OIO No:58/STC-AHD/ADC(MKR)/2011-12 Page 32 of 32

BRIEF FACT OF THE CASE

M/s Bikes Auto, Ahmedabad were engaged in providing Services as Authorized Service Station and registered in Service Tax Department having registration No AADFB4743NSTOO1. The said service provider is registered under the category of Service of motor vehicle (SMV) and Business Auxiliary Service (BAS) in Service Tax department and filing ST 3 returns on periodical basis. Intelligence was gathered that M/S. Bikes Auto, Ahmedabad (hereinafter referred to as the said service provider”) were indulging in evasion of Service Tax in the Business Auxiliary Services by way of providing the said taxable service without having Service Tax registration and without paying Service Tax on the amount received by them for providing taxable services. The said service provider was engaged in the providing services to the Financial Institutes / banks under the Business Auxiliary Services. In other words, the said unit was facilitating to the financial companies like ICICI, HDFC etc., to place their counters/desks in their premises and providing the suitable environment to them to boost up their business. In response, the said financial companies were giving them a substantiated amount under the head of Commission/incentive/remuneration etc. The said commission amount is taxable under provision of sub section (19) of Section 65 of the Finance Act, 1994 as amended under the category of Business Auxiliary Service. Therefore, the service provider was liable to pay Service Tax on collection of the said commission/incentive w.e.f. 01.07.03, but on inquiry it was found that M/s Bikes Auto Motors ( P) Ltd was neither registered under Business Auxiliary Service (upto the date of recording the statement of the authorized person of the unit) nor they had paid any Service Tax for the said services.

2. Thereafter summons were issued to M/s. Bikes Auto. In response to the summons, M/s. Bikes Auto had produced the required records such as Month wise details of commission / incentive received, copy of Balance Sheets etc., to the department and a Statement of Shri Naishadh Bhupandrabhai Shah, Partner in M/s. Bikes Auto, Ahmedabad was recorded on 23.02.2006 before the Superintendent of Service Tax, Ahmedabad under Section 14 of the Central excise Act, 1994 read with Section 83 of the Finance Act, 1994.

2.1. In his statement Shri Naishadh Shah had stated that he was the partner in M/s. Bikes Auto having their head office cum show room at above address since last 16 years. Further, he stated that his wife Mrs. Gargi N. Shah is another partner in Bikes Auto; that there was another branches / service station of M/s Bikes Auto. Located at (1) Nr. Grand Bhagwati, S G Highway, Ahmedabad; that all the accounting and financial activities have been carried out from their head office; that he was the authorized person of the said firm and looking after Sales Tax, Income Tax, and Service Tax etc., all the Government works; that they were engaged in the Business of Selling of Hero Honda brand motorbikes / Scooter etc., and the authorized dealer of the said company; that they were also registered with Service of Motor Vehicles ( SMV ) & Business Auxiliary Service ( BAS ) since 25.06.03 having the PAN based Service Tax Registration No. AADFB4743NST001 and were paying service tax regularly and were filing ST-3 returns regularly.

2.2. On being asked he stated that, they had provided facilities to the different financial companies like ICICI, HDFC Bank etc., to place their counters in their company; that the said financial companies were giving Finance to different clients, who were intending to purchase the motorbikes/scooter from their companies on loan bases; that for giving these types of facilities to the said financial companies, M/S Bikes Auto were getting incentive/commission in different slabs; that they had been appointed as a Direct Selling Agent (Dealer/DSA) of ICICI Bank and Direct Sales Associates (Dealer/DSA) of HDFC Bank since June -03 and got the incentive/commission from the said banks for boosting up/ marketing their business.

2.3. Further, he stated that the above stated incentives / remunerations were not on the fixed rates but the same deferred from each other amongst the said Financial Companies; that in other words they had promoted or marketed the products on behalf of these Financial Companies and got the remuneration/incentive on the same. He had been shown the definition of Business Auxiliary Service given under the clause (19) of Section 65 (effective from 01.07.03). He had been explained about the Government Circular No. 59 dated 20.06.03 read with explanation given in the Memorandum Explaining the provisions in the Finance Bill 2003 (F.No. 334/1/2003-TRU dated 28.02.03)

2.4. On being specifically asked he stated that they had not paid the Service Tax on the amount of incentive / commission etc., received from the said financial companies / banks for the period 01.07.03 to 31.12.05. In other words, they had failed to fulfill the provisions of Service Tax Rules framed under the Finance Act, 1994 as amended, by them and suppressed the facts from department to avoid the payment of Service Tax, as and when payable by them.

2.5. Thereafter, he had produced the following documents

1. Month wise statement of incentive received form the financial institutes like ICICI, HDFC Bank etc for the year 2003-04 to 2005-06 (upto December-05)

2. Audited Balance Sheets for the F.Y. 2003-04 to 2004-05.

3. Copy of last ST 3 return, filed by them for the period October-04 to Spetember-05.

4. Copy of the Service Tax Registration Certificate

3. Based upon the records available / submitted by M/s Bikes Auto, a worksheet was prepared as Annexure - A showing the details of month wise incentives received / collected by the said service provider and calculation of service tax thereon at appropriate rate of service tax during the material time period from 01.07.03 to 31.12.05. As per the worksheet the total amount of Service tax liabilities of M/s Bikes Auto was worked out which comes to Rs.7,53,621/- and an interest of Rs.2,03,514/- was also payable by the said service provider.

