OIO No. 02/STC-AHD/ADC(MKR)/2011-12 Page 17 of 17

OIO No. 02/STC-AHD/ADC(MKR)/2011-12 Page 17 of 17

BRIEF FACTS OF THE CASE

Intelligence gathered by the preventive officers of Service Tax Commissionerate indicated that M/s. Vishesh Distributors Pvt. Ltd, (hereinafter referred to as “the service provider”) situated at 20 off Rudra Square, Premchand Nagar, Ahmedabad were evading service tax, by not paying service tax on the commission actually earned and received by them for providing the services of “Promotion or marketing or sale of goods produced or provided by or belonging to the clients; or promotion or marketing of service provided by the clients; or any customer care service provided on behalf of the clients; or procurements of goods or services, which are input for the clients”; to M/s. Bharti Airtel Ltd, Gujarat. The services rendered by them are categorized under “Business Auxiliary Services”, which was brought under the service tax net w.e.f. 01.07.2003. Intelligence received further revealed that neither they have obtained Service Tax Registration required under Section 69 of the Act, nor paying Service Tax on the amount received as Commission by them from M/s. Bharti Airtel Ltd.

2. Acting on the said information, preliminary enquiry was initiated by issuing a letter/Summons dated 25.04.08, 09.09.08, 22.12.08, 12.03.09, 25.05.09, & 29.06.09 to the said service provider who had not responded to the same at all. It was also found that the said service provider was not registered with the Service Tax department. They received Rs.68,22,934/- during the year 2004-05 to 2008-09. The said income received on account of commission attracts Service Tax under the category of ‘Business Auxiliary Service’ as defined under Section 65 of the Finance Act, 1994 (as amended). They did not paid any Service Tax till date.

3. Where as in response to the Summons dated 24.03.09 M/s Bharti Airtel Ltd Ahmedabad have, vide their letter dated 09.04.09 submitted the year wise details of commission credited and paid to the said service provider. The details of which are given below;-

Year / Credited Amt. in Rs. / Debited Amt. in Rs.
2004-05 / 1345198 / 1303649
2005-06 / 766446 / 714041
2006-07 / 1955617 / 2049960
2007-08 / 1695311 / 1573231
2008-09 / 1283210 / 1182053
Total / 7045782 / 6822934

4. Whereas as per the provision of Notification No 06/2005 dt. 01.03.05 (made effective from 01.04.05), the Threshold Exemption limit to the service provider is available as under :-

Sr.No. / Period / Exemption Limit
1. / From 01.04.05 to 31.03.07 / upto Rs. 4 Lakhs
2. / From 01.04.07 to 31.03.08 / upto Rs. 8 Lakhs
3. / From 01.04.08 to 31.03.09 / upto Rs. 10 Lakhs

Provided that nothing contained in this notification shall apply to the Taxable Services provided by a person under a brand name or trade name whether Registered or not of another person. Further, for the purpose of this Notification :-

(A) Brand Name or Trade name means a brand name or trade name, whether registered or not, that is to say, a name or a mark, such as symbol, monogram, logo, label, signature, or invented word or writing which is used in relation to such specified services for the purpose of indicating, or so as to indicate a connection in the course of trade between such specified services and some person using such name or mark with or without any indication of the identity of that person.

(B) Aggregate Value not exceeding four lakhs rupees means the sum total of first consecutive payments received during a financial year towards the gross amount, as prescribed under Section 67 of the said Finance Act, charged by the service provider towards taxable services till the aggregate amount of such payment is equal to four lakh rupees but does not include payments received towards such gross amount which are exempt from whole of service tax leviable thereon under Section 66 of the said Finance Act under any other notification .

5. Since M/s Vishesh distributors Pvt. Ltd, Ahmedabad had provided services as Commission Agent for and on behalf of M/s Bharti Airtel Ltd and under the Brand Name “AIRTEL” which is a Registered Brand Name. The threshold exemption is not applicable to them in view of the condition of Notification No. 06/2005 dt. 01.03.05 as discussed above.

As per the provisions of Section 65(19) of the Finance Act, 1994 the term ‘Business Auxiliary Service’ has been defined as: “business auxiliary service” 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 clients; or

(v)  production or processing of goods for, or on behalf of, the client;

(vi)  provision of service on behalf of the client; or

(vii)  a service incidental or auxiliary to any activity specified in sub-clauses (i) to (v), such as billing, issue or collection or recovery of cheques, payments, maintenance or accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes services as a commission agent, but does not include any information technology service and any activity that amounts to “manufacture” within the meaning of clause (f) of section 2 of the Central Excise Act, 1944 (1 to 1944).

6.1 It appeared from the records that M/s Vishesh distributors Pvt. Ltd, Ahmedabad had acted as an distributor/agent and provided the service of promotion or marketing or sale of services, produced or provided by or belong to the clients i.e. M/s. Bharti Airtel Ltd., Gujarat.

