OIO NO. 12/STC-AHD/ADC(AS)/2012-13 Page 1 of 18

OIO NO. 12/STC-AHD/ADC(AS)/2012-13 Page 1 of 18

BRIEF FACTS OF THE CASE :-

M/s Shah Investor's Home Ltd, 'SIHL House', Opp. Ambawadi Jain Temple, Nehrunagar Cross road, Ahmedabad-380 015 (hereinafter referred to as "M/s SIHL") are registered with Service Tax department under the category of “Stock Broker Service” vide Service Tax Registration No. AAFCS4436CST001.

2. Accordingly, M/s SIHL were required to pay service tax as provided under Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994 and to file the prescribed service tax returns i.e. ST-3 returns as provided under Section 70 of the Finance Act, 1994 read with Rule 7 of the Service Tax Rules, 1994.

3. During the course of audit, it was noticed that M/s SIHL had received certain income from their clients in connection with income from interest on RBI Relief Bonds/Govt. Securities, interest received from others etc. for the period 2009-10.

4. On verification of account maintained by M/s SIHL, it was noticed that they had short paid Service Tax on taxable value of Rs. 2,58,44,799/- for the year 2009-10. Out of the said amount, Rs.2,51,03,643/- was included in the Show Cause Notice bearing No.STC/4-66/O&A/10-11 dated 18.10.2010 while demanding Service Tax of Rs.1,23,70,725/- issued to M/s SIHL. For the remaining amount of Rs. 7,41,156/-, M/s SIHL agreed with the objection and paid service tax amounting to Rs. 51,288/-.

5. However, M/s SIHL did not agree to pay the service tax on taxable value of Rs. 6,89,868/- (Service tax of Rs.71,056/-) pertaining to the year 2009-10 on the ground that the balance sheet was not finalised at the time of submitting information to the Range office vide letter dated 02.06.2010.

6. M/s SIHL vide letter dated 02.06.2011,furnished data/ information showing income of Rs. NIL earned from their clients in connection with income from interest on RBI Relief Bonds/Govt. Securities & interest of Rs. 2,06,02,264/- received from others etc. for the period 2010-11.

7. As per sub clause (a) (v) to clause (12) of Section 65 of the Finance Act,1994, the definition of “Banking & Other Financial Service” states that the services provided by asset management including portfolio management, all forms of fund management, pension fund management, custodial, depository and trust services, are covered under this category. The said service was brought under the Service Tax net w.e.f. 09.07.2001.

8. M/s SIHL are registered with service tax department under the category of “Stock Broker Service” and their service is taxable under this category. They had received certain income which was reflected in their above mentioned letter. It was observed from the above said letter that M/s SIHL had received the said income from their clients by way of interest on RBI Relief Bonds/Govt. Securities & interest received-Others during the period 01.04.2009 to 31.03.2011 on account of providing services in respect of Bonds, Govt. Securities, Deposits to their clients from the respective companies/banks/departments. Such services provided by M/s SIHL were falling under the category of “Banking & Other Financial Services”.

9. From the above, it was observed that M/s SIHL were providing depository participants services which were falling under the service category of 'Banking & Other Financial Services' and the income earned by M/s SIHL on account of interest on RBI Relief Bonds/Govt. Securities & interest received-Others were taxable value under the category of 'Banking & Other Financial Services'. However, M/s SIHL had not paid any service tax on the above amount received. Further, they were neither registered under the said service category nor got their registration certificate amended to add the said service within the stipulated time.

10. Accordingly, service tax on the income derived from the interest on RBI Relief Bonds / Govt. Securities & interest received-others during the period 2009-10 & 2010-11 were calculated at the applicable rate as under:

Table 1.

