Custom, Excise & Service Tax Tribunal

Sahara India vs Ce & Cgst Lucknow on 29 January, 2024

CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
ALLAHABAD

REGIONAL BENCH - COURT NO.I

Service Tax Appeal No.979 of 2009

(Arising out of Order-in-Original No.16/Commissioner/LKO./CX/2009 dated
31/08/2009 passed by Commissioner of Customs, Central Excise & Service
Tax, Lucknow)

M/s Sahara India, .....Appellant
(Sahara India Bhawan-I,
Kapoorthala Complex, Aliganj, Lucknow)
VERSUS

Commissioner of Central Excise, Lucknow ....Respondent
(7A Ashoka Marg, Lucknow)

APPEARANCE:
Shri B.L. Narasimhan, Advocate &
Shri Prakhar Shukla, Advocate for the Appellant
Shri Deepak Kumar, Special Authorized Representative for the
Respondent

CORAM:

FINAL ORDER NO.70036/2024

DATE OF HEARING : 29 August, 2023
DATE OF PRONOUNCEMENT : 29 January, 2024

SANJIV SRIVASTAVA:

This appeal is directed against Order in Original No
16/Comm/LKO/CX/09 dated 31.08.2009 of the Commissioner
Central Excise Lucknow. By the impugned order following has
been held:

"ORDER

In the facts and circumstances of the case and in view of
the discussions and findings in the foregoing paragraphs:

1. I confirm demand of Service Tax amounting to
Rs.80,99,58,723.00 (Rupees Eighty Crore Ninety Nine Lacs
Service Tax Appeal No.979 of 2009

Fifty Eight Thousand Seven Hundred and Twenty Three
only) on M/s Sahara India, Sahara Bhawan-1, Kapoorthala
Complex, Aliganj, Lucknow in respect of ―Business Auxiliary
Services‖ rendered by them to SIFCL during the period
01.07.03 to 31.07.06. I appropriate the amount of Rs 10
Crores deposited by them. I direct them to pay the balance
forthwith.
2. I also direct M/s Sahara India, Sahara Bhawan-1,
Kapoorthala Complex, Aliganj, Lucknow to pay interest at
applicable rates, in terms of
Section 75
of the Finance Act,
1994.
3. I impose a penalty of Rs 80,99,58,723.00 (Rupees Eighty
Crore Ninety Nine Lacs Fifty Eight Thousand Seven Hundred
and Twenty Three only) under
Section 76
Finance Act,
1994. I direct them to pay the penalty forthwith.
4. I impose a penalty of Rs 1000.00 (Rupees One Thousand
only) under
Section 77
Finance Act, 1994. I direct them to
pay the penalty forthwith.
5. I also impose a penalty of Rs 80,99,58,723.00 (Rupees
Eighty Crore Ninety Nine Lacs Fifty Eight Thousand Seven
Hundred and Twenty Three only) under
Section 78
Finance
Act, 1994. I direct them to pay the penalty forthwith.‖

2.1 Appellant is a partnership firm engaged in mobilizing
deposits from the public under various deposit schemes of M/s
Sahara India Financial Corporation Limited (SIFCL). With effect
from 01.011.2005 SIFCL also became a partner in the
partnership firm of appellant.

2.2 Appellant entered in MOU with the SIFCL dated
01.04.2001, 20.09.2003 and 23.05.2006. As per the MOU
appellant was required to undertake following activities:

o To conduct, promote, introduce and secure business on
behalf of SIFCL under various schemes floated by SIFCL;
o To collect requisite amount from participating members of
these schemes and remit it to SIFCL.
Service Tax Appeal No.979 of 2009

o To issue receipts to the members in the name of SIFCL
only.
o To arrange the payments of maturity/ pre maturity/
secured loan to the depositors against the deposits made
by them under the various schemes, on behalf of SIFCL.

As per MOU in lieu of above SIFCL will pay to the appellant an
amount towards expenses incurred in running of its offices for
administering these schemes. The amount paid will be
determined in following manner:

o 5%/ 6% of the opening balance of the audited aggregate
deposit liability under various schemes on account of daily
deposit and recurring deposit as on 1st April of each
financial year;
o 0.25%/ 2% of the opening balance of the audited
aggregate deposit liability under various schemes on
account of fixed deposits as on 1st April of each financial
year;
o Provided that the total consideration as computed above
shall not exceed 3.75% of the aggregate deposit liability as
on 1st April of each financial year.

