Service Tax Applicable to Legal and Professional Charges under BAS, Rules Court.

Court Name : Delhi Bench, CESTAT

Parties : M/s Infinity Credit Consultants vs Commissioner of Service Tax

Decision Date : 30 June 2023

Judgement ref : SERVICE TAX APPEAL NO. 51417 OF 2016

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL NEW DELHI.

PRINCIPAL BENCH,

COURT NO. IV

SERVICE TAX APPEAL NO. 51417 OF 2016

[Arising out of the Order-in-Appeal No. 118/ST/DLH/2015 dated 04/02/2016

passed by The Commissioner Service Tax (Appeals-I), New Delhi.]

M/s Infinity Credit Consultants, Appellant

A unit of M/s JNG Properties &

Leasing Pvt. Ltd.

16-C, Atma Ram House, 1 Tolstoy Marg,

Connaught Place, New Delhi –110 001.

VERSUS

Commissioner of Service Tax (Appeals-I), Respondent

C.R. Building, I.P. Estate, New Delhi.

APPEARANCE

Shri Kamal Aggarwal, Advocate – for the appellant.

Dr. Radhe Tallo, Authorized Representative for the Department.

CORAM:

HON’BLE DR. MS. RACHNA GUPTA, MEMBER (JUDICIAL)

HON’BLE MS. HEMAMBIKA R. PRIYA, MEMBER (TECHNICAL)

FINAL ORDER NO. 50799/2023

DATE OF HEARING : 23.03.2023.

DATE OF DECISION : 30.06.2023.

RACHNA GUPTA

Appellants are engaged in providing taxable services under

the category of „Business Auxiliary Services‟ to M/s ICICI Bank.

While scrutinizing the documents of the appellant, Department

observed that they have received total amount of Rs.

1,02,12,656/- for the year 2006-2007 to 2010-2011 as

commission received from M/s ICICI Bank holding that the

commission was against providing the „Business Auxiliary

Services‟, to the bank, the service tax of Rs. 16,19,972/- was

observed to not have been paid by the appellants. Appellants

were also not found registered with the Service Tax Department.

However, certificate was produced by the appellants issued in the

name of M/s JNG Properties & Leasing Pvt. Ltd. for providing

taxable services as that of Business Auxiliary Services. It was

mentioned by the appellant that they are the unit of said M/s JNG

Properties, hence, they have not taken registration separately.

The ITR returns for the impugned period were also submitted to

prove the same.

2. During the further scrutiny, department observed that

appellants have received some income as legal and professional

charges amounting to Rs. 36,55,792/-, Rs. 18,93,710/-, Rs.

24,04,105/- and Rs. 24,45,358/- respectively for the aforesaid

period, however, the tax liability thereupon has not been

discharged. The department while forming the opinion that the

said activity of providing legal and professional consultancy is

nothing but a „Business Support Services‟ for the banks/financial

institutes, the service tax liability was questioned. In addition,

appellant was also observed to have received maintenance

charges of Rs. 1,97,584/- and Rs. 1,98,000/- respectively for the

financial year 2009-2010 and 2010-2011. Observing those

services as a consideration towards providing taxable service

under category of „Management, Maintenance or Repair Service‟,

that the appellant was observed liable to discharge the service

tax liability.

3. With these observations, a show cause notice No. 1949

dated 23.04.2012 was served upon the appellants proposing the

recovery of Rs. 16,19,972/- as service tax (Rs. 15,71,705/-

towards providing „Business Support Service‟, Rs. 40,745/-

service tax towards „Management, Maintenance or Repair Service‟

and Rs. 7,522/- as short paid on commission income. In addition,

appropriate penalties under Section 76, 77 and 78 of the Finance

Act, 1994 were proposed and proportionate interest was

proposed to be recovered. The said proposal was confirmed while

the order-in-original No. 2428 dated 28.10.2014. In the appeal,

learned Commissioner (Appeals) has modified the order by doing

away the demand of service tax against the commission received

by the appellant. Still being aggrieved, the appellant is before

this Tribunal.

4. We have heard Shri Kamal Aggarwal, learned counsel for

the appellant and Dr. Radhe Tallo, learned Departmental

Representative for the Revenue.

5. Learned counsel for the appellant has submitted that the

appellant has been vigilant about his tax liabilities, hence, was

regularly and diligently discharging his tax liability on commission

as used to be received from the banks while referring customers

desirous of seeking loan, to the banks. It is further submitted

that the appellant was also a consultant to the banks/financial

institutions and thus was rendering the services of drafting and

preparing legal reports about the viabilities of the loans and

property titles on which loan is sought. Hence, it was purely the

„Legal Consultancy Service‟ as contrary to „Business Support

Service‟ as alleged by the Department. The demand is therefore

liable to be set aside. The decision as relied upon by the

Adjudicating Authority is mentioned to have wrongly been relied

upon. It is further submitted that the demand under

„Management, Maintenance or Repair Services‟ has also been

wrongly confirmed. Learned counsel for the appellant, finally

impressed upon, that the entire demand is liable to be set aside

for the sole reason that show cause notice has been issued

invoking the extended period of limitation, despite that no single

circumstance exist for the said invocation. The order confirming

demand is, therefore, prayed to be set aside and appeal is

prayed to be allowed.

