Per: D N Panda:
The appellant came up in appeal against Order-in-Original dated 27.7.2009 passed by learned Commissioner relating to the period July 2003 to January 2007, giving rise to following consequences:
(a) Service tax amounting to Rs. 128,92,43,724/- (Rupees one hundred twenty eight crore ninety two lacs forty three thousands and seven hundred twenty four) was demanded from M/s. Jetlite (India) Limited (formerly Sahara Airlines Limited) under Section 73 (1) of Finance Act, 1994.
(b) Interest under the provision of Section 75 of Finance Act, 1994 from M/s. Jetlite (India) on demand was ordered for recovery.
(c) Penalty of Rs. 128,92,43,724/- (Rupees one hundred twenty eight crore ninety two lacs forty three thousands and seven hundred twenty four) was levied under Section 78 of Finance Act, 1994 upon the appellant for suppressing value of taxable services while refraining from imposing penalty under Section 76.
(d) Penalty of Rs. 1,000/- was imposed under Section 77 of Finance Act, 1994.
2. While filing the appeal, the appellant has also moved stay application for stay of realisation of the demand aforesaid.
3. Learned Adjudicating Authority examining the allegation in show cause notice and defence led by appellant, framed following issues for adjudication:-
(i) Whether M/s. JLIL has provided services taxable under the category of business auxiliary service;
(ii) Whether extended period of limitation is invokable in terms of proviso to section 73 of Finance Act, 1994 and M/s. JLIL are liable to penalty under section 76, 77 and 78 of Finance Act, 1994 as well as interest under Section 75 of the Finance Act, 1994 in addition to paying the service tax amount.
(iii) Whether gross amount charged is to be considered as inclusive of service tax.
4. It was noticed by learned Adjudicating Authority that in terms of share purchase agreement dated 18.1.2006 followed by consent award dated 12.04.2007 made by Arbitral Tribunal the appellant took over M/s. Sahara Airlines Ltd. (hereinafter referred to as M/s. SAL), M/s. SAL was registered with Service Tax Authority on different dates for different services provided. Registration for “Business Auxiliary Service” was taken on 30.3.2007. Learned Authority also noticed that there was allegation that M/s. SAL was promoting real estate and housing business and area operation M/s. Sahara India Commercial Corporation Limited (hereinafter referred to SICCL- formerly known as Sahara India Housing Limited) and such service was “Business Auxiliary Services”.
5. Show cause notice dated 28.10.2008 was issued to bring the appellant to the fold of levy of service tax under Finance Act, 1994 in respect of “Business Auxiliary Services provided” for the period July 2003 to January 2007. In terms para 30.1, learned Adjudicating authority found that SICCL had launched various projects of housing and real estate. Air travel passengers of the appellant Airlines were targeted as potential customers in terms of agreement dated 30.03.1995 entered into between SAL and SICCL to promote business of the later by the appellant and project information was brought to the later by the appellant and project information was brought to the notice of such customers through printing in air tickets of M/s. SAL. Necessary consideration per passenger ticket was paid to the appellant Airlines for such purpose by SICCL.
6. Revenue recorded statement from many persons explaining nature of activity carried out by the appellant and publicity done in respect of construction of residential and commercial complexes/townships projects undertaken by SICCL under the brand name “Sahara”. SICCL was Flagship Company of Sahara Group.
