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City Honda and Others V/S Commissioner of Central Excise, Service Tax and Customs

    Appeal Nos. ST/86, 87/2008-DB (Arising out of Order-in-Appeal No. 130/2007, Dated: 17.12.2007 and No. 137/2007, Dated: 17.12.2007 Passed by Commissioner of Central Excise (Appeals-II), Bangalore) and Final Order Nos. A/22344-22345/2017

    Decided On, 25 September 2017

    At, Customs Excise Service Tax Appellate Tribunal South Zonal Bench At Bangalore

    By, MEMBER

    For Petitioner: Vani H., Advocate And For Respondents: J. Harish, Dy Commissioner (AR) and Madhupsharan, Asst. Commissioner (AR)

Judgment Text

1. These two appeals have been filed by the appellants against different impugned orders both dt. 17/12/2007 passed by the Commissioner (Appeals) whereby (Appeals) has rejected the appeals of the appellants and upheld the Orders-in-Original. Since the issue involved in both these appeals is same, we dispose of both the appeals by this common order. For the sake of convenience, the facts of the appeal No. ST/86/2008 are taken. Brief facts of the case are that the appellants are holders of registration certificate under the category of authorised service station. During the course of their business, they are also engaged in making arrangements for vehicle loans to interested customers, from various financial institutions, for which the appellants are getting some commission/income as percentage of loan amounts, which is reflected in their books of accounts as incentive received. As the said activity of the appellant appeared to be an activity

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of promotion of service provided by the financial institutions, the original authority after following the principles of natural justice had confirmed the demand of service tax amount of Rs. 2,20,365/- for the period from 01/07/2003 to 31/03/2005, in terms of Section 73(2) of Finance Act, 1994, under the category of Business Auxiliary Services (BAS), demanded interest of Rs. 21,977/- under Section 75, and also imposed penalty of Rs. 200/- per day under Section 76, penalty of Rs. 1000/- under Section 77 and penalty equivalent to tax amounting to Rs. 2,20,365/- under Section 78 of the Finance Act, 1994. Service tax amounting to Rs. 2,20,365/- and penalty of Rs. 5000/- were appropriated against the amount already paid by the appellant. Aggrieved by the Order-in-original, the appellant filed appeal before the (Appeals) who rejected the appeal of the appellant and upheld the order-in-original. Hence the present appeal.

2. Heard both the parties and perused records.

3. The learned counsel appearing for the appellants submitted that the impugned orders are not sustainable in law as the same has been passed without appreciating the facts and the law and are also contrary to the judicial precedents on the same issue. She further submitted that primarily the appellants are engaged in the activity of sale and servicing of motor vehicles and in its premises have accommodated basic infrastructure by providing a table, chair, telephone, email etc. to the financial institutions. She has also submitted that there was no written agreement between the parties and in consideration for providing the basic infrastructure, the appellants have been paid certain money which has been accounted in the Profit & Loss Account as commission received for the purpose of Income Tax Act. She has further submitted that the adjudicating authority has wrongly considered the said commission received as consideration for BAS rendered by the appellants to the financial institutions without any documentary evidence on record. She further submitted that the adjudicating authority has failed to meet the test laid down by the Larger Bench in the case of Pagariya Auto Centre Vs. CCE [2014 (33) STR 506 (Tri. LB)]. She has also submitted that after 16/06/2005, the appellants have been remitting services tax, since by an explanation 'Commission Agent' has been defined and the services rendered by the appellants would fall within the said substituted explanation. She also submitted that there was no liability contemplated for payment of service tax prior to 16/06/2005 and therefore the appeals in question relating to the period prior to the substitution of explanation ought to be allowed. She further submitted that the Circular No.87/05/2006-ST dt. 06/11/2006 cannot be applied in the case in hand especially in view of the fact that the levy under dispute is prior to 16/06/2005. In support of her submission, she relied upon the following decisions:-

i. Pagariya Auto Centre Vs. CCE [2014(33) STR 506]

ii. Jaika Motors ltd. Vs. CCE [2014(35) STR 417 (Tri. Mum.)]

iii. Silicon Honda Vs. CCE [2007(7) STR 475 (Tri. Bang.)]

iv. Tribhuv Motors Ltd. Vs. CCE [2010(17) STR 281 (Tri. Bang.)]

v. CCE, Belgaum Vs. Chadha Auto Agencies [2008(16) STT 77 (Tri. Bang.)]

