19.12.2012 was issued proposing that the assessee has not paid service tax under the category of “Business Auxiliary Services” for the amount received from the financial institutions, banks, insurance companies etc., alleging it as “commission” for promoting their business and so the duty amounting to Rs 3,04,985/- is liable to be recovered from them along with interest and penalty. The appellant has replied to the notice wherein he submitted all the written submissions. However, the learned Adjudicating Officer did not accept all the submissions made by the appellant and passed the order in original no. 183/ST/2013, dated 23.04.2013 confirming demand of duty along with interest and penalty. Thereafter, the assessee filed appeal before the Commissioner Appeals along with the stay application. The submissions made in the grounds to the appeal memorandum and during the course of personal hearing were not adhered to and the impugned order in appeal no. 325 (OPD) ST/JPR-II/2013 dated 18.11.2013 was passed upholding the demand confirmed along with interest and penalties vide the impugned order in original. Aggrieved by the order in appeal, the assessee filed appeal to the Tribunal. 

Appellant’s Contentions:- The assessee made following submissions before the appellate authority:-

1.            The appellant submitted that the impugned Order in Appeal passed by the learned Commissioner (Appeals) is wholly and totally erroneous and is liable to be quashed.

2.            It is submitted that the impugned order has stated that the appellants have mainly contended that they only provide table space in their premises to the banks and insurance companies. As they are not charging any rent for providing access to table space that does not mean that the amount so received is a commission. It is not in dispute that the appellants have received commission from the banks and insurance companies and in their books of accounts it has also been shown as commission received from them. The commission is received or paid on account of services rendered by the appellants. The services which have been rendered are definitely in the nature of arranging finance and insurance of motor vehicles sold by them to the customers. It is seen that the customer is also interested in getting the finance and insurance service. The appellants have arranged finance to their customers by positioning themselves between the financiers and the customers. This tie up with the finance companies definitely benefits the appellant and at the same time it benefits the finance companies more. If it was only to the benefit of the appellant, the finance companies should have charged service charges from the appellant. That is why the finance companies have paid service charges to the appellants. In this way, appellants have certainly convinced the buyer of the vehicle to get finance from these banks and these insurance companies and in this stream of service they prepare basic documents. That’s why these institutions pay commission to them and not rent of table space. As such, it is clear that the service rendered by the appellants fall under the category of Business Auxiliary Service defined under section 65(19) of the Finance Act, 1994. In this respect, it is submitted that the appellant is not at all engaged in promoting the business of the financial institutions and is not concerned with the fact whether their customers avail the services of financial institutions occupying table space in their premises or not. The table space is being provided to the financial institutions for the sole reason that the sales are effectively and speedily concluded as the appellants are automobile dealers and their customers often require finance for purchasing motor vehicles. Therefore, the renting of table space to the financial institutions in their premises is merely an extension of their sales maximizing policy and to provide finance services under one roof to their customers. The appellant are not at all concerned as to whether their customers avail the services of such financial institutions or whether they arrange finance independently. The appellant do not persuade their customers to avail finance from the financial institutions in their premises and are not concerned with the communications made between their customers and financial institutions. Moreover, the contention that the appellant prepare basic documents is not sufficient to prove the fact that they are engaged in promoting the business of financial institutions as it has been clarified earlier also that the ultimate intention of the appellant is to maximize and effectively conclude their sales and in order to speedily conclude their sales, they prepare basic documents for availing finance. As such, preparations of basic documents by itself do not prove that the appellant promote the business of these financial institutions as if at all the appellants promoted the business of financial institutions, there was no need of their staff to be present and make communications with the prospective customers. Furthermore, mere booking consideration received from such financial institutions under the head of “commission” would not by itself make the consideration leviable to service tax unless and until the consideration is in lieu of providing the taxable service of “Business Auxiliary Service”. In this respect, the appellant would like to reproduce the definition of BAS as given in Section 65(19) of the Finance Act, 1994 as follows:-

“Business Auxiliary Service” means any service in relation 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

[Explanation – For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, “service in relation to promotion or marketing of service provided by the client” includes any service provided in relation to promotion or marketing of games of change, organised, conducted or promoted by the client, in whatever form or by whatever name called, whether or not conducted online, including lottery, lotto, bingo;]

      (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 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 and any activity that amounts to “manufacture” within the meaning of clause (f) of section 2 of the Central Excise Act, 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;

(b) “Information technology service means any service in relation to designing, (or developing of computer software) or system networking, or any other service primarily in relation to operation of computer systems.

The analysis of above definition of Business Auxiliary services makes it clear that the service tax would be levied under this category only if the services provided by the client fall under any of the above clauses. This definition mainly covers the buying and selling of goods on behalf of another person or provision of service on behalf of some other person or those services which are related to marketing or promotion of the business of any person or which are providing any customer care service. In other words, service tax under the category of Business Auxiliary services is attracted only if the service provider is acting as an agent of the service recipient and is promoting/marketing the services/goods of that person. Mainly the transactions carried on between two persons with agent-principal relationships are taxable hereunder the category of BAS. The intention of the government is to levy the service tax on the “commission” received by the agent from his principal. On the other hand, no agent-principal relationship is present in the case of appellant. Both the parties are working independently and the appellant is not acting as an agent of the banks/insurance companies as it is not involved in any ways in marketing or promoting the business of “Banks”. It is worth mentioning here that there is no obligation on the customers to get their vehicles financed from these banks/financial institutions. The appellant do not pursue their customers to do in order to promote the business of the banks, etc. Thus, it cannot be said that these services fall in the definition of Business Auxiliary services.

