IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE C.K.ABDUL REHIM TUESDAY, THE 23RD JUNE 2009 / 2ND ASHADHA 1931 C.E.Appeal.No. 21 of 2008() --------------------------- AGAINST THE ORDER DATED 03/09/2007 IN F.O. 1022/2007 IN A.NO..ST/112/2006 of CUSTOMS,EXCISE&SERVICE TAX APP.TRIBUNAL,BANGALORE .................... APPELLANT ----------------------------- THE COMMISSIONER, CENTRAL EXCISE, SERVICE TAX & CUSTOMS, COCHIN COMMISSIONERATE, COCHIN. BY ADV. SRI.P.PARAMESWARAN NAIR,ASST.SOLICITOR SRI.TOJAN J.VATHIKULAM,SC,C.B. EXCISE RESPONDENT(S): --------------- M/S.CAR WORLD AUTOLINE, C-1, AROMA GARDENS, SRM ROAD, COCHIN - 682 018. ADV. SRI.T.SETHUMADHAVAN FOR R1 SRI.PUSHPARAJAN KODOTH FOR R1 SRI.K.JAYESH MOHANKUMAR FOR R1 THIS CENTRAL EXICISE APPEAL HAVING COME UP FOR ADMISSION ON 23/06/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C .N. RAMACHANDRAN NAIR & C. K. ABDUL REHIM, JJ. -------------------------------------------- C.E. Appeal No. 21 OF 2008 -------------------------------------------- Dated this the 23rd day of June, 2009 C.R. JUDGMENT Ramachandran Nair,J. Appeal is filed by the department challenging the order of the Customs, Excise & Service Tax Appellate Tribunal declaring exemption for the respondent from liability for service tax for the period upto 10.9.2004 based on Annexure A2 notification issued by the Central Government. We have heard standing counsel appearing for the appellant and counsel appearing for the respondent. 2. Respondent was engaged by City Bank Ltd. for helping them to advance loans to parties and for recovering the same. Respondent is admittedly engaged in "business auxilliary service" which attracts service tax under Section 65(19) of the Finance Act, 1994. In fact, it is stated in the Tribunal's order that respondent has taken registration and is paying service tax for the business auxilliary service rendered by them from 11.9.2004 onwards. However, the question to be considered is whether Tribunal was justified in holding the respondent's claim of 2 exemption based on clause (e) of the notification No. 25/2004-ST dated 10.9.2004. Clauses (d) and (e) which are relevant for the purpose of deciding this case , are extracted hereunder for easy reference: Notification: 25/2004-S.T. dated 10-Sep-2004 Service tax exemption to part of specified services provided before 10.9.2004. In exercise of the powers conferred by sub-section (1) of Section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereb y exempts that portion of the value of following taxable services, namely,: (a)........... (d) services provided to a client by a commercial concern in relation to the following business auxilliary services, namely,- (i) procurement of goods or services, which are in puts for the client. (ii) production of goods on behalf of the client; (iii) provision or service on behalf of the client; or (iv) a service incidental or auxilliary to any activity specified in (i) to (iii) above; 3 (e) services provided to a customer by any body corporate or commercial concern, other than a banking company or a financial institution including a non-banking financial company, in relation to banking and other financial services; ............ The Tribunal granted exemption to the respondent by relying on clause (e). Standing counsel appearing for the department rightly pointed out that clause (e) has no application for the respondent because respondent was not engaged in rendering banking and other financial services. On the other hand, respondent is liable for payment of service tax for the business auxilliary service rendered by them. The main body of the notification makes it clear that exemption is granted for certain taxable services. Therefore what is required to be considered is the taxable services for which exemption is granted under each and every entries (a) to (h) provided in the notification. Clause (e) provides exemption only to banking and other financial institutions, and exemption is to any body corporate or commercial concern other than banking companies or financial institutions including a non-banking financial institution. Since respondent is not rendering banking and other 4 financial services, exemption provided under clause (e) does not apply to it. On the other hand, respondent is admittedly engaged in business auxilliary service for which exemption is separately dealt with in clause (d). Sub-clauses (i) to (iii) of clause (d) specify the type of services that would be eligible for exemption under the head "business auxilliary service". Sub-clause (iv) is a residuary provision which provides exemption on rendering of services incidental or auxilliary to any of the activities referred to in sub-clauses (i) to (iii). Before declaring eligibility for respondent, the Tribunal should have considered it with reference to the agreement between the parties, the exact nature of service rendered by the respondent to the City Bank Ltd. and whether any of the services so provided falls under any of the categories (i) to (iii) and if so whether any service rendered is incidental to the items of services mentioned in sub-clause (i) to (iii) of clause (d). It is only on being satisfied that the services rendered by the respondent falls on clause (d) that the Tribunal should have declared exemption. Since the matter is not considered by the Tribunal in the light of 5 the interpretation of the notification as above, we set aside the order of the tribunal and remand the matter to the Tribunal for reconsideration of the issue after hearing both sides and after calling for agreement, bills for payments received, etc. from the respondent. Respondent should be given an opportunity to produce records pertaining to clause (d) which they have made in the appeal. (C.N.RAMACHANDRAN NAIR) Judge. (C. K. ABDUL REHIM) Judge. kk 6