6.2 It therefore appeared that the nature of service provide by the said service provider fall well within the category of Business Auxiliary Services and the said service provider are required to pay Service Tax at the rate applicable for entire yearwise receipts. The calculation of the Service Tax payable by the said service provider is given below:-

Year / Amount of Commission received / Rate of Service Tax / Amount of Service tax to be paid
2004-05 / 13,03,649/- / 10.2% / 1,32,972 /-
2005-06 / 7,14,041/- / 10.2% / 72,832/-
2006-07 / 20,49,960/- / 12.24% / 2,50,915/-
2007-08 / 15,73,210/- / 12.36% / 1,94,449/-
2008-09 / 11,82,053/- / 12.36% / 1,46,102/-
TOTAL / 68,22,934/- / 7,97,270/-

6.3 In view of the discussion as above it appeared that M/s. Vishesh distributors Pvt. Ltd, Ahmedabad was engaged in providing of “Business Auxiliary Service” as defined under Section 65(19) i.e. of Chapter V of the Finance Act, 1994 (as amended). The said service provider has not taken registration under the appropriate service category and has not paid proper/ appropriate Service Tax on the Taxable value i.e receipts in consideration to the services provided by them under the Brand name of ‘AIRTEL’ owned by M/s Bharti Airtel Ltd. As per the provisions of the Finance Act, 1994 and rules made there under, the Service Provider was required to assess correct value for the service provided by them as well as to pay service tax on the actual amount of Commission received by them for rendering “Business Auxiliary Service” in due course as prescribed and to follow all the procedure laid down in the Act and Rules. In this case the said service provider had not paid the Service Tax leviable on the taxable value and they had not taken also service tax registration under the services provided as Business Auxiliary Service till date.

7. In this case, it appeared that the said service provider have not applied for Registration under the appropriate service category i.e. “Business Auxiliary Service” as discussed above and thereby violated the provisions of Section 69(1) of the Act read with Rule 4 of the Service Tax Rules, 1994.

7.1 As per Section 70 (1) of the Act; ‘every person liable to pay the service tax shall himself assess the tax due on the services provided by him and shall furnish to the Superintendent of Central Excise, a return in such form and in such manner and at such frequency as may be prescribed. The form, manner and frequency of return are prescribed under Rule 7 of the Service Tax Rules, 1994.

7.2 In this case, it appeared that the said service provider has not assessed the tax due, properly, on the services provided by him, as discussed above, and thereby violated the provisions of Section 70(1) of the Act read with Rule 7 of the Service Tax Rules, 1994.

7.3 Further, as per Section 68(1) of the Act; ‘every person providing taxable service to any person shall pay service tax at the rate specified in section 66 in such manner and within such period as may be prescribed’. The manner and period of payment of Service Tax has been prescribed under Rule 6(1) of the Service Tax Rules, 1994.

7.4 In this case, it appeared that the said service provider has not paid the service tax at the rate, manner and period prescribed, which is resulted into evasion of service tax amounting to Rs.7,97,270/- as detailed above, and thereby contravened the provisions of Section 68(1) of the Act, read with Rule 6 of the Service Tax Rules, 1994.

7.5 Since the service provider had provided the services under the Brand name of ‘AIRTEL’ is owned by M/s Bharti Airtel Ltd., the value based exemption for First clearance of Rs.4 lakhs/8 Lakhs/10 lakhs as the case may be, in view of notification no. 6/2005 dtd. 01.03.05 (as amended ) was not available to them and hence, they were liable to pay service tax on their entire income received from M/s Bharti Airtel Ltd., since beginning .

7.6 From the above it also appeared that M/s Vishesh distributors Pvt. Ltd. Ahmedabad were non-coperative during the course of inquiry as they neither provided any records/details to the department as and when called for nor they appeared before the investigation.

8.1 All the above acts of contraventions 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. They have avoided the registration under the Finance Act,1994 and thereby avoided assessment and payment of service Tax. They have not disclosed the facts of rendering services to M/s. Bharti Airtel Ltd., Ahmedabad to the department. This suppression of facts was obviously with intent to evade payment of service tax and, therefore, the said service tax, not paid, is required to be demanded and recovered from them under the proviso to Sec. 73(1) of the Act, by invoking extended period of five years. All these acts of contravention of the provisions of Sec. 68(1), 69 & Sec. 70 of the Act, read with Rules 6(1), Rule 4 & Rule 7 of the Service Tax Rules, 1994 are punishable under the provisions of Sec. 76, Sec.77 and Sec.78 of the Act.

9.1 Thus, it appeared that the said service provider has contravened the provisions of:

(i)  Section 67 of the Finance Act, 1994 in as-much-as they have failed to assess the correct value of Taxable services provided by them, as explained in foregoing paras for the period from April ’2004 to March’09;

(ii)  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.7,97,270/- as explained in foregoing paras for the period from April 2004 to March’09 to the credit of the Government within the stipulated time limit;

(iii)  Section 69 of the Finance Act in as much as they have failed to apply for registration and get registration for payment of due service tax;

(iv)  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 have failed to file the prescribed quarterly/ half yearly ST-3 returns from time to time; and

(v)  Notification No. 6/2005dated 01.03.05 (as amended) for reasons discussed herein above.

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

10. Accordingly, M/s. Vishesh Distributors Pvt. Ltd , were issued a show cause notice bearing F.No. STC/04-53/Prev/08-09/Gr.IV dated 12.10.2009 asking them as to why:

(i)  services rendered under the Brand Name of ‘AIRTEL’ by them should not be considered as taxable service under the category of Business Auxiliary Service as defined under Section 65 of the Finance Act 1994, as amended, and the amount of Rs.68,22,934/- received as commission by them from M/s. Bharti Airtel Ltd for the period from April 2004 to March 2009 should not be considered as the taxable value under section 67 of the Finance Act,1994 for the purpose of demanding service tax of Rs. 7,97,270/- under proviso to Section 73(1) read with Section 68 of the Finance Act, 1994, invoking the larger period of five years as discussed hereinabove and Service Tax thereupon as calculated at appropriate rate prevailed during the relevant time as discussed in the foregoing paras which comes to Rs.7,97,270/- should not be demanded;

(ii)  Interest at applicable rate on the amount of Service Tax liability of Rs.7,97.270/- should not be demanded and recovered from them for the delay in making the payment, under Section 75 of the Finance Act, 1994 ;