3.1. On the basis of the above stated incentives, they prepared one comprehensive Annexure and as per the said Annexure they had received the amount of Rs.2,00,84,185/- gross amount as incentives from the above financial companies for the period 01.07.03 to 31.12.05; that out of the said amount the total service tax payable by their company comes to Rs.17,07,060/-. But they had already paid the total service tax for the period of ( 01.03.05 to 31.12.05 ) Rs.8,71,359/- (inclusive the availment of CENVAT). After the calculation of all these payments, the outstanding service tax liability comes to Rs.7,53,621/- and they had not paid any service tax. The interest on the said amount has also been calculated by them which comes to Rs.2,03,514/-, that they accepted the said service tax liabilities on their company & produced a cheque of Rs.4,54,114/- dated 05.03.2006 (Service Tax + Interest as calculated for the period of 01.07.03 to 31.12.05) voluntarily towards the outstanding service tax liabilities on his company that confirmed that they will pay the balance amount on or before 25.03.06 voluntarily without fail & will produce the proof of such payment.

4. Thereafter, M/s Bikes Auto had submitted the Copy of TR-6 challan No:1/2005-06, dated 06.03.06 and dated 29.03.06 for Rs.4,54,114/- & dated 31.03.2006 for Rs.4,79,569/- which shows the details of payment made and credited to the Central Government Account against their service tax liability on the basis of total amount collected & recovered from the customers during the period from 01.07.03 to 31.12.05.

5. As per the provisions of Section 65 (19) of the Finance Act, 1994 the terms ‘Business Auxiliary Service’ has been defined as 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

(iii) Any customer care service provided on behalf of the client; or

(iv) Procurement of goods or services, which are inputs for the client of 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 of 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 of 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 service, management or supervision.

5.1. In view of the above facts and the statement of Shri Naishadh Shah, Partner of M/s Bikes Auto, it appeared that the activities of said service provider were defined under the category of “Business Auxiliary Service” under Section 65 (19) i.e. of chapter V of the Finance Act, 1994 (as amended) and the services provided to the clients by the said service provider was a taxable service. It was further observed that the said service provider had neither obtained Service Tax Registration as required under Section 69 of the Finance Act, 1994 nor discharged their Service Tax liabilities.

6. Thus, it appeared that the said service provider had contravened the provision of;

i) Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax rules 1994 in as-much-as they have failed to make the payment of Service Tax amounting to Rs.7,53,621/- + Interest of Rs.2,03,514/- as explained in foregoing para for the period from 01.07.03 to 31.12.05 to the credit of the Government within the stipulated time limit;

ii) Section 69 of the Finance Act, 1994 read with Rule 4 of the Service Tax Rules, 1994 in as-much-as they failed to get registered with Service tax Department; and

iii) Section 70 of the Finance Act, 1994 (32 of 1994) read with Rule 7 of the Service Tax Rules 1994 in as-much-as they failed to self assess and failed to file prescribed quarterly / half yearly ST 3 returns within stipulated time limit.

7. All the above acts of contravention on the part of the said service provider appeared to have been committed deliberately by way of suppression of facts with an intent to evade payment of service tax and, therefore, the service tax not paid was required to be demanded and recovered from them under the proviso to Section 73 (1) of the Finance Act, 1994. All these acts of contravention of the provisions of Section 68, 69 & 70 of the Finance Act, 1994 read with rules 6, 4 & 7 of the Service Tax Rules, 1994 appeared to be punishable under the provisions of the erstwhile Section 75 A of the Finance act, 2001 and Section 76, 77 and 78 of the Finance Act, 1994.

8. The failure on the part of the said service provider in payment of service tax attracts penalty under Section 76 in addition to the interest payable under Sec. 75 of the Finance Act, 1994. Therefore, the said firm had failed to disclose the value of taxable services of the Business Auxiliary Service and also failed to make a return under section 70 of the Finance Act, 1994 for the period referred.

9. Moreover, in addition to the contravention, omission and commissions occurred on the part of the said service provider as stated in the foregoing paras, it appeared that, they willfully suppressed the facts, nature and value of service provided by them with an intent to evade the payment of Service Tax, rendering themselves liable for penalty under Section 78 of the Finance Act, 1994 as amended.

10. From the above facts, it appeared that the said service provider had contravened the provisions of Section 68 of the Finance Act, 1994; read with Rule 6 of the Service Tax Rules, 1994 in as much as they have failed to determine and pay the Service Tax & Ed. Cess; for the period 1.7.2003 to 31.12.2005.

11. All the above facts of contravention of Finance Act, 1994, as amended and rules made there under, on the part of the said service provider appeared to have been committed by way of suppression of facts with an intent to evade payment of Service Tax and, therefore, the said Service Tax not paid was required to be demanded and recovered from them under the proviso to Section 73(1) of the Finance ct, 1994 as amended, by invoking extended period of five years. All these acts of contravention of the provisions of Section 68 and Section 70 of the Finance Act, 1994 as amended, read with Rule 6 and 7 of the Service Tax Rules, 1994 appeared to be punishable under the provisions of Section 76, Section 77 and Section 78 of the Finance Act, 1994 as amended from time to time.

12. Therefore, a show cause notice was issued from F.No. STC/138/O&A/SCN/BA/JC/R-VI/D.II/08 dated 23.10.2008 to M/s Bikes Auto, Ahmedabad asking them to show cause as to why :

(i) Services rendered by them should not be considered as taxable service under the category of Business Auxiliary Services as defined under Section 65 of the Finance Act, 1994 as amended, and the total Service Tax (ST + CESS) worked out to Rs.7,53,621/- at appropriate rate during the period from 01.07.03 to 31.12.05 should not be demanded and recovered from them under proviso of Section 73(1) of Finance Act, 1994;

(ii) An interest of Rs.2,03,514/- as applicable on the amount of service tax liability should not be demanded from them for the delay in making the payment, under Section 75 of the Finance Act, 1994;