7. An agreement dated 30.3.1995 was entered into between M/s. SAL & M/s. SICCL. The said agreement revealed that M/s. SAL was under an obligation to promote the real estate and housing projects and area of operation of M/s. SICCL for which a consideration per passenger ticket was payable to M/s. SAL. Shri R.S. Dubey, Executive Director on his examination from time to time confirmed that this was understanding between the parties in terms of different letters. By his statement recorded on 11.2.2008 and 21.5.2008 he stated that M/s. SICCL was developing residential and commercial complexes/townships under the brand name “SAHARA” and extensive publicity was made by M/s. SAL to promote such housing project of M/s. SICCL in terms of above agreement. So also, he confirmed payments made to M/s. SAL as per agreement dated 30.3.1995 by M/s. SICCL as apparent from Para 2.5 of OIO. The Director Shri O.P. Srivastava of M/s. SAL without disputing the evidence recorded from Shri R.S. Dubey on 11.2.2008, 22.4.2008 and 21.5.2008 in his statement recorded on 27.5.2008 also clarified aforesaid factual position and corroborated that service charges were paid to M/s. SAL per passenger tickets in terms of agreement dated 30.3.1995. Statement of Smt. Vandana Bhargava, Director of M/s. SICCL recorded on 17.6.2008 also revealed aforesaid factual position. She also confirmed that M/s. SAL was under an obligation to make extensive publicity of the housing project of M/s. SICCL. Shri J.K. Tewari, Manager (Audit & Taxation of the appellant) vide letter dated 13th October, 2008 provided details of payment made by M/s, SICCL to M/s. SAL for the period from July, 2003 up to January, 2007 in terms of agreement dated 30.3.1995. The money received by M/s. SAL for the aforesaid activity was accounted for as “Operational Revenue” in its accounts while M/s, SICCL was disclosing the payments made to M/s. SAL under the heading “Project Work in Progress”. It was explained to Revenue that such a disclosure in the financial statement was made since the expenditure by M/s. SICCL was “capital expenditure”. Statement of the Director Shri S.K. Dutta of the appellant company was recorded on 7.5.2008. He explained the outcome of takeover agreement and also confirmed the service arrangement between M/s. SAL to M/s. SICCL as aforesaid. Minutes of Board’s meeting held on 30.3.1995 established publicity of housing project among the intending passengers of M/s. SAL and remuneration was payable for such purpose to it.
8. Revenue gathered information from the debit notes showing the monthly payment made to M/s. SAL in respect of monthly charges billed by it towards service provided in terms of agreement dated 30.3.1995 which was found to be ticket based. Department examined the basis of payment under para 4.1 of OIO.
9. Learned Adjudicating authority examined the defence plea and decided issue No. 1 in terms of page 34 to page 41 of OIO holding that the appellant was promoting the business and area of operation of M/s. SICCL providing “Business Auxiliary Service” services and the service so provided is taxable w.e.f. 1.7.2003 under Finance Act, 1994. Such decision of learned Adjudicating Authority comes out from para 31 of OIO in terms of the agreement between the parties.
10. So far as second issue of limitation is concerned, learned authority below held that me service provided in terms of agreement dated 30.3.1995 was of the category of “Business Auxiliary Service” and M/s. SICCL having been registered under the Finance Act, 1994 and filing service tax return, there was nothing left for M/s. SAL to discharge its tax liability disclosing material facts. The opinion taken from the Consultant Shri S.S. Gupta on 4.8.2003 did not leave any scope to prove the bona fide of the appellant. Therefore it was held by the learned Adjudicating Authority that the appellant without paying service tax on the “Business Auxiliary Service” provided, contravened the provisions of law causing loss of revenue. Accordingly, extended period of limitation was applicable. He also discarded the plea of lack of jurisdiction in terms of para 33.1 of OIO.
11. So far as the issue of cum-tax service is concerned, the authority dealt that issue at page 41 of the OIO and he found that the appellant’s claim was merited. But he decided the penalty issue against the appellant in terms of Para 34 to 34.2 of OIO. Interest liability also arose and required to be paid in terms of Para 35 of OIO.
12. Learned Counsel appearing on behalf of the appellant submitted that M/s. SAL was merely using Logo of M/s. SICCL and promoting housing project of the later. The object of use of Logo was as per agreement dated 30.3.1995. Condition No. 3 & 4 of agreement dated 30.3.1995 was not fulfilled. Although brochures were required to be distributed with different tickets issued by M/s. SAL as per condition No. 3. no such distribution was done. In terms of condition No. 4, M/s. SAL was to make other arrangements required from the side of M/s. SICCL to popularize the business as that shall be intimated by that company to the appellant company after mutual consent. But such condition was not fulfilled. The appellant having no current assets as on 31st March, 2009 and having loss before taxation for the financial year 2008-09, it has no means to pay the demand.
13. Learned Counsel also argued that there is difference between promotion of sale of goods and use of brand. The appellant having used the brand only, there was no “Business Auxiliary Service” provided. The demand raised being time barred for no fault of the appellant, nothing shall be realisable till disposal of the appeal. So also neither penalty nor interest became payable.