Description / Year / Total / Rate of Service Tax ( %) / Total S.T. / Source
Interest on RBI relief Bond / Govt. Securities & Interest received – others- / 2009-10 / 6,89,868 /- / 10.30% / 71,056 /- / Audit Report no.
166/ 10-11
Interest received –others - / 2010-11 / 2,06,02,264/- / 10.30% / 21,22,033 /- / Their letter 02.06.11
Total / 2,12,92,132 /- / 21,93,089 /-

11. Further, M/s SIHL were asked by the Superintendent of Service Tax, Range-XI, Division-III, Ahmedabad vide letter issued from F. No. STC/R-XI/Demand/Shah-Inv/others/11-12 dated 23.06.11, to provide the details / information of income received / collected by them from their clients under various heads, duly certified by the C.A. for the period 01.04.2010 to 31.03.2011.

12. M/s SIHL vide letter dated 09.07.2011, provided the details/ information of such income received/collected by them from their clients during the period 01.04.2010 to 31.03.2011 duly certified by Chartered Accountants. The details of such income received by them on which, no Service Tax was paid, were as under:

Table 2

Sr. No. / Description / Amt. received for F.Y.2010-11 Rs. / Amt. of Service Tax paid Rs. / Source
01 / Interest received –Others / 22145743 / 0 / The assessee’s letter dated 09.07.2011 along with CA Certificate
02 / Income from Mutual Fund / 3349082 / 0
Total / 25494825 / 0

13. From the above, it appeared that M/s SIHL had shown full and final data towards Interest received – Others , as the same was certified by the Regd. Chartered Accountant, and therefore the figure shown as Rs.2,21,45,743/- was considered in this Show Cause Notice instead of Rs. 2,06,02,264 /- as shown in Table - 1 hereinabove.

14. It was observed from the above that M/s SIHL had received the said income from their clients by way of interest received-Others during the period 01.04.2010 to 31.03.2011 on account of providing services in respect of Bonds, Govt. Securities, Deposits to their clients from the respective companies/banks/departments/Fixed Deposit with Banks. Such services provided by M/s SIHL were falling under the category of “Banking & Other Finance Services”.

15. From the above, it appeared that they had not earned interest income from loans. In the case of Oriental Insurance Co. Ltd. 89 ITD 520 (Del), it is held that loans & Deposits are distinct from each other. Thus, the said amount was proposed to be considered as a part of value of taxable service as interest income, as per their above mentioned letter and was not accrued as a result from loans. Thus, it was observed that the income earned by M/s SIHL on account of Interest on Bank interest received-Others was taxable value under the category of ‘Banking & Other Financial Services’. However, M/s SIHL had not paid any service tax on the above income. Further, they had neither got themselves registered under the said service category nor got its registration certificate amended to add the said service within the stipulated time.

16. It was also found from the above mentioned letter of M/s SIHL that they had received certain income from Mutual Fund which is taxable under the category of ‘Business Auxiliary Services’. M/s SIHL had not paid service tax on such income received.

17. Further, the Government vide Circular No. 66/15/2003, dated 05.11.2003 has clarified that the activities of mutual fund distribution are not in relation to sale or purchase of goods, the exemption provided under Notification No.13/2003, dated 20.06.2003 is applicable only for commission agents dealing in goods, therefore, this activity (mutual fund distribution) does not get covered under the aforesaid exemption Notification. The services provided by a Mutual Fund distributor are primarily in nature of the services of commission agent in relation to clause (ii) and (iv) of the category of services mentioned in the definition of Business Auxiliary Services and hence should be leviable to service tax under this category. Business Auxiliary Service is under the service tax net w.e.f. 01.07.2003.

18. In view of the above, the income of Rs. 33,49,082 /- received by M/s SIHL on account of Income from Mutual Fund and Income from Distribution-Other, during the period 01.04.2010 to 31.03.2011 appeared to be taxable under the category of ‘Business Auxiliary Service’. However, M/s SIHL had not paid any service tax on the above income. It was also observed that M/s SIHL had neither obtained service tax registration under ‘Business Auxiliary Service’ nor his existing registration certificate was got amended. The service tax on the above amount was worked out at the appropriate rate during the corresponding period are as under:

Table 3

Sr. No. / Description / Total / S.Tax @ 10.30% / Source
1 / Income from Mutual Fund – 2010-11 / Rs. 3349082 /- / Rs. 344955 /- / The assessee’s letter dated 09.07.2011 along with CA Certificate

19. According to Section 67 of Finance Act 1994 as amended, the value of any taxable service shall be the gross amount charged by the service provider for such service rendered by him. Further, all the expenditure or costs incurred by the service provider in the course of providing a taxable service forms integral part of the taxable value and are includible in the value.