Consequently, when on perusal of the above definition of the Business Auxiliary Service, it appears that the activity of renting of table space to the financial institutions by the appellant is not covered in the said definition, the question of leviability of service tax under the said category does not arise and the impugned order in appeal confirming the service tax demand along with interest and penalty should be quashed and the appeal should be allowed.

3.            In continuation to above it is submitted that to levy the service tax under the category of BAS, the following conditions should be satisfied:-

·         There should be an agent-principal relationship.

·         The agent should be involved in the promotion/marketing of goods/services or providing the customer care services or involved in procuring the inputs for other party.

·         The promotion/marketing means the advancement of a product/service, idea, or point of view through active involvement against a consideration.

·         The consideration should be in nature of commission flowing from the principal to agent of the advancement of their services/products.

In the instant case, no agent-principal relationship is present, both the parties are working independently without any supervision/influence of one upon another. Further, the so called services do not fall in any of the clauses mentioned in the definition of BAS. In the nutshell, no activity of the nature specified in the definition of the BAS is being carried out by the appellant for the banks/financial institutions. Therefore, the conditions specified in the definition of the Business Auxiliary services are not satisfied. Further, the amount flowing from the banks, etc. is not received against the provision of Business auxiliary services, as such, it cannot be made taxable under this category. Thus, the demand confirmed in the impugned order in appeal under the head of Business Auxiliary services is not justified and is liable to be set aside.

4.            The impugned order also places reliance on the decision of the Hon’ble CESTAT given in the case of M/s Roshan Motors Ltd. Vs. CCE, Meerut reported in 2009 (13) S.T.R. 667 (Tribunal-Delhi). In this context, the appellant submits that the issue under consideration is being governed by contrary decisions being given by the Tribunal and so service tax demand cannot be confirmed by solely placing reliance on the above cited decision as there are various other decisions that are favourable to the assessee. Moreover, the decision being cited is distinguishable in the facts and circumstances of the present appeal as in the cited case, the assessee, Roshan Motors undertook additional responsibilities/functions and entered into agreements with finance companies that indicated promotion being done by the assessee for the financial institutions, banks etc. but in the present appeal, the appellant did not enter into specific agreement to facilitate any kind of promotion of the banks/financial institutions and so cannot be said to provide marketing services leviable to service tax under the category of Business Auxiliary Service. The appellant submits that in the cited case of Roshan Motors, the terms of agreement clearly provided that:-

·         the assessee is to work as direct marketing agent for promoting auto finance scheme;

·         that they are required to handle documentation both pre and post disbursements;

·         that they are required to assist in recovering outstanding dues from the customers and even in reprocessing the vehicles in the event of failure by the customers.

However, there is no such agreement of the appellant in the present appeal with the banks and financial institutions to whom the appellant have provided the table space in their premises. Moreover, the appellant are not at all concerned as to the communications being made by the representatives of the banks with the customers and the appellant are not at all involved in the financing part of the transaction of their customers with the banks. The appellant neither persuades their customers for taking loan or avail the financial services of the banks nor undertake activities of promoting the activities of the banks and the appellant’s job is simply to provide all the facilities to their customers under one roof so that their customers conveniently conclude the purchases of the vehicles and this is also a part of the appellant’s activity to increase its sales as there is a trend in the automobile industry to provide table space to such financial institutions in the premises so that finance facilities are readily available to materialise the transaction of sale of vehicles quickly. This activity of providing table space is merely an extension of facility by appellant to enhance their sales and nothing more than that as the transaction value of vehicles is generally of an amount that requires finance and if the finance is made available at the point of sale, it becomes convenient for customers to conclude the transaction. The appellant merely provides the representative of the banks/financial institutions with the processed documents/formalities with respect to their customers and the decision whether to avail finance from the banks/financial institutions available in the premises is the sole discretion of the customers. The appellant only receive consideration for providing access to table space in their premises and nothing more than that. The appellant are also not concerned with the recovery of the outstanding amounts from the customers and hence does not provides any kind of promotional services to the banks/financial services.

The above cited terms of the agreement in the cited case indicated rendering of marketing/promoting services while there is no such agreement in the present case. As such, erroneous reliance has been placed by the learned Commissioner Appeals by applying the above cited case to the facts and circumstances of the present case that are clearly distinguishable. Therefore, the impugned order in appeal is not tenable and is liable to be quashed and the appeal should be allowed.

5.            It is further submitted that the view that the activity of merely allowing access to financial institutions to table space in the premises cannot be brought under the Service Tax is backed by a number of judicial pronouncements in assessee’s favour. As such, the reliance placed by the impugned order in appeal on the decision given in the case of Roshan Motors Ltd. Vs. CCE is clearly distinguishable. This view has been consistently held in number of cases as follows:

·         Silicon Honda V CCE reported at [2007(7) STR 475 (Tri.-Bang)] wherein it has been held that:

“Business auxiliary services - Service tax - Services provided to financial institutions - No evidence of any commission paid by financial institutions to assessee for customers brought through latter - Mere fact of financial institutions being provided with space by the appellant and appellant receiving some money for that lease of table space cannot be brought within definition of business auxiliary services - Section 65(19) of Finance Act, 1994. [para 4].”

