Service Tax to be paid on income received under business ancillary services

Natural Petrochemicals Pvt Ltd Vs C.C.E. & S.T.-Rajkot (CESTAT Ahmedabad)

The CESTAT, Ahmedabad in the case of M/s. Natural Petrochemicals Private Limited vs. C.C.E & S.T, Rajkot [Final Order No. A/12059/2023 dated September 18, 2023] has ruled that the assessee was aware of the chargeability of service tax upon the commission received under the head of Business Ancillary Services (BAS) and had deliberately never disclosed the same in the monthly returns, thus the financial hardship faced by the assessee is no ground for non-payment of Service Tax, hence dismissed the appeal.

Facts:

M/s. Natural Petrochemicals Private Limited (Appellant) is engaged in providing services of the Goods Transport Agency (GTA) and BAS.

Upon Investigation, the Commissioner of Central Excise and Service Tax (Respondent) found that the Appellant had received a commission income from M/s Gopal Enterprise and M/s Galaxy Enterprise amounting to Rs. 78,08,192/- and Rs. 5,30,085/- respectively. Thereby, the Appellant was inquired about the chargeability of Service Tax on the said commission received under the head of BAS.

The Respondent issued a Show Cause Notice (“the SCN”) demanding service tax for the income received from the Appellant. The Commissioners (Appeal) vide order OIA-RJT-EXCUS-000-APP-164-14-15 dated August 28, 2014 (“the Impugned Order”), confirmed the demand along with the penalty under Section 78 of the Finance Act, 1994 (“the Finance Act”).

Aggrieved by the Impugned Order, the Appellant filed the appeal before CESTAT, Ahmedabad.

The Appellant contended that they had furnished all the details related to the transactions in their financial statement showing no intention of the Appellant for evading service tax. Appellant further contended that due to financial hardship, the Appellant was unable to pay service tax. Further, the Appellant contended that BAS was taxable from July 01, 2003, but got exempted till July 09, 2004 vide Notification No. 13/2003-ST dated June 20, 2003.

The Respondent contended that the Appellant never disclosed that income under monthly returns and never had an intention to do so. The Respondent further contended that if according to the Appellant the said income was exempted, still the Appellant is required to declare the same in their monthly returns.

Issue:

Whether the Appellant is liable to pay service tax on the commission received under BAS?

Held:

The CESTAT, Ahmedabad in Final Order No. A/12059/2023 held as under:

• Observed that, the Appellant should have disclosed the income received under the category of BAS in the monthly returns even if the same is believed to be exempted under the Act.
• Further observed that, the Appellant was aware of their liability to pay service tax, and deliberately chosen not to pay service tax, owing to financial difficulties.
• Held that, due to financial hardships, the Appellant cannot escape from the liability to pay service tax on the commission received in the form of income under the category of BAS and hence, dismissed the appeal.

Relevant Section

Section 78 of the Finance Act

“78. (1) Where any service tax has not been levied or paid, or has been shortlevied or short-paid, or erroneously refunded, by reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of this Chapter or of the rules made thereunder with the intent to evade payment of service tax, the person who has been served notice under the proviso to sub-section (1) of section 73 shall, in addition to the service tax and interest specified in the notice, be also liable to pay a penalty which shall be equal to hundred per cent. of the amount of such service tax:”

FULL TEXT OF THE CESTAT AHMEDABAD ORDER

This appeal has been filed by Natural Petrochemicals Pvt. Ltd against demand of Service Tax under the head of Business Auxiliary Service.

2. Learned Counsel for the appellant pointed out that the appellants are inter alia engaged in providing services under the category of Goods Transport Agency and Business Auxiliary Service. During the course of audit, it was noticed that the appellants had received the commission income from M/s Gopal Enterprise and Galaxy Enterprise amounting to Rs. 78,08,192/-and Rs. 5,30,085/- respectively. During the audit, they were asked about the chargeability of Service tax on the said commission received by them under the head of Business Auxiliary Service. Later on show cause notice was issued and demand of service tax was confirmed against the appellant. The impugned order by Commissioner (Appeals) confirmed the demand of service tax and also upheld imposition of penalty under 78. Learned Counsel pointed out that the entire details of the transaction were reported in their financial statement and there was no intention to evade service tax. He argued that, there was no mens rea and therefore extended period of limitation could not have been invoked. He argued that the evidence in the present case was based on the documentary evidence on records including ER-2 return and invoices of the assessee.

2.1 Learned Counsel further argued that the Business Auxiliary Service was first time made taxable w.e.f 01.07.2003, however vide Notification No. 13/2003-ST dated 20.06.2003, the same was exempted up to 09.07.2004. The said income became taxable only w.e.f 09.07.2004.

3. Learned AR relied on the impugned order. He pointed out that the appellant had not disclosed the said income under their monthly returns. He further pointed out that even if the appellant’s believed that the said income was exempt, they were still required to declare the same in their monthly returns which they failed to do.

4. We have considered the rival submissions. We find that the appellants are essentially arguing the matter on the issue of limitation. It is noticed that the appellant had not declared the said income in their monthly returns. Even if the appellant believe that the said income was exempted from service tax, they should have declared the same as exempted income. It is noticed that in their pleadings, they have also argued that they have not paid the service tax due to financial Hardship. These facts clearly indicate that the appellant were fully aware about the taxability of the service and deliberately neither paid the tax nor declared the said income in the monthly returns. In these circumstances, we find that the appellant are fully aware of their liability and choose not be paid service tax on account of financial Hardship or otherwise.

5. In these circumstances, we do not find any merit in the appeal filed by the appellant, the same is dismissed.

(Pronounced in the open Court on 18.09.2023)

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