2.3 Acting on the intelligence that the appellant were evading
the payment of service tax under the category of Business
Auxiliary Services, DGCEI initiated investigations against the
appellant. The investigation culminated into Show Cause Notice
dated whereby appellants were asked to show cause as to why:

i) Service tax amounting to Rs 87,76,30,381/- (Rupees
Eighty Seven Crore Seventy Six Lakh Thirty Thousand
Three Hundred and Eighty One only) and Education
Cess amounting to Rs 1,23,76,789/- (Rupee One Crore
Twenty Three Lakh Seventy Six Thousand Seven
Hundred and Eighty Nine only) not paid by the should
not be demanded and recovered from them in terms of
Sub
section 1(a)
/ proviso to sub-
section 1
of
section 73

of the Finance Act, 1994. Service tax amounting to Rs
Service Tax Appeal No.979 of 2009

10 (ten) Crore already paid by them under protest
should not be appropriated against the amount supra.
ii) Interest at the appropriate rate on the said amount of
service tax and education cess should not be charged
and recovered from them in terms of
Section 75
of the
Finance Act, 1994.
iii) Penalty should not be imposed upon them in terms of

Section 76
and
of the Finance Act, 1994.
iv) Penalty should not be imposed upon them under

Section 78
of the Finance Act, 1994.

2.4 The show cause notice was adjudicated as per the
impugned order referred in para 1 above. Aggrieved appellants
have filed this appeal.

3.1 We have heard Shri B. L. Narasimhan and Shri Prakhar
Shukla, Advocates for the appellant and Shri Deepak Kumar
Special Counsel for the revenue.

3.2 Arguing for the appellant learned counsel submits that:

⮚ Show cause notice and impugned order has classified the
activities undertaken by them as business auxiliary service
under sub-clause (ii) and (iv) of
Section 65 (19)
for the
period prior to 10.09.2004 and under sub clause (ii), (vi)
and (vii) of
Section 65 (19)
for the period post to
10.09.2004. Same activity could not have been classified
under multiple categories during the same period and
during the different periods as has been held in following
decisions
o ESS GEE Real Estate Developers Pvt Ltd [2020 (34)
GSTL 486 (T-Del)] affirmed by Hon‟ble Supreme
Court as reported at [2020 (34) GSTL J 93 (SC)]
o CERSAI [2023 (4) TMI 435 (CESTAT-Delhi)]
o Incredible Unique Buildcon Pvt Ltd. [2022 (65) GSTL
377 (T-Del)]
⮚ For the period post 10.09.2004, classification has been
made under (vi) while holding it to be classifiable under (ii)
for the period prior. Both the clause are mutually
Service Tax Appeal No.979 of 2009

exclusive. In fact all the seven clauses of
Section 65 (19)

are mutually exclusive.
⮚ Clause (iv) of
Section 65 (19)
as it stood before
10.09.2004 and clause (vii) after 10.09.2004, relating to
incidental and auxiliary activities are not stand alone
activities and unless those are rendered in relation to the
other activities mentioned in the previous clauses as has
been held in following decisions:
o Atlas Documentary Facilitators Co Pvt Ltd. [2017
(50) STR 22 (T-Mum)
o Federal bank Ltd. [2008 (10) STR 320 (T-Bang)]
⮚ Sub clause (i) of
Section 65 (19)
has been impliedly given
up by the ld Commissioner, while holding that the activity
of accepting deposits is rendering of service and hence
covered by sub clause (ii). Reliance placed on the circular
dated 05.11.2003 is incorrect as this circular has been
quashed by Hon‟ble Andhra Pradesh High Court in Karvy
Securities Ltd. [2006 (2) STR 481 (AP)]
⮚ Services rendered by the appellant to SIFCL can be
classified under any of sub clauses of
Section 65 (19)
only
if the activity of accepting the deposits from the customers
can be treated as service in as much as all the relevant
sub clause refer to ‗service provided by the client'.
Commissioner has held that SIFCL is in business of
accepting deposits and since the same is not goods, that
amount to service. This is contrary to the decision in case
of Jetlite [2011 921) STR 119 (T-Del)], Steria India Ltd.
[2017-TIOL-3837-CESTAT-ALL];
⮚ Accepting deposits from the customers cannot be
considered as „service‟ since the most important element
of service, i.e., consideration is absent as much as
contractually there is no consideration either paid or
payable by the customer.
⮚ After introduction of Support Services of Business or
Commerce under
Section 65 (104c)
of the Act from
01.05.2006 for the same very activity appellant has taken
Service Tax Appeal No.979 of 2009