14. Revenue represented by learned Jt CDR submitted that learned adjudicating authority has properly examined the agreement made between the parties and terms of the share purchase agreement as well as arbitration award and passed appropriate order to levy service tax under the “Business Auxiliary Service” category. Upon examination of evidence by the learned Adjudicating Authority, nature of service provided by appellant suggested to be “Business Auxiliary Service” for which a reasoned and speaking order was passed by that Authority. Learned DR further submitted that in terms of section 65 (105) (zzb) read with section 65 (19) of the Finance Act, 1994 promotion or marketing of service provided to its client by the service provider are brought to the fold of law under the category of ‘Business Auxiliary Service’. Even any service incidental or auxiliary to the principal service are also business auxiliary service. Therefore, Revenue’s interest shall be protected if pre-deposit of entire demand is called for during pendency.
15. Heard both sides and perused the record as well as relevant documents to which our attention was drawn in the course of hearing. Subsequent to hearing of stay application, the appellant filed an affidavit explaining that M/s. SICCL vide their letter dated 10.3.2000 informed the appellant that they will not supply brochures to the appellant company and that was accepted by the appellant company in terms of their letter dated 13.3.2000. During the relevant period, M/s/ SICCL did not require M/s. SAL to undertake any of the activities specified in Sr. No. 3 of letter dated 30.3.1995 and M/s. SAL also did not undertake such activities for M/s. SICCL. So also, during the relevant period M/s. SICCL did not require M/s. SAL to undertake any other activity to popularise business of M/s. SICCL as mentioned in Sr. No. 4 of the letter dated 30.3.1995 and consequently M/s. SAL did not undertake any such activity. In terms of Para 5 of the affidavit it was averred that total consideration paid by M/s. SICCL to M/s. SAL in terms of Sr. No. 5 of the letter dated 30.3.1995 during the relevant period was only towards display of logo of M/s. SAL.
16. Law is well settled in case of Delhi Cloth and General Mills Co. Ltd., etc. vs. The Commissioner of Sales Tax, Indore, reported in AIR 1971 SC 2216 : (1971) 2 SCC 559; (1971) 28 STC 331 (SC) that the levy and collection of tax is regulated by law and not by contract (Para 10 of the judgement). The term “service” generally means service of any description which is made available to potential user and includes the provision of facilities. Such term has variety of meanings. It may mean any benefit or any act resulting in promoting or serving interest of the recipient. It may be contractual, professional, public, domestic, legal, and statutory etc. How it should be understood and what it means depends in the context in which it has been used in an enactment. An activity in the nature of service whether provided individually or integrally, and solely, separately or combinedly with other activities makes no difference to the chargeability when incidence of levy occurs. Permutation and combination of activities of services do not change character of a levy if the nature of service provided is declared to be taxable under law. It may be possible that while an activity may be part of cluster of activities and may be dominant or prominent while others may be incidental or ancillary or auxiliary. That also do not pose much difficulties for law, the moment tax ability comes into play by the incidence of levy.
17. Understanding and motive of the parties appear from communication dated 30.3.1995 which has been relied by the appellant. That also spells out the scope of service intended to be provided and agreed to be availed or received by the recipient to fulfil object of each other which is further corroborated from the statements recorded by Revenue in the course of Investigation from different persons intimately connected with the business of each other and affairs thereof. Such an useful evidence provided basis of adjudication and even the subsequent affidavit filed in the course of stay hearing does not discard the contents of the statements recorded as aforesaid, by any means. The affidavit in terms of Para 2 thereof corroborates revision of the consideration paid for the services provided by the appellant in terms of the contract between the parties demonstrating no change or variation of the scope of service intended to be provided by the appellant and as revealed by statements recorded by Revenue. For convenience of reading, the relevant part of the communication dated 30.3.1995 referred to above is extracted below:
M/S. Sahara India Airlines Limited, Sahara India Bhawan, 1, Kapoorthala Complex, Lucknow Dear Sirs,
Sub : Our Publicity through your Airlines.