The appellant submits that they have perused the impugned show cause notice and nowhere there is reference to any evidence of financial institutions giving commission to them for providing financial services to their customers, who are brought by the appellant. The appellant deny having promoted the business of these financial institutions. They have stated that they are paid by the financial institutions for occupying the table space at their premises. This portion of the evidence is not contradicted. Therefore, mere fact of financial institutions being provided with space and they receiving some money for that lease of table space cannot be brought within the definition of “Business Auxiliary Services”. There is no merit in the impugned order in appeal and the same should be set aside.

·         It is also submitted that the above views have been reiterated by the MUMBAI bench of CESTAT in the case of Shubham Motors (P) Ltd V Commissioner of CE Pune-III reported at [2010] TIOL-1034-CESTAT-MUMBAI. This judgment is latest on the issue that states:

Automobile dealer providing table space in his premises to lending institutions/banks to set up financial assistance counters cannot be called promoting and marketing the business of the bank/lending institution so as to be charged to service tax under BAS – Demand set aside with consequential relief: CESTAT

Similar view has been taken in the case of Shubhyan Motors (P) Ltd v/s Commissioner of CE, Pune-III reported at [2010 28 STT 282 (MUM-CESTAT)].

The appellant submit that their view is supported by the two benches of CESTAT i.e. Bangalore and Mumbai bench and as such the impugned order in appeal deserves to be dropped on merits.

6.            In continuation of the above, the appellant also wish to place reliance on the following decisions:

Ø  COMMISSIONER OF C. EX., BELGAUM Versus CHADHA AUTO AGENCIES [2008 (11) S.T.R. 643 (Tri. - Bang.)] wherein it was held that

Demand (Service tax) - Business Auxiliary Services - Office space, furniture, etc. provided to bank/financial institutions to provide loans for appellants-customers who engaged in sales and services of two wheelers - No evidence that appellants received money in lieu of providing such facilities to banks/financial institutions - Appellant’s activity cannot be brought within the definition of Business Auxiliary Services - Sections 65(19) and 73 of Finance Act, 1994.

Ø  TRIBHUVAN MOTORS LTD. Versus COMMR. OF SERVICE TAX, MANGALORE [2010 (17) S.T.R. 281 (Tri. - Bang.)]:

Business Auxiliary Services - Renting of space - Table space provided by dealer to financial institutions - Table space provided to financial institutions to solicit business of loans to buyer of vehicles - Loans not distributed by appellant - Records not indicating promotion of services provided by financial institutions - Appellant informing buyers about availability of types of loans and directing them to financial institutions - Impugned issue covered in favour of assessee in Tribunal’s decision in 2007 (7) S.T.R. 475 (Tribunal) - Impugned order upholding demand and penalties set aside - Section 65(19) of Finance Act, 1994. [paras 5, 6].

            Thus, it was clearly held by the Tribunal in the afore-mentioned cases has held that the automobile dealer providing table space in his premises to financial institutions will not fall under Business Auxiliary Services. It is submitted that the facts of the said case are similar to the appellant’s case and therefore the judgment given by the Tribunal is equally applicable in the present case and so the benefit of the same should be extended to the appellant also and the impugned order in appeal should be quashed.

It is worth mentioning that the reliance was placed on the above cases in the reply filed for the show cause notice and the grounds to the appeal filed to the Commissioner Appeals but the impugned order in original and the order in appeal has been passed without discussing and distinguishing the case laws as cited by the appellant. This is totally against the principles of natural justice and the order turns out to be a non-speaking order that has no relevance in the eyes of law in light of the decision given in the case of Commissioner of Central Excise, Bangalore versus Srikumar Agencies [2008 (232) E.L.T. 577 (S.C.)]:-

“Appellate Tribunal’s order - Non-speaking order - Facts not analysed in detail in impugned order by Tribunal - Disposal of appeals by mere reference to decisions not proper way to deal with appeals - Applicability of decision cited by Revenue not considered - Appeals involving different goods - CESTAT ought to have examined cases individually and articles involved - Manner of disposal not proper - Impugned order set aside - Question referred to Larger Bench of Supreme Court not answered as matter remitted to CESTAT for fresh decision by appropriate Bench - Section 35C of Central Excise Act, 1944. - By clubbing all the cases together and without analyzing the special features of each case disposing of the appeals in the manner done was not proper. [para 6]”

            Accordingly, the impugned order in appeal deserves to be set aside and the appeal should be allowed.