6. While rebutting the submissions made on behalf of the

appellant, learned Departmental Representative has reiterated

the findings of order of Commissioner (Appeals). It is mentioned

that the demand under „Business Auxiliary Services‟ has already

been dropped by Commissioner (Appeals), with respect to the

imposition of penalties, though Commissioner (Appeals) has

accepted the findings of lower authority, however, has considered

that if the appellants have made the payment of entire service

tax liability, they are to be given the benefit of paying penalty @

25%. Concerned authority has accordingly been directed to verify

the same and if found correct, to give the benefit of paying

penalty @ 25%. It is submitted that while providing the services

to the bank about verification of the particulars of the loanee, the

appellants have been providing a „Business Support Service‟

impressing upon no infirmity in the order under challenge. Appeal

is prayed to be dismissed.

7. Having heard the rival submissions, we observed that in

the impugned show cause notice, following were the allegations

against the appellant :-

(a) The appellant is working as a Direct Sales Agent/

Associate (DSA) of M/s ICICI Bank and received

commission and have not deposited service tax under

the category of “Business Auxiliary Service (BAS)”.

(b) The appellant is liable to pay service tax for income

from legal and professional charges under the category

of “Business Support Service (BSS)”.

(c) The appellant also received maintenance charges for the

services covered under “Management, Maintenance and Repair Services”.

The demand on three of the counts was confirmed by the

original Adjudicating Authority. However, Commissioner

(Appeals) has set aside the demand under the category of

„Business Auxiliary Service‟ and has also allowed the benefit of

the payment of 25% of penalty amount, subject to verification.

Department admittedly is not in appeal against the said order.

8. Now it is to be adjudicated as to whether the income of the

appellant under the head Legal and Professional Charges falls

under the category of „Business Support Service‟ as alleged in the

show cause notice or it falls under „Legal Consultancy Service‟ as

asserted by the appellant. For the purpose definition of both the

services is foremost necessary to be looked into. „Business

Support Service‟ is defined under Section 65 (104) (c) of Finance

Act, 1994. It reads as follows :-

“Support Service of Business & Commerce” means services

provided in relation to business or commerce includes

evaluation of prospective customers, telemarketing,

processing of purchase orders and fulfillment services,

information and tracking of delivery schedules, managing

distribution and logistics, customer relationship

management services, accounting and processing of

transactions, operational assistance for marketing,

formulation for customer service and pricing policies,

infrastructural support services and other transaction

processing”.

Thus the definition itself is indicative of list of services to be

covered under BAS.

The taxability of this service is mentioned under Section 65

(105) (zzzq) of Finance Act, 1944 to read as follows :

“Taxable Service means any service provided or to be

provided to any person, by any other person, in relation to

support services of business or commence, in any manner”.

Thus the basic essence of the Business Support Service is

that it must be support service in business and commence.

Legal Consultancy is defined under Section 65 (105) (zzzzm) of

Finance Act, to read as follows :-

“Taxable service of legal consultancy” means any service to

a business entity, by any other business entity in relation to

advice, consultancy or assistance in any branch of law in

any manner.”

9. The bare perusal of the definitions reveal that whenever a

business entity gives any opinion or offers expert or professional

advice or any other business entity in any branch of law it will be

called as „Legal Consultancy Service‟. However, when advice

consultancy or assistance is provided purely to the banks/

financial institutions with respect to sanctioning of loans to their

clients by way of verification of documents provided by the

customers of these banks/financial institutes for the purpose of

availing the credit facility, the service rendered, is for the

appraisal of business reports with respect to the verification of

the clients, of the banks/Financial Institutions, through concerned

authorities. We observe that though appellants were drafting and

preparing legal reports but only for banks/financial institutions

that too for ensuring the viability of loan and for verifying the

property title documents for which such verification was sought

by such banks. We opine that such activity is nothing beyond a

due diligence of financial records of the customers of these

banks/ financial institutions. Thus it cannot a service provided as

assistance in any branch of law. It actually becomes the service

provided to a business entity/a financial institute/bank, to

support the business or commerce of the said bank. These

observations are sufficient for us to hold that the services, in

question, have rightly been held to be the „Business Support

Service‟ which is a taxable service. Any consideration received by

the appellant for rendering such service is therefore liable to tax.

Hence, we do not find any infirmity in the order under challenge

when the demand of Rs. 16,19,972/- has been confirmed for the

period from 2006-2007 to 2009-2010.