We refer to the discussions of the undersigned had with your Director, Shri Subrata Roy Sahara, on the above matter in several meetings. What we want your AirLines to do, is to give extensive publicity to out activities in order to promote our business and area of operations. We confirm that the following arrangements have been arrived at with you by us.
(1) All your Aircraft will have exactly the same logo and in the same colour as used by us and the same will be prominently displayed outside of both sides of each and every aircraft in the manner that the same is clearly visible to general public at least from the distance of 200 metres.
(2) You will use our logo and its colour scheme on all your tickets. Boarding Passes, Baggage tags, publicity materials and advertisements in newspapers hoardings, etc.
(3) Our brouchers (to be supplied by us) wit! have to be distributed with each ticket issued by you.
(4) You have agreed to make other arrangements required from our side to popularise our business as may be intimated by us to your after mutual consent.
(5) Since the publicity is mainly, directly inked with the tickets issued by you and / or passenger to be carried by in your aircraft, we shall pay you Rs. 1075/- per passenger on long sector and Rs. 400/- per passenger on short sector carried by you.
(6) It is also further agreed that to popularise our scheme and business activities and for that purposes to increase exposure to the general public, you will allow on trunk routes a minimum discount of Rs. 500/- to passenger on every trip till such time arrangements as above remain in force.
(7) That the above arrangements shall remain in force for a period of one year with effect from 1st April, 1995, or renewed further.
(8) You will allow at all reasonable time our representatives to verify that you are complying with the above arrangements, on board of the Aircraft as well as station offices and accounts department (s).
You shall allow our representatives complimentary tickets free of charge to enable them to make such verification(s).
Please return a copy of this letter duly signed by you as a token of your acceptance of the above arrangements and all terms and conditions together with a certified copy of resolution of Board of Directors of your Company approving such arrangements, terms and conditions.
We look forward to have association with your Company for mutual benefits.”
18. It may be stated that entire purpose of the aforesaid communication is to promote real estate and housing business of M/s SICCL and its area of operation. Condition No. (3) of the communication was a future event and was not a condition precedent nor also primary for which waiver thereof was sought by affidavit in terms of Para 4 thereof filed in the course of stay hearing. So also Para No. (4) of the communication was claimed to have been waived under Para 4 of the affidavit. Even by waiver of these two conditions, nature of service provided by the appellant remained unaltered as corroborated by statements recorded by Revenue during investigation. There was nothing mentioning of waiver of these conditions in any of the statements recorded. Arrangement of parties through Para 4 of the affidavit does not appear to have granted immunity from the tax liability incurred under law in respect of supporting marketing assistance primarily provided by the appellant. This is evident from para (6) of the aforesaid communication dated 30.3.1995.
19. The very intention of the parties was to achieve the object of M/s. SICCL through the passengers of M/S. SAL by an agreed practice and arrangements, introducing the conception of the housing project in the minds of the passengers through the logo on the tickets and other connected materials meant for them had bearing on the issue. Object of each other appears to have been achieved in absence of any ceased or desisted practice or discontinuance of marketing promotion activity printing the logo on passenger tickets without abandoning such modus operandi or change of motive of each other which is patent from record and conduct of the parties. No evidence was led before the authorities to prove that use of logo was not helpful to promote real estate business of M/s. SICCL when source of information was given to the passenger aiding in promoting marketing of the project. Information was not given to passengers fancifully but purposefully to serve object of each other as envisaged by the communication dated 30.03.1995.
20. It may be appreciated that a man of ordinary prudence and diligence shall not adopt any practice or method which shall deprive him from the benefit or gain he intends. Mere use of logo to serve no useful purpose is inconceivable and no monetary consideration was payable to the appellant without any purpose or motive behind such use. So also without any reciprocated advantage no one shall make payment voluntarily. No consideration no contract being an essential element of law of contract consideration received by the appellant was testimony of providing commercially useful service by the Appellant. In absence of any evidence to suggest that the service provided by the appellant was not useful and the service received was not intended from the provider, the appellant can be said to have catered to the need of promotion of real estate venture of M/s. SICCL. Prima facie, material facts and attendant circumstance as well as echoing evidence do not appear to have immuned the appellant from taxation when letters of law bring the appellant to fold the law for the provision of taxable service as held by learned Adjudicating Authority.