registration under this category, and hence no tax can be
demanded under any other category for the previous
period. Reliance is placed on the following decisions:
o Indian national Shipowners‟ Association [2009 (14)
STR 289 (Bom)]
o CBRE South Asia Pvt Ltd [2020-TIOL-197-CESTAT-
Del] affirmed by Hon‟ble Supreme Court as reported
at [2021-TIOL-06-SC-ST-LB]
o Malviya national Institute of Technology [2019 (6)
TMI 127-CESTAT NEW DELHI]
o Sourav Ganguly [2020-TIOL-1687-CESTAT-KOL]
o Global Coal & Mining Pvt Ltd. [2020 (36) GSTL 77 (T-
Delhi)]
o Capital transport Convoy Contractors [2016 (2) TMI
546 CESTAT NEW DELHI]
⮚ Extended period of limitation is not invokable since the
appellant was under bonafide belief that the activities
performed by them are not taxable under the category of
business auxiliary services.
⮚ For the same reason the penalty is also not imposable.
⮚ They are entitled to claim deduction of the reimbursable
expenses from the gross amount charged in view of the
decisions as follows:
o Intercontinental Consultants and Technocrats Pvt
Ltd. [2012-TIOL-966-HC-DEL-ST] affirmed by the
Hon‟ble Supreme Court at [2018 (10) GSTL 401
(SC)]

3.3 Arguing for the revenue learned special counsel submits
that-

⮚ Appellant activities are covered under the taxable category
of Business Auxiliary Service under clause (ii) and (iv) ibid
for the period 01.07.2003 to 09.09.2004.
⮚ The word service used in (ii) is service and not taxable
service. This clause will be applicable if the service is
provided by the appellant to service recipient, even if the
Service Tax Appeal No.979 of 2009

service provided by the recipient does not fall within the
category of taxable service. It is a settled principle in law
that the taxing statute should be interpreted literally.
Reliance is placed on the following decisions;
o Reliance Industries [2017 (6) GSTL 113 (SC)]
o ALD Automotive [2018 (364) ELT 3 (SC)]
o Doypack System Pvt Ltd [1988 (36) ELT 201 (SC)]
o Hemraj Govardhan Das [1978 (2) ELT J 350 (SC)]
o Bhalla Enterprise [2004 (173) ELT 225 (SC)]
⮚ The contention of the appellant that for service to fall
under promotion or marketing of service provided by
client, the service recipient must be service provider for
some service, is correct but their conclusion that the
service provided by the service recipient should be
different than the service provided to them by the
appellant is erroneous.
⮚ The client of the appellant is engaged in the service of
encouraging saving habits among the public & to accept
deposits as per directive of RBI whereas the appellant is
engaged in providing services to SIFCL by promoting or
marketing the service provided by their client SIFCL. Thus
adjudicating authority has rightly concluded that the
services of the appellant are covered by clause (ii) & (iv)
under BAS for the period 01.07.2003 to 09.09.2004.
⮚ The appellant‟s activities are covered under the clause (vi)
of
Section 65 (19)
ibid for the period 10.09.2004 to
31.07.2006.
⮚ Appellants have contended that the (ii) of
Section 65 (19)

continued as such even after introduction of (vi) in the said
section with effect from 10.09.2004. Their contention
relying on certain case laws to effect that, if the activity
was covered under the (ii) then how can the same be
classified again under (vi) is without any substance.
Normally this would not happen, but when a more specific
entry is introduced for defining the same service rendered
then the classification has to be done as per the specific
Service Tax Appeal No.979 of 2009

entry.
Section 65 A
of the Finance Act, 1994 provided for
the application of this principle for classifying the services
which are classifiable under more than one entries. The
decisions referred to by the learned counsel are
distinguishable. Thus it is possible that the same activity of
the appellant is classifiable with reference to (ii) of
Section
65 (19)
up to 9.10.2004 and with reference to (iv)
thereafter.
⮚ The contention of the appellant that (vi) is applicable only
if SIFCL is rendering any taxable service to its clients
namely depositors as it is not the case that accepting of
deposit is in the nature of taxable service. It has been
stated earlier also that the phrase used in
section 65 (19)
(vi)
is service and not taxable service. Thus this contention
is not tenable.
⮚ Further the contention that SIFCL is not their client and
hence (vi) will not be applicable is also not tenable.
Existence of client (service receiver), service provider and
payment of service charge are 3 parameters for levy of
service tax. The contention of the appellant that SIFCL is
not their client is based on the ground that they do not
render any professional service to them. Black Law
Dictionary defines client and the appellants have been
engaged by SIFCL for supporting the professional line of
work relating to acceptance deposits under various
schemes and loans floated by the SIFCL, which in absence
of appellant would have been carried out by the SIFCL.
This implies that SIFCL is a client, when all three
parameters referred above are satisfied.
⮚ MOU provided that appellant was required to work as an
agent of SIFCL; to secure business on behalf of SIFCL, to
issue receipt to the depositors in the name of SIFCL, to
issue receipt to the depositors in the name of SIFCL and to
render services to SIFCL through its various office. Thus
appellants were providing all the services on behalf of
SIFCL and were receiving consideration for the same.
Service Tax Appeal No.979 of 2009