7.            It is further submitted that the impugned order has stated that the appellants have argued persistently that there is no relationship of agent and principal between them and the bank/insurance company. On going through the definition of BAS, it appears that in order to provide BAS to any one there need not be a relationship of principal and agent but the only requirement, in so far as present activity is concerned, is promotion or marketing of service provided by the client. This cannot be disputed that the appellants were promoting the service of the banks and insurance companies by providing space to them and by persuading vehicle purchasers to get their vehicle financed and insured from these banks/insurance companies. In this regard, it is submitted that for commission to be taxable under the category of “Business Auxiliary Service”, it is essential that there is agent-principal relationship as the definition of Commission Agent means “any person who acts on behalf of another person who causes sale or purchase of goods, or provision or receipt of services, for a consideration…” A person will act on behalf of a person only if there is principal-agency relationship. Hence, as in the present case, the appellants and financial institutions work independently, the consideration received by the appellant would not be leviable to service tax under the category of “Business Auxiliary Service”. Reliance is also placed on the decision given in the case of INTEROCEAN SHIPPING CO. VERSUS COMMISSIONER OF SERVICE TAX, NEW DELHI [2013 (30) S.T.R. 244 (Tri. - Del.)] wherein it has been held as follows:-

Demand - Business Auxiliary Service - Ship broker - Classification on basis of activity akin to ‘commission agents’ activities - Emphasis on ‘commission agent’ acting on behalf of another person in Section 65(19) of Finance Act, 1994 and Exemption Notification No. 13/2003-S.T. - Essential ingredient missing in instant case - From nature of activity, brokers purely intermediaries not acting on behalf of either, shipowners or charterers, therefore not commission agents - Supreme Court judgment in Pondurang Tukaram Dalal squarely applicable - Assessee not covered by ‘Business Auxiliary Service’ definition - Question decided in assessee’s favour, no need to decide dispute relating to taxability under Business Auxiliary Service and limitation - Impugned order unsustainable, liable to be set aside - Sections 65(19) and 65(105)(zzb) of Finance Act, 1994. [paras 6, 7, 8, 8.4, 8.5, 9, 10, 11, 11.1, 12, 13]

In light of the above cited decision, the services provided by the appellant also not merit classification under the category of Business Auxiliary Services and consequently the impugned order in appeal is liable to be quashed.

8.            The impugned order has also held that the plea on limitation is also not tenable in as much as it was the department who detected the case and dug out the details of amount of commission received from the banks and insurance companies for promoting their business from their financial accounts. It is thus a clear case of suppression of facts and extended period of demand of service tax is applicable as provided under proviso to section 73(1) of the Act. Therefore, equal penalty under section 78 is justifiable. The impugned order has further placed reliance on the decision given by the Hon’ble Supreme Court in the case of UOI Vs Dharmendra Textile Processors [2008 (231) E.L.T. 3 (SC)] wherein it has been held that if a statue prescribes penalty for breach of civil obligation penalty is imposable irrespective of mens rea. Accordingly, it was held that there is no reason to set aside the penalty imposed under section 78 of the Finance Act, 1994. In this respect, it is submitted that the appellant are registered with the Service Tax Department and are regularly filing returns and paying service tax under the category of “Servicing of Motor Vehicles as Authorised Service Station”. Moreover, merely because the objection regarding non payment of service tax under the category of “Business Auxiliary Service” was raised during the course of audit of the appellant, it cannot be concluded that the appellant had suppressed facts from the department as if it would have been so, the appellant would never have cooperated during the audit and would not have provided the audit team the access of their books of accounts. Furthermore, the issue under consideration is a matter of dispute all over the country and several automobile dealers have been raised demands under the said category and so is the case with the appellant. As such, the appellant did not pay service tax on such services on account of general trend followed in the industry and no suppression could be attributable so as to levy mandatory penalty under section 78 of the Finance Act, 1994. Furthermore, extended period of limitation is also not invocable in the instant case.

Moreover, the impugned order has also placed reliance on the decision given in the case of Roshan Motors Ltd. Vs CCE [2009 (18) STT 418 (New Delhi CESTAT)] wherein also penalties under section 76, 77 & 78 of the Finance Act, 1994 were set aside as the issue under consideration involved interpretation of the question of law. As such, penalties are not at all warranted in the instant case and the impugned order in appeal confirming its imposition is liable to be set aside. The appeal should therefore be allowed.

Aligning with above, it was also submitted that under a similar case, hon’ble Bangalore Tribunal has set aside the penalties on the dealer of motor vehicle dealer. This decision has been given in the case of Commissioner of C. Ex., Mangalore vs Abharan Motors Pvt. Ltd. [2011 (23) STR 72 (Tri.-Bang)]. The relevant extract from the case is reproduced as follows:

Penalty - Delay in payment of tax - Bona fide belief - Commission received from Maruti Udyog Ltd. for promoting business of Insurance Company - Maruti Udyog Ltd. had tie up with Insurance Companies and NBFCs for providing loans and vehicle insurance to buyers - Maruti Udyog Ltd. received commission and part of which given to assessee-dealer - Consistent case of assessee that they not rendering any service and commission received by Maruti Udyog Ltd. had suffered Service tax - Belief that no tax payable - Penalty under Sections 76 and 78 of Finance Act, 1994 not imposable. [para 4.3]

As such, no penalty is warranted in the present case. Furthermore, the appellant also places reliance on the case of Pagariya Auto Center vs CCE [2013-TIOL-289-CESTAT-MUM] wherein this issue has been placed before the President for referring to Larger Bench of the Tribunal. This decision clearly indicates that the issue under consideration requires in depth analysis and interpretation of the provisions of law as very peculiar cases involving interpretation of every word of the provisions of law are being referred to the larger bench. In view of the same, no penalty is sustainable and the impugned order in appeal confirming the same is not sustainable and deserves to be set aside.