4. On the other hand, the learned AR for the Revenue defended the impugned order and submitted that the (Appeals) has considered all the submissions by the appellants and has rightly come to the conclusion that the assessees' plea that the consideration received from the financial institutions is the rental charges is only a after-thought with the sole intention of somehow escaping from the liability of the service tax. He further argued that the lease agreement entered into with the landlord does not permit the appellants to sub-let the premises to any other person. He further submitted that though the appellant claims that the amount received from the financial institutions is towards rental charges for the space and the facilities provided but failed to produce any documentary evidence showing the collection of rental charges from the financial institutions. Rather the appellant is receiving the amount as percentage of amounts of loan sanctioned to the appellant's customers and the same is accounted only as commission received in the books of accounts. He also submitted that in the normal course of business/ trade, lease rentals are invariably at a fixed sum and nowhere related to the volume of the business undertaken. Whereas in the present case, it is the commission which is being received by the appellant and not the fixed rental charges. In support of his submission, the learned AR relied upon the following two decisions:-

i. Ved Automotives Vs. CCE, Kanpur [2016(44) STR 140 (Tri. All.)

ii. Arpanna Automotive Pvt. Ltd. Vs. CC&CE [2016 (43) STR 397 (Tri. Mum.)]

5. After considering the submissions of both the parties, we find that the commission received by the appellant is not in the nature of rental charges as claimed by the appellant. Moreover as per the lease agreement also, appellants are not authorised to sub-let the premises. Further we also find that the financial institutions are providing services of vehicle loans to the customers of the appellant which results in boosting the business of the financial institutions and in recognition of the said assistance rendered by the appellant, the financial institutions reciprocate with commission in some percentage of loan distributed though the appellant and this activity is a clear case of promotion of service rendered by the clients i.e. financial institutions, which is specifically included in the category of BAS specified under Finance Act, 1994 and are liable to service tax w.e.f. 01/07/2003. Such promotion of the business of financial help promote the business of the appellant also and does not alter the character of BAS. Further we find that the decisions relied upon by the appellants are not squarely applicable to the facts and circumstances of the present case as in the present case the appellants are receiving commission and not the rental charges whereas the decision relied upon by the learned AR in the case of Ved Automotives and Arpanna Automotive Pvt. Ltd. are squarely applicable in the present case. because in both the decisions, it is the commission which was received by the appellants and the Division Bench of this Tribunal has held them as falling under the category of BAS. Therefore by following the ratios of the said two decisions, we are of the considered opinion that the appellants are liable to pay the services tax under the category of BAS.

6. As for as levy of penalty is concerned, the learned counsel for the appellants submitted that the adjudicating authority under Sections 76, 77 and 78 in the first round of litigation has clearly held that it is a fit case for taking a lenient view and therefore he did not propose to impose any penalty under Section 76, 77 and minimum penalty of Rs. 5000/- has been imposed under Section 78. She further submitted that the levy of penalty is contrary to the findings of the adjudicating authority. She further submitted that in the present case the appellants have paid the tax along with interest before the adjudication proceedings being initiated, on being pointed out by the Department. She further submitted that the issue relates to interpretation of the provisions of service tax and therefore the penalty should not be imposed as there was no intention to evade the payment of service tax. In support of her submission, she relied upon the following decisions:-

i. CST Vs. Master Kleen [CEA No. 2/2010 dt. 08/09/2011 judgment of Hon'ble Division Bench of Karnataka High Court

ii. Majestic Mobikes Pvt. Ltd. [Final Order No. 652 to 672/2008 dt. 30/05/2008 of Tribunal]

iii. CCE, Mangalore Vs. Shantha Satelite Vision [2008 (17) STT 242 (Tri. Bangalore)]

7. Regarding penalty, we find that in the two decisions relied upon by the learned AR, the penalty was dropped by invoking the provisions of 80 of the Finance Act on account of the fact that there were contradictory decisions on this issue during the relevant time. Accordingly, we also drop the penalty on the appellant. In conclusion, as for as service tax demand is concerned, we hold that there is no infirmity in the impugned order to that extent and we confirm and uphold the same. The penalty imposed on the appellants in both the cases is dropped

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