Hence they have provided service on behalf of their client.
Thus the contention that the post 10.09.2004 their
services cannot be classified as provision of service on
behalf of client is not correct.
⮚ Appellant had never earlier raised the contention that their
activities were correctly classifiable as "Business Support
Services" either before the adjudicating authority or in the
appeal memo and has raised this contention for the first
time during hearing. The raising of this plea at the time of
final arguments is contrary to settled law on the subject as
per decisions in case of:
o Modern Industries Ltd. Vs Oriental Insurance Co Ltd.
[2000 (2) SCC 734]
o DLF Ltd. [2014 (302) ELT 303 (T-Ahmd)].
⮚ Further in terms of the clarification dated 28.02.2006 [F
No 33/4/2006-TRU)] the services rendered by the
appellant were correctly classifiable as BAS
⮚ In the same clarification it has been stated ―For the sake of
clarity and ease of classification, certain categories of
services are clubbed together, and a new service category
created. Some of the newly specified services may also
contain services which are presently covered under some
of existing services. The scope and coverage of individual
service should be interpreted strictly in accordance with
the statutory provisions. This aspect needs to be kept in
mind while classifying the taxable services.‖ In view of the
above clarification also the contention made by the
appellant that services provided by them are correctly
classifiable under BSS is not correct, particularly when the
said services are taxable under the category of BAS.
⮚ Appellants have not indicated any basis of claiming the
classification under the category of BSS. At Sr No 11 on
page 363 of the paper book appellant has themselves
declared the ―Nature of Service: The firm is engaged in
services to provide office space along with infrastructural
facilities like telephone security etc., from its branches in
Service Tax Appeal No.979 of 2009

India which is taxable under Business Support Service.
Therefore, we are liable to pay Service Tax under the said
category with effect from 1.05.2006.‖ From this it is seen
that appellant has taken registration under this category in
respect of services which are not in dispute in the present
proceedings. Just for the reason that the appellant had
obtained registration under the category of BSS will not
exclude the applicability of the BAS in respect of activities
undertaken prior to it.
⮚ Appellants claim for reimbursable expenses has not been
denied by the adjudicating authority, it has been
disallowed for the reason that the appellants were not able
to produce clinching evidence in this regard. The claim
made can be allowed subject to production of such
evidences before the original authority.
⮚ Appellants have not adduced any evidence about the basis
on which they entertained bonafide belief that their
activities were not taxable as BAS, hence the invocation of
extended period to demand this tax for period 2003 to
2006 by invoking extended period of limitation can be
faulted with.
⮚ Adjudicating authority has in her order recorded that
conditions prescribed under Sub Rule 7 (4) have not been
fulfilled as the appellant has neither obtained registration
nor submitted the relevant documents as specified under
Rule 4 and 9. Their contention that the exercise is revenue
neutral does not serve any purpose as taking CENVAT
Credit, statutory provision of said rules has to be fulfilled
by them.
⮚ The appeal has no merits.

4.1 We have considered the impugned order along with the
submissions made in appeal, during the course of arguments and
in the written submissions filed by both the sides.

4.2
Section 65 (19)
of the Finance Act, 1994 as amended from
time to time during the period of dispute as relevant for these
Service Tax Appeal No.979 of 2009

proceedings is reproduced below:
Period up to 09.10.2004

(19) ―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) any incidental or auxiliary support services such as
billing, collection or recovery of cheques, accounts
and remittance, evaluation of prospective customer
or public relation services,

and includes services as commission agent, but does not
include any information technology service.

Post 09.10.2004

(19) ―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 client; or
(v) production of goods on behalf of the client; or
(vi) provision of services on behalf of the client; or
(vii) any service incidental or auxiliary to any activity
specified in sub-clauses (i) to (vi), such as billing,
collection or recovery of cheques, payments,
maintenance of accounts and remittance, inventory
management, evaluation or development of
Service Tax Appeal No.979 of 2009

prospective customer or vendor, public relation
services, management or supervision,

and includes services as 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 of 1944)

4.3 From the definition of Business Auxiliary Service as per

Section 65 (19)
reproduced as above it is quite evident that for
the period up to 09.10.2004, the clause (ii) was with reference
to promotion and marketing of services provided by the client
and clause (iv) was with reference to the incidental or auxiliary
support services provided to the client. The clause (i), (ii), (iii) &
(iv) were mutually exclusive and referred to different categories
of activity which need not necessarily be in relation to the
taxable service provided by the client. Counsel has argued that
the client of appellant is in business of accepting deposits, which
per-se is not a service hence the clause (ii) and (iv) of
section 65
(19)
would not be applicable to them, and their services cannot
be taxed under this category. On the contrary Commissioner has
in the impugned order applied this clause to hold that the
services provided by appellant to fall under the category of
"business auxiliary services by application of these two clauses.
To understand the exact purport of the word „service‟ used in
this clause we need have no option but to refer to the general
understanding of the word service as the same has not been
defined in the
Finance Act,1994
.