9.            It is further submitted that the impugned order has confirmed the penalty under section 78 by holding that the Hon’ble Supreme Court of India in the case of UOI vs. Dhamendra Textiles Processors has ruled that if a statue prescribes a penalty for breach of civil obligations, penalty is imposable irrespective of mens-rea and so penalty imposed on the appellant under section 78 of the Act needs no intervention. In this respect, the appellant submit that, as per language of the section, penalty can be imposed only if the short-payment is due to any of the ingredients referred in the section like fraud, collusion, willful misstatement or suppression of facts. However, in the instant case, none of these ingredients are present. As such, the judgment of the hon’ble Supreme Court has been delivered by ignoring the provisions of the section mentioned in the law. It has been held in the case of A-One Granites v State of U.P. (2001)3SCC537; AIR2001 SC 1203; Salmond on Jurisprudence, 12th Edn. Pg 167 that the decision given by the hon’ble Apex Court which has been rendered per incuriam, i.e. by ignoring the provisions of the Act, is not binding under article 141 of the Constitution. The doctrine of per incuriam is an exception of the rule of precedents and it says that any expression resulting from ignorance is not a binding authority and it may be ignored. In the instant case, the mens rea/willful suppression has been mentioned as essential ingredients for the purpose of imposing the penalty as contemplated by the provisions of the Finance Act, 1994. But the hon’ble Supreme Court has rendered decision of Dharmendra Textiles by ignoring this vital fact. As such, it is not binding precedent as per doctrine of per incuriam. In the instant case, there was no willful suppression by the appellant but this is a simple case wherein the appellant had not paid service tax on the activity of letting out of table space to financial institutions on account of general practice being followed and on account of bonafide belief backed by various judgements of the Tribunal. Further all the facts of the case were well within the knowledge of the department as the appellant is registered with the service tax department and is regularly paying service tax and filing returns. When everything was known to department, there cannot be any suppression of facts. Thus, allegation of suppression is not leveled. As such, the penalty under section 78 that is leviable for the charge of suppression cannot be imposed upon them by relying on the case of Dharmendra Textiles. As such, the impugned order is not tenable and it should be set aside.

10.          In continuation to above, it is submitted that the decision of hon’ble Supreme Court in the case of M/s Dharmendra Textiles has been referred by hon’ble Punjab and Haryana High Court in the following case:-

·         CCE, Chandigarh-II Vs M/s Sarvpriya Industries Ltd [2010-TIOL-523-HC-P&H-CX.]-

Central Excise - Supreme Court decisions in Dharmendra Textile as well as in Rajasthan Spinning & Weaving Mills do not lay down that for every short payment of duty, penalty is automatic: Dharmendra Textile as well as in Rajasthan Spinning & Weaving Mills is that mandatory penalty under Section 11AC of the Act was not applicable to every case of non-payment or short-payment of duty. Thus, even though the authorities may have no discretion once conditions stipulated under Section 11AC of the Act exist, in absence of fulfilment of such conditions, penalty could not be levied. In this view of the matter and the finding of the Tribunal that there was no allegation of suppression of facts with intent to evade the payment of duty, the penalty under Section 11AC of the Act was not warranted. No substantial question of law arises: PUNJAB AND HARYANA HIGH COURT

Thus, hon’ble High Court has ruled that penalty is not warranted in each and every case of non-payment of duty or short payment of duty. This should happen only due to suppression of facts with an intent to evade the payment of duty. In the light of this decision, since the impugned order has not been able to prove the ulterior motive, the penalty is not sustainable.

11.          It is further submitted that the impugned order in appeal has turned out as a non speaking and non-reasoned order as it has been passed by ignoring most of the submissions made by the appellant in their appeal memorandum and written submissions. Some of the submissions which are not discussed have already been referred in the forgoing paras. Remaining submissions as forming the part of appeal memorandum which have not been discussed are reproduced as follows:-

Ø  The appellant submitted that the impugned order is alleging that they are providing the table space to the banks and insurance companies for which no rent is charged. Thus, it is concluded by the impugned order that since the amount so received is not a “rent” it is definitely the commission which taxable under the head of “Business Auxiliary Services”. In this respect, it is submitted that simply because they are not charging any rent for providing the access to table space, cannot be a reason to state that the amount so received is a commission. As already discussed in forgoing paras, for levying the service tax under the category of BAS, there should be “commission” which should be on account of “provision of taxable service” and the taxable service should fall under “definition of BAS”. On the other hand, the impugned order has failed to prove that the amount so received by the appellant fall under any of the clauses of the definition of BAS. Further, the impugned order has also failed to prove the agent principal relationship which only is taxable under the head of BAS. It is worthwhile to mention here that the service tax is leviable only on the amount received against the provision of taxable services. Merely because the appellant is a registered service provider, any amount received by them and forming part of Balance Sheet cannot be subject to the service tax unless the amount is specifically proven to be received against provision of taxable service. Therefore, the impugned order is attempting to levy the service tax on consideration received by them merely on the grounds that this amount is not “rent”, so it is a commission taxable under BAS. Such an approach is not justified and the impugned order passed solely on this ground is void ab initio and is liable to be quashed.

