OIO NO. 63/STC-AHD/ADC(MKR)/2011-12 Page 1 of 26

OIO NO. 63/STC-AHD/ADC(MKR)/2011-12 Page 1 of 26

BRIEF FACTS OF THE CASE:-

M/s. Chiranjeet Prakashbhai Vyas, C/o M/s. Sai Financial Services, 401, Sursarthi Complex, Opp. Central Bank of India, Ambawadi Circle, Ahmedabad-380006 (hereinafter referred to as “the said service provider”) are holding PAN No. ABGPV4707Q and are engaged in providing taxable services under the service category of ‘Business Auxiliary Services.’ The said assessee had applied for service tax registration with the department and was issued service tax registration number ABGPV4707QST001 in the name of M/s. Sai Financial Services on 28/10/2004 under the service category of ‘Business Auxiliary Services.’

2. Whereas during the review of Business Auxiliary Services conducted by CERA, it was noticed that the said service provider had provided taxable services and had received Commission/labour charges to the tune of Rs.55,86,478/- during 2005-2006 & Rs.54,93,565/- during 2006-2007 and the same had been reflected in their Profit & Loss Account.

3. As per the verification of Profit & Loss Account done during the course of Audit, it was noticed that the said service provider had provided taxable services as per the following details:-

Year / Amount of Income as per P/L A/c / Rate of Service Tax / Service Tax payable / Service Tax Paid
2005-2006 / 5586478 / 10.20% / 569821 / 0
2006-2007 / 5493565 / 12.24% / 672412 / 0
Total / 11080043 / 1242233 / 0

4. Whereas, further scrutiny of records had revealed that the said service provider had been rendering taxable services and had not been paying any service tax to the government on the taxable services rendered and the income received thereon.

5. Thus, it appeared that the said service provider had provided taxable services during the financial years 2005-2006 & 2006-2007 and had received income/commission/labour charges on such services rendered by them and not paid any service tax on the income received. Such short payment of service tax by the said service provider was to the tune of Rs.5,69,821/- during 2005-2006 & Rs.6,72,412/- during 2006-2007. The taxable services provided by the said service provider are covered under clause 65(19)(vii) of the Finance Act, 1994 and under definition 65(105)(zzb) of the Finance Act, 1994.

6. Further inquiry was initiated by the department for the subsequent financial years 2006-2007, 2007-2008, 2008-2009 & 2009-2010. The said service provider was issued summons on 04/10/2010 and was asked to submit details regarding the value of taxable services rendered by them during the period 2006-2007, 2007-2008, 2008-2009 & 2009-2010. As a part of submissions to the summons issued, the said service provider submitted copies of their Balance Sheet and Profit & Loss account for the entire period i.e. from 2005-2006 upto 2009-2010.

7. Whereas, a statement of Shri Chiranjeet P. Vyas, Proprietor of M/s. Sai Financial Services, Ahmedabad was recorded before the Superintendent of Service Tax, AR-XIII, Div-III, Ahmedabad on 05/10/2010 under section 14 of the Central Excise Act 1944 made applicable to service tax under Section 83 of the Finance Act, 1994 wherein he stated that M/s. Sai Financial Services came into existence during 2001-02; that the said firm is engaged in promotion & marketing of mutual funds promoted by mutual fund companies like Franklin Templeton, Birla Mutual Fund, HDFC Mutual Fund, Reliance Mutual Fund, Sundaram Mutual Fund, SBI Mutual Fund and other small funds; that they contact retail investors who are interested in investing money in mutual funds; that they advise retail investors about various instruments in which they can invest; that once the investor selects the instrument, they collect the investment from the investor by way of cheque and deposit the same in the instrument of their choice; that once the investment is accepted by the instrument, they are paid commission by the mutual fund company which is paid to M/s. Sai Financial Services by way of cheque payment. He further stated that they had not file service tax returns with the department after taking the registration; that they are receiving commission from the mutual fund companies on monthly basis; that such commission paid by the mutual fund companies is received by them after deduction of service tax due on such commission; that they were of the opinion that since service tax is already deducted by the mutual fund companies; they are not having any service tax liability and hence they did not have to file any service tax returns. On being asked he further stated that, they receive brokerage commission from the mutual fund companies which mention the amount of service tax deducted by the companies against the commission due t o them; that, they had never ascertained from the mutual fund companies as to whether the amount of service tax deducted by the companies had been deposited in the government account; that they were of the belief that since the companies had already collected the service tax, they would have deposited the same in the government account. He further stated that the brokerage income received from them is exclusive of service tax; that the brokerage income is the commission paid to them by the mutual fund companies for promotion and sale of their mutual funds; that the mutual fund companies had not issued them any yearly certificates regarding the tax being deducted by them; that the amount of service tax being deducted by the companies were mentioned on the monthly brokerage commission sheets issued to them by the companies. He further stated and admitted that it was their mistake that they did not procure the necessary documents from the mutual fund companies that would enable them to discharge their tax liabilities; that it was out of their genuine understanding that since the mutual fund companies were already collecting the service tax, their tax liabilities are being taken care of and they need not undertake any further actions towards their tax liabilities; that a lenient view may be taken in their case as the mistake on their part is on account of genuine mis-understanding about service tax rules and regulations; that they undertake to fulfill all requirements towards fulfillment of their tax liabilities; that they are in the process of collecting details of service tax collected by the mutual fund companies during the period 2005-06 to 2009-10 and that they would be submitting the said details within 10 days. He further stated that M/s. Sai Financial Services had ceased to exist since 2009 and that there is no business being transacted in the name of M/s. Sai Financial Services.