4.4 Commissioner has in impugned order observed as follows:

―16 The demand of service tax as per the notice issued
by DGCEI, New Delhi on the noticee is primarily on the
basis of partnership deed and MOU's consisting of
covenant of agreement between the Noticee and SIFCL.
The essence of the MOUs therefore has to be critically
examined. The salient features of the MOUs are
recapitulated below;-
Service Tax Appeal No.979 of 2009

16.1 M/s SIFCL is a residuary Non Banking Companies
and makes investment as per directive issued by RBI from
time to time. The deposits received by M/s SFICL is
required to be invested as per directions given by RBI. M/s
SIFCL had been incorporated with a view to carry on as
principal business of encouraging saving habits among
public and to accept deposits in accordance with the
directives issued by Reserve Bank of India for a Residuary
No Banking Companies and shall not carry on the business
as banned under
Banking Regulation Act, 1949
, and Prize
Chits and Money Collection Scheme (Banking) Act, 1978.

16.2 The noticee was continuing facilitating successful
launching/ running of the saving schemes floated by M/s
SIFCL by utilizing its large and well organized
infrastructure as per the MOUs and above MOU were duly
approved by Central Government under
Section 297
of the
Companies Act, 1956, as per the approval letter received
from the office of the Regional Director 9NR) department
of Company Affairs Govt. of India.

16.3 The Noticee has already built up well equipped
infrastructure facilities, having more than 1500 offices
with, the required manpower at various places and in
different parts of country. The staff & officers of the
noticee have sufficient professional expertise for running
business of savings & finance, as they have been doing it
since last many years & whereas the noticee is also able to
provide field staff & field force like Agents, Field Officers
etc., which are necessary & required for carrying on &
conducting business as Residuary Non Banking Financial
Institution.

16.4 As per the agreement with SIFCL, the noticee
continued to act as an agent for receipt of fixed deposits
and render the service mentioned in the agreement. With
all service conditions and facilities readily available with
the noticee, M/s SIFCL has contacted the Noticee to
Service Tax Appeal No.979 of 2009

continue its cooperation with M/s SIFCL to enable them to
continue its relationship to promote and manage its
business of para banking and the Noticee has agreed to
continue its business co-operation with M/s SIFCL and to
continue to act as Agent to M/s SIFCL for its para banking
related business activities which have been discussed
amongst parties and have been mutually agreed among
themselves.

The Agreements covenant as under:

16.4.1 The noticee shall continue to work as Agent to
Sahara India Financial Corporation Limited to conduct,
promote, introduce and secure business on behalf of M/s
SIFCL under all its scheme which may be changed, varied,
suspended and modified from time to time as per the
instructions of M/s SIFCL.

16.4.2 The noticee shall collect the requisite amount
from the participating members of saving schemes and
shall remit it to M/s SIFCL the amount so collected through
its branches along with the statements of accounts.
Further the receipt shall be issued to the members in the
name of M/s SIFCL. The noticee shall also arrange on
behalf of M/s SIFCL for payments of maturity/ pre
maturity/ secured loan to the depositors against the
deposits made by the Depositors under various saving
schemes run by M/s SIFCL.

16.4.3 The noticee shall submit to M/s SIFCL
statement of accounts or such other information as M/s
SIFCL may require from time to time for its financial data
or other matters.

16.4.4 The noticee shall render the services to M/s
SIFCL through its various offices being presently run by
opening new offices or shifting the offices from one place
to other, through its staff and officers and shall keep it
manpower aware of the various directions issued by RBI to
Residuary Non Banking Financial companies (RNBC's)
Service Tax Appeal No.979 of 2009

16.4.5 The noticee shall be required to give 30 day
notice to Sahara India Financial Corporation Limited prior
to opening of an branch office for mobilization of public
deposits and prior public notice of three month in leading
newspapers before closing a branch shall be given by the
noticee with intimation to M/s SIFCL.

16.4.6 It is agreed by the parties in MOU's that M/s
SIFCL shall pay the noticee towards expenses incurred in
running of its office branches and rendering all services as
agent under the provision contained therein. An amount
computed, as per the following manner, of the opening
balance of audited aggregate deposit liability of M/s SIFCL
as on 1st April of every financial year shall be paid to the
noticee by Sahara India Financial Corporation Limited in
the following manner:

a) 5% of the opening balance of audited aggregate
deposit liability under various scheme on account of
daily deposit and recurring deposit of M/s Sahara
India Financial Corporation Limited as on 1st April of
each financial year; and
b) 0.25% of the opening balance of audited aggregate
deposit liability under various scheme on account of
fixed deposit of Sahara India Financial Corporation
Limited as on 1st April of each financial year.