Ø  In continuation to above, it is submitted that the impugned order has failed to discuss and distinguish the case laws cited by the appellant in their reply to show cause notice. These judgments were exactly applicable in their case and were supposed to be discussed while passing the order. But the impugned order has not discussed any of these decisions, rather it has cited one judgment of M/s Roshan motors in its favour. Thus, it is clear that there are divergent decisions on the even issue. It has been held in a no. of cases that where there are contradictory decisions on a particular issue, the one favouring the assessee will prevail. It has been held in the following cases:-

a)    CCE, Jamshedpur v/s Tata Iron & Steel Co. Ltd. [1999 (114) ELT 160 (Tri-Kolkata)]

b)    CCE, Trichy v/s Dalmia Cements (P) Ltd. [1999 (114) ELT 836 (Tri-Madras)]

c)    Crompton Greaves Ltd. v/s CCE, Mumbai-II [1997 (94) ELT 629 (Tri.-Mumbai)]

d)    Hoolidevi v/s Asst. Collector of Customs (P), Madras [1995 (78) ELT 669 (Mad.)]

In view of above decisions, where there are contradictory decisions, one favouring the assessees will be considered. In their case also, there are contradictory decisions given by various appellate authorities, the decisions given in their favour will prevail. Therefore, extending the ratio of these decisions to the appellant, the impugned order should be quashed and the appeal should be allowed.

Ø  It was submitted that it has not been proved that the appellant was promoter and marketer of services of banks as well as insurance companies and it is wrong to allege that all this is modus operandi adopted by the appellant. There has been nothing in the show cause notice or in the order in original that evidences that the appellant was in any way engaged in propagating the business of the financial institutions or the insurance companies. It has also not been held that the appellant persuaded and pressurized their customers to take financial services or insurance services from such financial institutions or insurance companies situated in their premises. Rather, these institutions were provided with the table space merely for facilitating convenience to their customers and the customers exercised their own discretion whether to avail the financial services/insurance services from such institutions. In this regard it is clarified that –

·         The appellant do not persuade any of their customers to take finance/insurance from any particular company and as such no “services” of any type are provided to insurance/banks that pay certain amount to them in lieu of facility of access to appellant’s premises to interact with the customers.

·         They do not promote or market the services of the financial institutions/insurance companies nor do they induce the prospective customers to avail finance/insurance from any specific financial institutions/insurance company. Therefore, the activity of merely allowing access to these financial institutions/banks cannot be brought under the Services tax in the category of providing business auxiliary services. It is also submitted that financial institutions/insurance companies are not obliged to promote their business through appellant.

·         The appellant merely allow access to the banks and insurance companies to their premises and once they are in their premises, they are not concerned as to whom they are having business talks. They neither interact with the buyers of vehicle nor with the financial institutions and insurance agencies and as such they are not at all doing any “promotion of marketing services”. It is submitted that if at all they were providing the services to Banks etc. then there would not have been the requirement of the Banks representatives to sit in the office space provided by them.

Therefore, in view of above discussion, it is submitted that the appellant are not providing any service directly to the prospective clients for taking loans or insurance. The activity of dealers can be said to be falling in the definition of BAS only if their active involvement is proven. To prove the active involvement, the department should bring up with any cogent and corroborative evidences without which the demand cannot sustain. Therefore, the impugned order confirming the demand of service tax without proving the active involvement of appellant into the business of the banks/insurance companies is required to be quashed and set aside.

Ø  It was submitted that in view of the decisions given by various tribunals, the appellant was under the bonafide belief that the activity of providing table space to the financial institutions or insurance companies is not liable to service tax under the category of “Business Auxiliary Services”. It was on account of this bonafide and genuine belief backed by the decisions of various tribunals that the appellant did not declared the taxable value and did not pay service tax in their periodical ST-3 returns filed to the department and so in view of the same, a liberal approach as regards imposition of penalty should have been followed. But, to the contrary, non submission of taxable value and non payment of service tax has been taken as the grounds to impose severe penalty on the appellant which is not at all justifiable. The act of not declaring taxable value and not paying service tax was consequence of the bonafide belief established by the decisions given by various tribunals on the issue and so penalty should not have been imposed on the appellant. Moreover, the issue is still under litigation on account of different opinion and so this issue has been placed before the President for referring to Larger Bench of the Tribunal as held in the case of Pagariya Auto Center vs CCE [2013-TIOL-289-CESTAT-MUM]. This reference clearly indicates that the issue under consideration requires in depth analysis and interpretation of the provisions of law as very peculiar cases involving interpretation of every word of the provisions of law are being referred to the larger bench. Therefore, when there is so much ambiguity on the issue, expecting assessee to have knowledge regarding applicability of service tax on such an activity is futile. Furthermore, when the issue involves interpretation of legal provisions, penalty is not imposable. In the instant case also, the issue involves interpretation of legal provision that whether providing access to table space in the premises to the financial institutions or insurance companies by automobile dealers amounts to rendering service under the category of “Business Auxiliary Service” or not. Therefore, penalty should not be imposed on the appellant in view of the various judgments given as below.