21. The nature of service provided by the Appellant appears to have fallen in the description of “taxable service” and in this case to the class of “Business Auxiliary” service category. It may be stated that mutuality of parties through subsequent correspondence do not over ride charge ability to taxation when statements recorded by Revenue un-rebutted and brought the appellant to charge ability under appropriate provision by Finance Act, 1994. Nomenclature also is not decisive on exigibility to tax when taxable event had occurred. Whole exercise done by learned adjudicating authority was to find out mutual interest of the parties resulting in reciprocated benefit to each other. If service provided by the appellant (formerly M/s. SAL) was unproductive for M/s. SICCL or not useful, then the service recipient i.e. M/s. SICCL would have abandoned the contract without continuity thereof or the contract would have been terminated without continuance and payment should not have been continued to be made to the appellant.
22. Record throws light that there was neither termination nor frustration of contract during the impugned period. The appellant would not have been paid consideration without taxable service provided by it. Had there been no taxable service provided by appellant to M/s. SICCL the appellant would have been unpaid. The reasoned and speaking order passed by the learned adjudicating authority calls for protection of interest of Revenue to work out an interim modality when prima-facie, the service provided and received appears to be of the nature of “Business Auxiliary” in absence of any cogent evidence to the contrary.
23. The appellant, Prima facie, has not brought out its case for total waiver of pre-deposit during pendency of appeal since appeal is a conditional right granted by law as held in the case of Vijay D. Mehta – 1989 (39) ELT 178 (SC) – 1988 (4) SC 402. Balance of convenience does not tilt in favour of the appellant. There was no case made out to show that irreparable injury or undue hardship shall be caused to the appellant if no full waiver is granted. Revenue appears to be prejudiced if realisation of demand is stayed following decision of Apex Court in Benara Valves case – 2008 (12) S.T.R. 104 (S.C.) – 2006 (204) ELT 513 (SC) and M/s. Indu Nissan Oxo Chemical Industries Ltd., Vs. UOI – 2008 (221) ELT 7 (SC), The applicable principles have also been set out succinctly in Silliguri Municipality and Ors. Vs. Amalendu Das and Ors. (AIR 1984 SC 653), M/s. Samarias Trading Co. Pvt Ltd., Vs. Samuel and Ors. (AIR 1985 SC 61) and Assistant Collector of Central Excise Vs. Dunlop India Ltd., (1985) (19) ELT 22 (SC) = AIR 1985 SC 300). While arriving at the above conclusion, we were conscious of decision of Apex Court in Ravi Gupta’s case – 2009 (237) ELT 3 (SC). The Honourable Supreme Court in para 10 of the judgement held as under:-
It is true that on merely establishing a prima facie case, interim order of protection should not be passed. But if on a cursory glance it appears that the demand raised has no leg to stand, it would be undesirable to require the assessee to pay full or substantive part of the demand. Petitions for stay-should not be disposed of in a routine matter unmindful of the consequences flowing from the order requiring the assessee to deposit full or part of the demand. There can be no rule of universal application in such matters and the order has to be passed keeping in view the factual scenario involved. Merely because this Court has indicated the principles that does not give a license to the forum/authority to pass an order which cannot be sustained on the touchstone of fairness, legality and public interest. Where denial of interim relief may lead to public mischief, grave irreparable private injury or shake a citizens’ faith in the impartiality of public administration, interim relief can be given”. (Emphasis supplied)
24. Having given due considerations to various aspects as aforesaid as well as financial difficulties pleaded by the appellant and appreciating that there shall be no irreparable injury that may be caused by this interim order, as an interim measure to work out the modality for protection of interest of revenue, following decision of Apex Court in Dun lop India’s case – 1985 (19) ELT 22 (SC), we direct the appellant to make pre-deposit of Rs. 100 crore (consisting of Rs. 64 crores towards service tax and Rs. 36 crores towards penalty and interest totalling Rupees one hundred crore only) within eight weeks of the date of receipt of this order and make compliance within one month of the deposit. Subject to such compliance, realisation of balance demand shall be stayed till disposal of appeal.
The Stay petition stands disposed in the above terms. The Misc. Application pleading financial hardship also stands disposed of. (Pronounced in the open court on 25.06.2010)