Provided that the total consideration as referred to above
in sub-clause a) and b) shall not exceed 3.75% of the
aggregate deposit liability as on 1st April of each financial
year as outstanding in the books of M/.s SIFCL. The
amount payable to M/s Sahara India shall be paid in four
quarterly installments.

16.4.7 The noticee shall remit to M/s SIFCL the net
amount of deposits collected by the noticee under the
various schemes of deposits run by M/s SIFCL after
meeting all commitments for payments to depositors under
all categories as set out in the respective deposit schemes.
Service Tax Appeal No.979 of 2009

16.4.8 M/S SIFCL will allow the noticee to retain an
amount equivalent to the sum required for meeting
maturities/ pre maturities/ secured loan for the succeeding
fortnight, out of collection of deposits under various
deposit schemes. The sum so retained with the noticee
shall not bear any interest and will be used to meet the
requirements of prompt payments of maturities, pre
maturities, secured loan, death help etc., as set out in
various deposit schemes.

16.4.9 M/S SIFCL has right to appoint at its cost any
officer and/ or inspector and/ or firm of Chartered
Accountants for verification of deposits liability, maturity/
pre maturity payments, death help, loan to members, and/
or expenses which are borne by M/s SIFCL and incurred by
noticee

16.4.10 M/s SIFCL shall have the right to appoint any
other Agent/ Agents to promote and secure its business
and the noticee shall have no objection to any such
appointment.

16.4.11 The staff officer of the noticee shall continue to
remain the employees of the noticee and M/s SIFCL shall
have no lien on any of employees, assets, tenancy
agreements etc.

16.4.12 Any change in the constitution of the noticee
following its re-constitution in future shall not affect the
carrying out of this agreement.

17. Another Memorandum of Understanding effective
from 01.04.2006 was entered between the noticee and M/s
SIFCL was submitted which was also scrutinized, differs
from the earlier agreement in as much as the Noticee shall
act as an agent to m/s SIFCL and shall collect deposits
from public through different scheme framed by M/s SIFCL
and tender money so collected immediately of M/s SIFCL
the consideration agreed by the parties to this MOU which
the SIFCL would pay against the services of M/s Sahara
Service Tax Appeal No.979 of 2009

India equivalent to 6% of the deposit collections during the
period from 01.04.2006 to 30.09.2006 under its daily and
recurring deposit schemes and 2% of deposit collections
during the period from 01.04.2006 to 30.09.2006 under its
fixed deposit schemes for performance of functions as an
Agent.

18. In view of the above following issues emerge for
determination in these adjudication proceedings:-

18.1 whether during the relevant period there is provision
of ‗taxable service' in the nature of ―Business Auxiliary
Services‖ as provided by the Noticee to M/s SIFCL and
whether Noticee is liable to pay Service Tax on the same:

18.2 Whether, the value of ―Business Auxiliary Services‖
has escaped assessment and suppression of material facts
with intent to evade payment of Service Tax, the extended
period of demand for relevant period under
Section 73
of
FA'94 was invokable.

18.3 Whether the payout/ commission received by the
noticee was cum service tax for the period of demand
show cause notice.

18.4 Whether the CENVAT Credit on the input service was
admissible to the Noticee during the period of demand.

18.5 Whether the Noticee is liable to penalty under

Section 76
,
&
of the FA'94 for violation of different
provisions of the FA'94.‖

....

20.3 The Noticee's further main contention is that M/s
SIFCL is not engaged in the providing any service or sale
of goods. The deposit accepted by them is required to be
invested as per the direction of RBI. The deposits are
actionable claim and money which are an actionable claim
and money which are not goods as per definition of goods
given in sales of
Goods Act, 1930
. It is submitted that M/s
SIFCL does not deal in goods and also do not provide any
Service Tax Appeal No.979 of 2009

services. Yet, the fact remain that they have appointed the
noticee for collection of deposit and other related works as
mentioned in the agreement. The Noticee has submitted
that they are providing services in relation to the
actionable claim and money which are not goods as per
the definition of goods given in the
Sales of Good Act,
. Due to this fact i.e. goods are not covered under the
purview of service tax, the Noticee has not provided any
services under the category of BAS.

I this regard, it is relevant to mention a circular issued by
the Board dt 05.11.03. which is as under:

―Circular No. 66/15/2003-ST Nov 5, 2003 (F No
249/4/2003-CX.4) Applicability of service tax on
commission income earned on distribution and marketing
of units of mutual fund.

I am directed to say that some doubts have been raised
regarding application of service tax on the activity of
Mutual Fund Distribution as to whether

1) the commission received by distributors on mutual fund
distribution as liable to Service Tax under the category of
Business Auxiliary Services?

2) the services provided is exempt from service tax in
terms of Notification No. 13/2003 dated 20.6.2003?