8. Whereas as per the documents submitted by the said service provider during 2005-2006 to 2009-10, the details of total taxable services rendered by the said service provider during the said period and the amount of short payment of service tax during the said period is as under:-

Year / Amount of Income as per P/L A/c / Rate of Service Tax / Service Tax payable / Service Tax Paid
2005-2006 / 5586478 / 10.20% / 569821 / 0
2006-2007 / 5493565 / 12.24% / 672412 / 0
2007-2008 / 9331387 / 12.24% / 1142162
2008-2009 / 4629466 / 12.36% / 572202
2009-2010 / 854632 / 10.30% / 88027
Total / 2,58,95,528 / 30,44,624 / 0

9. Whereas, Business Auxiliary Service was brought under the purview of Service Tax with effect from 01.07.2003 vide Notification No 07/2003-ST, dated 20.03.03. The Business Auxiliary Services is defined under Section 65 (19) of the Finance Act, 1994.

As per Section 65 (19) of the Finance Act, 1994, the Business Auxiliary Service means:-

(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 input for the client;

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 or 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 or 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 services, management or supervision, and includes services as a commission agent, but did 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.

Explanation – For the removal of doubts, it is hereby declared that for the purposes of this clause,

(a)  “Commission agent” means any person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration, and includes any person who, while acting on behalf of another person –

(i)  deals with goods or services or documents of title to such goods or services; or

(ii)  collects payment of sale price of such goods or services; or

(iii)  guarantees for collection or payment for such goods or services; or

(iv)  undertakes any activities relating to such sale or purchase of such goods or services;

(b)  information technology service “means any service in relation to designing, developing or maintaining of computer software, or computerized data processing or system networking, or any other service primarily in relation to operation of computer systems.

Further, as per Section 65 (105) (zzb), the taxable service means any service provided or to be provided to a client, by any person in relation to business auxiliary service. Therefore the taxable services provided by the said service provider are covered under clause 65(19)(vii) of the Finance Act, 1994 and under definition 65(105)(zzb) of the Finance Act, 1994. Thus, the service provider has provided Business Auxiliary Service, but did not pay due service tax. The nature of this particular service has also been clarified by the Board vide Circular No. 97/7/2007-ST dated 23.08.2007.

10. Whereas, as per Provision of Section 68 of Finance Act, 1994 read with Rule 6 of Service Tax Rule 1994 as amended, every person providing taxable service to any person liable to pay service tax at the rate prescribed in Section 66 to Central Government by the 5th of the month / quarter immediately following the calendar month / quarter in which the payments are received towards the value of taxable services (except for the month of March which is required to be paid on 31st March).

11. Whereas, according to Section 70 of the Finance Act, 1994 every person liable to pay service tax is required to assess the tax himself due on the services provided by him and thereafter furnish a return to the jurisdictional Superintendent of Service tax by disclosing wholly & truly all materials facts in ST-3 returns. Whereas the said assessee had not disclosed full, true and correct information about the value of the service provided by them. Thus, it appeared that there is a deliberate withholding of essential and material information from the department about service provided and value realized by them. It appeared that all these material information had been concealed from the department deliberately, consciously and purposefully to evade payment of service tax. Therefore, in this case all essential ingredients exist to invoke the extended period under proviso to Section 73 (1) of Finance Act 1994 to demand the Service tax not paid.

12. Whereas, as per Section 75 ibid every person liable to pay the tax in accordance with the provisions of Section 68, or rules made thereunder, who fails to credit the tax or any part thereof to the account of the Central Government within the period prescribed is liable to pay simple interest (as such rate not below ten per cent and not exceeding thirty six per cent per annum, as is for the time being fixed by the Central Government, by Notification in the Official Gazette) for the period by which such crediting of the tax or any part thereof is delayed.

13. Whereas, it appeared that the assessee had not discharged their service tax liability correctly under the service categories of Business Auxiliary Services for the period from 2005-06 to 2009-10 by not filing regular service tax returns and thereby seeking to suppress taxable value of Services rendered and thereby, they had contravened the provisions of section 67 of the Finance Act 1994 in as much as that they failed to determine the correct value of taxable service provided by them, Section 68 of the Finance Act 1994 read with rule 6 of The Service Tax Rules 1994, in as much as that they failed to determine and pay the correct amount of service tax.

14. The government had from the very beginning placed full trust on the service provider so far service tax is concerned and accordingly measures like Self-assessments etc., based on mutual trust and confidence are in place. Further, a taxable service provider is not required to maintain any statutory or separate records under the provisions of Service Tax Rules as considerable amount of trust is placed on the service provider and private records maintained by him for normal business purposes are accepted, practically for all the purpose of Service tax. All these operate on the basis of honesty of the service provider; therefore, the governing statutory provisions create an absolute liability when any provision is contravened or there is a breach of trust placed on the service provider, no matter how innocently. From the evidence, it appeared that the said service provider had not taken into account all the incomes received by them for rendering taxable services for the purpose of payment of service tax and thereby minimize their tax liabilities. The deliberate efforts in not filing the service tax returns and not paying the correct amount of service tax in utter disregard to the requirements of law and breach of trust deposed on them such outright act in defiance of law appears to had rendered them liable for penal action as per the provisions of Section 78 of Finance Act 1994 for suppression, concealment and furnishing inaccurate value of taxable service with intent to evade payment of service tax.