20. In view of the above paras, it appeared that M/s SIHL had evaded service tax as worked out in Table B and C of Annexure to the Show Cause Notice under various service categories during the period 01.04.2010 to 31.03.2011, which amounted to total service tax of Rs. 26,97,023 /- as per Table A of Annexure to the Show Cause Notice.

21. From the above, it appeared that M/s SIHL were engaged in the business of providing the taxable services under the categories of ‘Stock Broking Service’, ‘Banking & Other Financial Service’ and ‘Business Auxiliary Service’. Though they are registered under the category of Stock Broking Service, they had not obtained the service tax registration amended under the categories of Banking & Other Financial Service and Business Auxiliary Service and they are charging and collecting the taxable consideration for the services so rendered and were liable to pay service tax on the total taxable amount under the respective service category.

22. A statement of Shri Shamik. H. Chokshi, authorized person of M/s SIHL for service tax matter was recorded under Section 14 of the Central Excise Act, 1944 read with Section 83 of the Finance Act,1994 on 07.06.2011 wherein, he inter alia stated as under:

“I have read the audit objection raised by the Deptt. in relation to short payment of Service Tax on income from interest received – others and interest on RBI relief bond / Govt. securities and in token of same I put my signature on the same. I hereby state that, our firm have furnished the information / statement showing summary of interest received – others from 01.04.2010 to 31.03.2011 total amounting to Rs. 20602264 /- ( Rs.2281012 /-as per C.A.’s certificate dated 9.7.11 ) and interest on RBI relief bond / Govt. securities amounting to Rs. NIL for the period 01.04.2010 to 31.03.2011 vide our letter dated 02.06.11 and same are obtained from the company's books of accounts and same are also actual and true reflection of our financial accounts as on today. I hereby confirm the correctness of the above figures. The said information have been signed and duly stamped on each page of our firm. I have seen the said information today and I put signature on the same in token of having read and agreeing to the same.”

23. In view of the above, it appeared that M/s SIHL had contravened the provisions of

a)  Section 67 and 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994, in as much as they had suppressed the taxable values and also failed to make payment of Service Tax under the category of “Banking & Other Financial Services” and “Business Auxiliary Service” during the period from 01.04.2009 to 31.03.2011 on such taxable value.

b)  Section 69 of the Finance Act, 1994 read with Section 4 of the Service Tax Rules, 1994 in as much as they failed to obtain service registration under the categories of “Banking & Other Financial Service” and “Business Auxiliary Service” within the stipulated time.

c)  Section 70 of the Finance Act, 1994 read with Rule 7 of the Service Tax Rules, 1994 in as much as they had failed to furnish the prescribed Service Tax returns i.e. ST-3 returns within the stipulated time for the service categories of “Banking & Financial Service” and “Business Auxiliary Service”.

d)  Section 75 of the Finance Act, 1994 in as much as they had failed to pay the interest on the delayed service tax.

24. All the above acts of contravention on the part of M/s SIHL 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 provisions to Section 73 (1) of the Finance Act, 1994 by invoking extended period of five years. All these acts of contravention of the provisions of Section 67, 68, 69, 70 and 75 of the Finance Act, 1994 read with Rules 6, 4 and 7 of the Service Tax Rules, 1994 appeared to be punishable under the provisions of Section 76, 77 and 78 of the Finance Act, 1994.

25. Moreover, in addition to the contravention, omission and commissions on the part of M/s SIHL as stated in the foregoing paras, it appeared that, they had willfully suppressed the facts, nature and value of service provided by them with an intent to evade payment of Service Tax as “Stock Broking Service”, “Banking & Other Financial Service” and “Business Auxiliary Service” rendering themselves liable for penal action under Section 78 of the Finance Act, 1994.