This
appeal has been filed by M/s Kamal Auto Industries,
Jhalawar Road, Kota (hereinafter referred to as
"Appellant") against the Order-in-Original No.38/ST/2005
dated 20.11.2005 (hereinafter referred to as the
"Impugned order"), passed by the Assistant Commissioner,
Central Excise Division Kota (hereinafter referred
to as the "Adjudicating Authority").
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2. |
Brief
details of the appeal are that the Appellant is
engaged in providing services as Direct Marketing
Agent/Direct Selling Agent (in short DMA/DSA) of
the finance institutions under the category of business
auxiliary services along with services of authorised
service station. The service tax on services of
business auxiliary services was imposed in the Union
Budget 2003 and the levy was made effective from
01.07.2003. During the scrutiny of details supplied
by ICICI Bank, it was observed that the Appellant
was providing business auxiliary services during
the period from July 2003 to July 2004 but have
not paid Service Tax, thus they evaded service tax
amounting to Rs. 25,394/-.
As per Section 65 of the Finance Act 1994, Business
Auxiliary Service is defined as :-
"...any service in relation to -
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(i) |
promotion
or marketing or sales of goods produced or provided
by or belonging to the client, or
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(ii) |
promotion
or marketing of service provided by the client;
or
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(iii) |
any
customer care service provided on behalf of the
client, or
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(iv) |
any
incidental or auxiliary support service, such as
billing, collection or recovery of cheques, accounts
and remittance, evaluation of prospective customer
and public relation services and includes services
as a commission agent but does not include any information
technology service."
As per Section 65(105) of the Finance Act, 1994,
the taxable service means 'any service provided
to a client by a commercial concern in relation
to business auxiliary service. In the Section 67
of the Finance Act 1994, it has been provided that
for the purpose of payment of service tax, the value
of any taxable service shall be the gross amount
charged by the service provider for such service
rendered by him.
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3. |
Accordingly,
a Show Cause Notice was issued to the Appellant
on 25.08.2005. Adjudicating Authority confirmed
the demand and imposed the penalties and also ordered
to recover interest vide the impugned order.
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4. |
Being
aggrieved with the impugned order, the Appellant
has filed this appeal. Personal hearing was fixed
on 09.03.2006. Man Mohan Lath, FCA appeared on behalf
of the Appellant and reiterated the points made
in the appeal memo. They further submitted that:
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(i) |
The
Appellant is a recognised automobile dealer and
is not a financing agent. The Appellant is in the
business of selling auto vehicles, which in the
present day scenario, cannot be sold unless the
transaction is financed by a financing agency. Thus,
by letting in a financing agency to finance a vehicle,
Appellant is only affecting the sales of its own
vehicles. More so, absence of any principal-agent
relationship is also brought out by a bare perusal
of the agreement executed by the finance company
with the Appellant, which prohibits the Appellant
from making any commitment on its behalf and simultaneously
exonerates the financing company from any commitment
that may be made by the Appellant. Coupled with
this aspect is the fact that the agreement does
not envisage the Appellant to restrict himself to
getting the vehicles being sold by him solely by
financing company but permits it to have similar
arrangement with other similar operators. The agreement
is just a licence for the financing agency to enter
the playing field and merely a contingent contract
for the Appellant envisaging the payment of his
consideration on the execution of finance agreement
between the financing agency and the vehicle buyer
in which execution the Appellant has no say.
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(ii) |
The
Adjudicating Authority has erred in having treated
the amount received from various financing agencies
as remuneration received for services rendered by
the Appellant. It is relevant to point out here
that the Appellant does not provide any service
of whatsoever nature to any financing agency.
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5. |
I
have carefully gone through the case records, Appellant's
submissions made in the grounds of appeal, written
submissions as well as oral submissions made at
the time of personal hearing. I find that the business
auxiliary services have been covered by the Finance
Act 1994 vide Section 65(19). The tax is levied
with effect from 01.07.2003 vide Notification No.
7/2003-ST dated 20.06.2003. Statutory definitions:
Section 65(19): "Business Auxiliary Service"
means any service in relation to: -
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(i) |
promotion
or marketing or sale of goods produced or provided
by or belonging to the client; or
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(ii) |
promotion
or marketing of service provided by the client;
or
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(iii) |
any
customer care service provided on behalf of the
client; or
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(iv) |
any
incidental or auxiliary support service, such as
billing, collection or recovery of cheques, accounts
and remittance evaluation of prospective customer
and public relation service and includes service
as a commission agent, but does not include any
information technology service.