·         Uniflex Cables Ltd v/s Commissioner of Central Excise, Surat-II [2011-TIOL-85-SC-CX]:

Central Excise – No penalty in a case of interpretational nature: The Commissioner, himself in his order-in-original has stated that the issue involved in the case is of interpretational nature, Keeping in mind the said factor, the Commissioner thought it fit not to impose harsh penalty and a penalty of an amount of Rs. 5 lakhs was imposed on the appellant while confirming the demand of the duty. Therefore, in the facts and circumstances of the present case, penalty should not have been imposed upon the appellant.

This contention has been upheld in the case of M/s ITEL Industries Ltd v/s CCE, Calicut [2010-TIOL-236-CESTAT-BANG]. In this case it was held that no penalty was imposable when there is a question of interpretation involved. Similarly, in the case of CCE, Lucknow v/s M.s Rosa Sugar Works [2010-TIOL-82-CESTAT-DEL] it was held as under:

Central Excise – Cenvat – Penalty – When the question involved is interpretation of the provisions of law imposition of penalty is not warranted: DELHI CESTAT;

In the case of M/s Hindustan Lever Ltd v/s CCE, Lucknow [2009-TIOL-1795-CESTAT-DEL] it was held as under:

Penalty – dispute related to the interpretation of statutory provisions and it did not disclose intention to evade the payment of duty and therefore, there was no justification for imposition of penalty in the matter: DELHI CESTAT;

Further, in the case of M/s GHCL Ltd v/s CCE, Bhavnagar [2009-TIOL-850-CESTAT-MUM] it was held as under:

“…As the matter involves interpretation and eligibility, penalties set aside….”

All the above judgments clarifies that the penalty should not be imposed if the issue pertains to interpretation of legal provisions. In the given case, the issue has been referred to larger bench which is enough to prove that the issue pertains to interpretation of legal provisions. Therefore, the benefit of the above cited judgments should be extended to the appellant and the impugned order in original imposing penalties on them should be set aside.

Ø  It was submitted that the impugned order has confirmed the time barred demand. In this regard, it is worthwhile to mention here that the extended period of limitation is not invocable if there are divergent decisions on an issue. It is reiterated here that the appellant have cited a couple of judgments in their favour in the reply to show cause notice but these have not been discussed while passing the impugned order. Rather the impugned order has cited one decision of M/s Roshan Motors in their favour. A detailed analysis on this matter has already been done in the forgoing paras. This analysis is recalled here to prove that there are divergent decisions on the issue involved here. When there are divergent decisions on any issue, the extended period cannot be invoked in such cases. This has been decided in the following case:-

·         M/s Shobha Digital Lab Vs CCE, Bhopal [2011-TIOL-1622-CESTAT-DEL]-

Service Tax - Valuation - Inclusion of cost of paper in taxable value of photography service - Issue no longer res integra in view of LB decision in Agrawal Colour Advance Photo System case - (2011-TIOL-1208-CESTAT-DEL-LB) - When there were divergent views on the issue, no malafide can be attributed to assessee to invoke extended period of limitation - Demand of tax invoking extended period of limitation set aside - Appellant liable to pay service tax within the period of one year limitation, lower authorities directed to re-quantify demand accordingly - When no malafide can be attributed to assessee, penalties waived under section 80 - Appeal disposed of : DELHI CESTAT

In view of above judgment, the extended period is not invokable when there are divergent decisions on any issue. Therefore, the impugned order has wrongly confirmed a time barred demand in their case in view of above cited decision. As such, extending the ratio of above cited decision, the impugned order should be set aside and the appeal should be allowed.

Ø  It was submitted that the service tax demand has been raised by invoking extended period of limitation. They submit that the larger period of limitation can be invoked only if the short/non payment of service tax is by reason of fraud, collusion, wilful mis-statement or suppression of facts with intend to evade payment of duty, which is not their case. They submit that they are assessee registered with your good office and are regularly paying service tax under the category of ‘Servicing of Motor Vehicles’ and have been filing service tax returns regularly. Moreover, audit has also been conducted from time to time and they have provided with all the details as required, thereby fully cooperating with the department. They did not suppress anything from the department and so the extended period of limitation cannot be invoked in their case. They submit that they had not paid service tax on the said activity as they were under bonafide belief that allowing access to financial institutions/insurance agencies to their premises and receiving some amount in lieu of that does not constitute of promoting or marketing their services and as such they had a strong bona-fide belief that they were not covered under the category of “Business Auxiliary Services”. This is also confirmed by the decisions on the issue given in favour of the assessee by various tribunals as cited above. Therefore, it cannot be said that there was any suppression on their part with intend to evade payment of service tax.

Ø  It was submitted that in view of their contention that extended period cannot be invoked in the present case, they placed reliance on the following cases:

-          Commissioner of Central Excise, Hyderabad v/s Chemphar Drugs and Limiments- reported in 1989 (40) ELT 276 (SC)

-          Padmini Products v/s Collector of Central Excise – reported in 1989 (43) ELT 195 (SC)

-          Tamil Nadu Housing Board v/s Collector of Central Excise, Madras -reported in 1994 (74) ELT 9

-          Cosmic Dye Chemical v/s Collector of Central Excise, Bombay- reported in 1995 (75) ELT 721

-          Pushpam Pharmaceuticals Company v/s. CCE, Bombay reported in 1995 (78) ELT 401 (S.C.)