10. Coming to the demand under „Management, Maintenance

or Repair Service‟, we observe that the appellants, admittedly,

generate income by way of maintenance charges towards the

maintenance of documents and towards the security of

documents by keeping the same at the premises of the

appellants. The definition of „Management, Maintenance or Repair

Service‟ as defined under Section 65 (64) of Finance Act, 1994

and taxability thereof defined under Section 65 (105) (zzq) of the

Act as amended w.e.f. 16.06.2005, are as follows :

“management, maintenance or repair” means any

service provided by –

(i) Any other under a contract or an agreement; or

(ii) A manufacturer or any person authorized by him, in

relation to, -

(a) Management of properties, whether immovable or

not;

(b) Maintenance or repair of properties, whether

immovable or not; or

(c) Maintenance or repair including reconditioning on

restoration, or servicing of any goods, excluding a

motor vehicle”;

Section 65 (105) (zzq) of Finance Act, 1994 :

“to any person, by [any other person], in elation to

[commercial or industrial] construction”

11. The service tax instruction issued vide F. No. B-1/6/2005-

TRU dated 27.07.2005 as relied upon by the Commissioner

(Appeals) reads as follows :-

“16.2 Prior to 16.06.2005, such services covered

maintenance or repair or servicing of any goods or

equipment, excluding motor vehicles. However, since

16.06.2005, services relating to maintenance or

management of immovable property (such as roads,

airports, railways, buildings, parks, electrical

installations and the like) have also been covered

under the purview of service tax. Such services

would be taxable when provided under a contract or

an agreement by any person or by a manufacturer or

any person authorized by a manufacturer.

16.3 Maintenance is to keep a machine, building etc. in a

good condition by periodically checking and servicing or

repairing. While repair is a one time activity, maintenance

is a continuous process of which repairing may be

incidental or ancillary.

16.4 Prior to 16.06.2005, maintenance or repair carried

out under a maintenance contract or agreement was

covered under service tax. Repair or servicing carried out

under a contract other than a maintenance contract or

agreement was not covered within the purview of service

tax. Maintenance or repair, including reconditioning

or restoration or servicing of any goods or

equipment, except motor vehicle (which is taxable

under the category of authorized service station),

undertaken as part of any contract or agreement (not

necessarily maintenance contract or agreement) is

now liable to service tax under this category of

taxable service. To attract service tax under this

category, the contract or agreement need not necessarily

be a maintenance contract/agreement”.

12. The perusal makes it abundantly clear that the scope of

the impugned service is to include reconditioning or restoration of

any goods or equipments, except motor vehicles. Goods as per

the dictionary meaning are the items which are meant for sale or

for possession. Under Sale of Goods Act, 1930, any movable

property except the actionable claims and money, stock and

shares etc. are goods. The literal meaning of the word is that it

connotes to anything which satisfies human desires provide utility

and which can be produced or exchanged or consumed. We also

observe that in the definition appearing in Section 65 (64) of

Finance Act as quoted above, the explanation thereof clarifies

that goods include the computer software and the properties

includes information technology software.

13. In the light of this discussion, we have no hesitation to hold

that the documents as have been maintained by appellants

qualify be called as goods. Admittedly the appellant while

maintaining and restoring those documents was charging its

clients viz. banks/Financial Institutes for the same, for keeping

those documents in its safe custody/security also appellant was

receiving consideration. To our opinion, while doing this activity

for their clients, the appellants were actually rendering the

service of „Maintenance, Management or Repair Service‟. Hence,

we do not find any infirmity in the findings arrived at by the

Adjudicating Authority while confirming the demand on this

count.

14. Coming to the plea of wrong invocation of extended period

of limitation, we observe that appellants are not registered under

service tax regime. Though they have mentioned them to be a

unit of M/s JNG Properties & Leasing Pvt. Ltd. which has duly

been registered, but we observe that even M/s JNG Properties &

Leasing Pvt. Ltd. (supra) is registered for providing „Business

Auxiliary Services‟ only. From the above discussion, it has

already been held that the appellants were rendering „Business

Support Services‟ and „Management, Maintenance or Repair

Service‟. Apparently neither appellants nor their main unit M/s

JNG Properties & Leasing Pvt. Ltd. are registered for providing

later service, to that effect it sufficiently amounts to suppression

of facts. It was definitely the obligation of the appellant to bring-

forth the fact of non-registration for any other services except for

Business Auxiliary Service to the notice of department. The

silence definitely amount to suppression of fact, we do not find

any infirmity when extended period of limitation has been

invoked by the Department while issuing the show cause notice.

15. For the same reasons, we do not find any infirmity in the

detailed analysis given by the original Adjudicating Authority

while imposing penalties under Section 76, 77 and 78 of the

Finance Act which have duly been upheld by Commissioner

(Appeals) in the order under challenge. However, the

Commissioner (Appeals) has invoked proviso (ii) to Section 76 of

the Act subject to verification on the basis of the fact that the

entire demand was paid by the appellant at the initial stage only.

We do not find any infirmity in the said realization also.

16. In the light of above entire discussion, we hereby uphold

the order under challenge consequent upon thereto. The appeal

stand dismissed.

(Order pronounced in open court on 30/06/2023.)

(DR. RACHNA GUPTA)

MEMBER (JUDICIAL)

(HEMAMBIKA R. PRIYA)

MEMBER (TECHNICAL)