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Section
65(105) (zzb): "Taxable Service" means any service
provided to a client by a commercial concern in
relation to business auxiliary service. The essential
ingredients to levy service tax under the head business
auxiliary service are: -
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(i) |
Promotion
or marketing of the goods or services
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(ii) |
must
be on behalf of the client or for the client
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(iii) |
tax
on the commission received from the client.
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6. |
From
the above, I find that banks are not the client
of the Appellants. The Appellants are the channel
between the customers of the bank and the bank.
They help the customers in getting the loan for
the purchase of the vehicles. The Appellant is giving
services to the clients of the bank. The bank by
no stretch of imagination is the client of the Appellant
and, therefore, there cannot be the tax on the Appellants
as they are out of the scope of the Finance Act
under "Business Auxiliary Services" as the prerequisite
to levy tax is that work must be done for or on
behalf of the client and commission must be received
from the client, whereas in the present case, the
Appellant is sharing their remuneration with the
customers as mentioned in the Show Cause Notice.
Further, the word client is not defined in the Finance
Act but as per Oxford Dictionary by A S Hornby,
the word 'Client' means 'Person who receives help
or advice from a professional person'.
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7. |
Appellant
have a lot of force in their submissions, that the
Appellants are getting the commission from banks
who are the principal for the Appellants. The banks
are not the clients of the Appellants. As required
by the definition of 'Business Auxiliary Services'
the tax is on the commission received from the client.
The Appellants are not getting any remuneration
or fees directly from the client and therefore the
Appellants are not satisfying the requirement of
the definition of 'Business Auxiliary Services'.
In the instant case, there is no value addition
by the Appellant and the Appellants are only getting
the share of the income from the bank out of their
income and out of which also some amount is passed
on to the customer as admitted in the impugned order.
There is no concept of output service at the end
of the Appellants. The Banks provide the service
to the customers and, thus, there is no input or
output service concept at the end of the Appellants.
In the light of the facts, it is clear that the
Appellants are not rendering any services covered
under the definition of 'Business Auxiliary Services'
as contemplated under Section 65(105) (zzb) of the
Finance Act. The Appellants are not getting any
customer/ prospective customer for any commissions
but commission is charged from the clients by the
Banks and then the commission is shared between
the Banks and Appellants. Thus, I hold, the service
provided, in such way is not covered under 'Business
Auxiliary Services'. Adjudicating Authority has
wrongly covered this service under the 'Business
Auxiliary Services'.
The amount received from various financing agencies
as remuneration received for services rendered by
the Appellant. It is relevant to point out here
that the Appellant does not provide any service
of whosoever nature to any financing agency.
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8. |
I
also find that impugned order and the Show Cause
Notice had not spelt out under which specific head
or sub-clause of the definition of the 'Business
Auxiliary Service' attracts the Appellants case.
No justification is given in the impugned order
and the Show Cause Notice that why and how the activity
under question attracts Service Tax. In the light
of the following cases, it can be held that Show
Cause Notice and the impugned order is non speaking
and hence not tenable.
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a) |
In
Mahindra & Mahindra V/s CCE 2001 (129) ELT 188 (CEGAT),
it was held that If Show Cause Notice does not indicate
basis for demand nor any discussion in adjudication
order, the demand is not sustainable".
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b) |
In
the case of Patel Coating Industries Ltd V/s Cenvat
CC reported in 1993 (67) ELT 605 (CEGAT), it was
held "Show Cause Notice must be clear thus if Show
Cause Notice proposes to change a classification
but does not indicate which tariff classification
it wants to adopt the Show Cause Notice is vague
as the assessee can not rebut the charge of misclassification".
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c) |
Also,
in the case of Mehta Pharmaceuticals V/s CCE reported
in 2003 (157) ELT 705 (T) held "Notice which is
ambiguous or capable of interpretation cannot be
ground for sustaining an order based on inference
drawn from the Show Cause Notice".
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9. |
In
view of the above facts and following the ratio
of the above judgements, I hold that demand confirmed
and penalty imposed are not sustainable. Therefore,
I set aside the impugned order and allow the appeal.
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10. |
The
appeal is, therefore, allowed in the above manner.
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