-          Ugam Chand Bhandari v/s. CCE reported in 2004 (167) ELT 491 (SC)

-          Anand Nishikava Co. v/s CCE reported in 2005(188) ELT 149 (SC)

The Show Cause Notice has invoked the longer period of five years. It is now a settled law that longer period of limitation cannot be invoked unless there is an element of fraud, collusion or any willful misstatement or suppression of facts or contravention of any of the provisions of the Act or Rules with an intention to evade payment of duty. In view of the above position, the impugned demand notice is time barred and the SCN which is based on time barred is also illegal and untenable on merits.

Ø  It was further submitted that it has also been proposed to impose penalty under various sections of the Finance Act. In this respect, they submit that as they were under bonafide belief that they are not required to pay service tax under BAS in lieu of decisions given by the Tribunal as already reproduced in the forgoing paras; therefore penalty should not be imposed on them. Reliance is placed on hon’ble Supreme Court decision in the case of COMMISSIONER OF CENTRAL EXCISE, TRICHY Versus GRASIM INDUSTRIES LTD. [2005 (183) E.L.T. 123 (S.C.)] that where the act of assessee is based on the interpretation taken by the Tribunal, penalty cannot be imposed as the act is based on bonafide belief. The verdicts of Apex Court are produced as follows:-

“Penalty - Bona fide belief caused by Tribunal’s decision - Tribunal in a number of cases giving an interpretation as understood by assessee - Penalty not imposable - Rule 173Q of erstwhile Central Excise Rules, 1944 - Rule 25 of Central Excise Rules, 2002. [para 20]”

The analysis of above decision makes it clear that since they have acted under bonafide, no penalty can be imposed on them. Similarly, the hon’ble Supreme Court has decided that penalty should not be ordinarily imposed unless there is deliberate in defiance of law. This has been held in the case of Hindustan Steel v. State of Orissa [1978 2 ELT J 159 (Supreme Court)]. In this case it was held that an order imposing penalty for failure to meet statutory obligation is a result of proceedings which are quasi judicial in nature and penalty should not ordinarily be imposed unless the person acted deliberately in defiance of law or was guilty of misconduct or dishonest or acted in conscious disregard of his obligation.

It is further held in the case of Orient Ceramics and Industries [1987 (32) ELT 218 (I)] that words ‘with intent to evade payment of duty’ are very significant and unless and until the intention to evade payment is proved on part of assessee, no penalty can be imposed. Reliance is also placed on the following judgments:

·         2009 (238) ELT 3 (SC) – Rajasthan Spinning & Weaving Mills

·         2009 (238) ELT 209 (P&H) – J. R. Fabrics

·         2009 (238) ELT 226 (Mad) – Thirumala Alloys Castings

·         2008 (228) ELT 31 (Del) – K. P. Pouches

Therefore, the benefit of above decisions of hon’ble Supreme Court should be extended to them and the show cause notice should be set aside and the whole proceedings should be dropped.

12.          With reference to submissions made herein para no. (11) above, it is submitted that these are the submissions that were made before learned Commissioner (Appeals) in the appeal memorandum. However, none of these submissions have been discussed and distinguished by the learned Commissioner (Appeals) while passing the impugned order in appeal. Thus, the order has proved to be a non speaking and non-reasoned order which is not sustainable in the light of following decisions:-

·         CC Vs Essar Oil Limited [2010-TIOL-560-HC-AHM-CUS]

·         State of Himachal Pradesh Vs Sardara Singh [2008-TIOL-160-SC-NDPS]

The analysis of these decisions makes it clear that the order passed without giving reasons for the same is not justified in the eyes of law. In the case of appellant also, no reasons has not also been assigned why the above referred submissions and case laws cited by them are not applicable and why their benefit has not been extended to them. As such, the impugned order passed without assigning the reasons is not justified and is liable to be quashed. The appeal should therefore be allowed.

Reasoning adopted by the appellate authority:

The Hon’ble Tribunal had gone through the Order-in Appeal, Case records, Appeal memorandum, written submissions, documents furnished by the assessee as well as the submissions made during course of personal hearing. It was held that after perusing the material on record, it is found that there were conflicting decisions by the Tribunal in the cases involving similar set of facts. The matter was referred to the Larger Bench and the Larger Bench of the Tribunal in the case of Pagariaya Auto Centre held that the service tax liability is rightly confirmed in such situation. In the present case, the demand is issued invoking the extended period.

In view of the above facts involving interpretation of the law and varying decisions of the appellate body, it was found that the demand for extended period cannot be justified. Accordingly, the present appeal is allowed only on limitation by setting aside the impugned order.

In view of the forgoing, impugned order is set-aside and the appeal is allowed.

Decision:- Appeal allowed.

Conclusion:- The essence of this case is that the service tax demand is not tenable if the non-payment of service tax was due to bonafide belief on account of conflicting decisions rendered by the Tribunal on the issue. Although, the issue was finally decided against the appellant but the present appeal was allowed on the grounds of limitation.

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