In this connection, it is clarified that the services provided
as referred above 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. This activity does not get
covered under exemption Notification No 13/20003-ST dt
20.6.2003 as this is not in relation to sale or purchase of
goods. The exemption provided under Notification
13/2003-ST is applicable only for commission agents
dealing in goods.‖
Service Tax Appeal No.979 of 2009

On perusal of the circular, it is seen that the provision of
service by the noticee to SIFCL is similar in nature to the
activities undertaken by the noticee and the commission/
consideration received by them as agent from the principal
(SIFCL) is liable to the service tax under BAS on the logic
explained in this circular.‖

4.5 The relevant clauses of Memorandum of Association of
SIFCL are reproduced below, which show the entire gamut of
businesses of M/s SIFCL:

―(A) The main objects to be pursued by the company on
its incorporation is:

1. To establish, promote, conduct, manage, maintain,
improve, regulate, run, work and control the different type
of schemes for encouraging the habit of savings, deposit
and wise economy amongst Public and also help men,
women and children for their economical, social and
educational welfare through its schemes in compliance
with RBI Directions and Guidelines but not to carry on the
banking business as defined under the
Banking Regulation
Act, 1949
.

2. To borrow and receive money as deposits, loan or
otherwise at interest or otherwise subject to
Section 58A
,
,
of the Companies Act, 1956, and directions
issued by reserve Bank of India, Issue debentures or
debenture stocks bonds or other instruments of similar
nature, perpetual or otherwise convertible into any other
class of security or otherwise, unsecured or by creating a
charge upon all or any of company's assets (both present
and future) including its uncalled capital, if any and issue
bonds, hybrid debt, subordinate debt, bills of exchange,
promissory notes or other obligation or securities or issue
such other instrument of similar nature as it may deem fit
for the purpose of company's business and to apply the
same or any part thereof for all or any purposes of the
Service Tax Appeal No.979 of 2009

Company and to purchase, redeem or pay of any such
security/ instrument

3. (a) To buy acquire, sell, dispose of, exchange,
convert, underwrite, subscribe, participate, invest in and
hold, whether in its own account or on behalf of any
person, body corporate, company, society firm or
association of persons, whether incorporated or not,
shares, stock, debentures, debenture stocks, promissory
notes, bills of exchange, bonds warrants participation
certificate, participation units, other money or capital
market instrument, securities, issued or guaranteed by any
Government, State, Dominion, Commission, Public Body,
or Authority, Supreme Local or Municipal, company or
body whether incorporated or not or by any person or
association.

(b) Subject to the permission of statutory
authorities wherever required, to buy, sell, hedge or
otherwise deal in all kinds of derivatives instruments,
foreign currencies, foreign currency options, forward
covers, and interest rate swaps in Indian or foreign
currencies, interest rate future and options, swaps of all
kinds and to transact for itself or to hedge its underlying
investments from exchange rate risk, interest rate risk,
credit risk and all type of other risks.

(c) To buy, sell, invest or otherwise deal in
securities, bonds or fixed deposits issued to any institution,
body corporate, corporation, established or constituted
under any central or state enactments or in other
securities, all types of financial and capital market products
which are permitted by any law in force or by any
statutory authority.

4. To lend money to any legal entity on interest or
otherwise, against the security of Fixed and/ or movable
assets and/ or receivables, guarantee(s), bill of exchange,
promissory notes, cheque and/ or other security as
deemed fit by company, or without any security/
Service Tax Appeal No.979 of 2009

unsecured, on such terms as may be deemed fit in the
interest of the company and to provide to any person,
firm, body corporate, Trusts, registered societies or Co-
operative societies or association or any other legal entity
in form of long, medium or short terms loans, with or
without security, equity, equity participation, sponsoring
and underwriting new issues of shares and securities,
guaranteeing loans from other investment sources and
making funds available for reinvestment by revolving
investment as rapidly as prudent to the advancement of
Company's interest.

5. (a) To carry on the business of securitization and
reconstruction of the financial interests and work as
securitization and/ or reconstruction companies after
getting registration by reserve Bank of India and in
compliance with the provision of
Securitization and
Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002
and guidelines issued by RBI in
this regard from time to time, and to facilitate easy
transferability of financial assets by issue of debentures,
bonds or any other security in nature of debenture and to
raise funds by issue of security receipts to qualified
institutional buyers and to act as an enforcement agent
and or manager for any Bank or Financial Institutions for
the purpose of recovery of the dues from the borrower on
fee basis and as receiver if appointed by the Court or
tribunal and to issue ―security receipts‖ to qualified
institutional buyers pursuant to a scheme, evidencing the
purchase or acquisition by the holder thereof, of an
undivided right, title or interest in the financial asset
involved in the securitization.

(b) To carry out asset reconstruction as per the
guidelines framed by RBI by change in takeover of the
management of business of the borrower, the sale or lease
of part of business, rescheduling the debts of the
borrower, enforcement of the security as per Securitization
Service Tax Appeal No.979 of 2009

and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002, settlement of the dues of the
borrower and taking possession of the assets and do all
other acts as may be required to protect/ further the
interest of the Company.

6. To carry on and/ or promote the business of mutual
funds, asset management company, act as sponsor and
undertake other related activities as defined under
Securities and Exchange Board of India (Mutual Fund)
Regulations, 1996.

7. To carry on business as Depository Participant within
the meaning of
Securities and Exchange Board Of India
Act, 1992
and SEBI (Depositories and Participants)
regulations, 1996, as amended or replaced from time to
time after obtaining registration from Securities and
Exchange Board Of India (―SEBI‖)

8. To carry on business as Portfolio Managers within the
meaning of Securities and Exchange Board Of India
(Portfolio Managers) Rules, 1993, as may be amended or
replaced from time to time and in pursuant to contracts or
arrangements with persons (hereinafter referred to as
―clients‖), to advise, direct or undertake on behalf of
clients, management or administration of shares,
debentures, bonds, units, certificates of deposits or
commercial papers or any other such security issued by
Companies, Bank, Institutions, Statutory Authorities and
Others hereinafter collectively referred to as securities or
funds of the clients, as the case may be, including exercise
of any degree of discretion as to the investment or
management of the portfolio of securities or funds of the
clients, as the case may be, under contracts with the
clients and to apply and obtain requisite certificates from
Securities and Exchange Board Of India (―SEBI‖) to carry
on above mentioned business complying with the direction
and guidelines of SEBI.
Service Tax Appeal No.979 of 2009

9. To carry on business as financiers, factors and to
advance, deposit, or lend money securities and properties,
to or with such persons and on such terms as may be
seem expedient, and to discount buy, sell and deal in bills,
notes, warrants, coupons and other negotiable or
transferable securities or documents.

10. To carry on the business of soliciting or procuring
insurance business of all kinds and to establish, organize,
manage, promote, provide, operate and develop business
of insurance of al, kinds or business allied to insurance and
to act as composite broker, direct broker, reinsurance
broker, writing agent and/ or corporate agent for all
classes of Insurance Business as per the terms of
regulation issued by Insurance Regulatory & Development
Authority or any other such authority constituted under the
law for purpose from time to time and to carry on the
business as Insurance Advisers, Pension Advisers,
Consultants, Assessors, Values and Surveyors.‖

4.6 It is settled principle in law that the business of the
appellant cannot be bifurcated into various limbs for computation
of business income. From the above Memorandum of Association
it is quite evident that "accepting deposit" is only one of the
limbs of the entire gamut of business activities undertaken by
the appellant. It may prima facie appear to be without any
consideration as has been submitted by the appellant. It is the
submission of the appellant that the act of accepting the deposits
is without any "consideration" and hence cannot be termed as
"service". M/s SIFCL accepts the deposits made by the
depositors in various schemes launched by them. They use the
deposits to fund their activities in business during the period
amounts are held by them. The depositors in turn allow/ permit
M/s SIFCL to utilize their deposits for the purpose of business
activities of the M/s SIFCL. The permission for use of the
deposits by the depositors to the M/s SIFCL for their business
activities is a consideration for accepting the deposits made by
the depositor. The word "consideration" has a much wider
Service Tax Appeal No.979 of 2009

connotation than the money consideration.
Section 2(d)
of The
Indian Contract Act, 1872, defines the word consideration. We
reproduce the relevant provisions of the said section below:

―2. Interpretation-clause.--In this Act the following words
and expressions are used in the following senses, unless a
contrary intention appears from the context:--

(a) When one person signifies to another his willingness to
do or to abstain from doing anything, with a view to
obtaining the assent of that other to such act or
abstinence, he is said to make a proposal;

(b) When the person to whom the proposal is made
signifies his assent thereto, the proposal is said to be
accepted. A proposal, when accepted, becomes a promise;

(c) The person making the proposal is called the
―promisor‖, and the person accepting the proposal is called
the ―promisee‖;

(d) When, at the desire of the promisor, the promisee or
any other person has done or abstained from doing, or
does or abstains from doing, or promises to do or to
abstain from doing, something, such act or abstinence or
promise is called a consideration for the promise;

(e) Every promise and every set of promises, forming the
consideration for each other, is an agreement;

Consideration is a promise to have done or have abstained
from doing something, or do something or abstain from
doing it or do something or abstain from doing it in the
future, which is decided on the desire of the promisor to
the contract. The word consideration has been explained
by various authors in following manner:

Blackstone: Consideration is the recompense given by the
party contracting to the other.
Service Tax Appeal No.979 of 2009

Pollock: Consideration is the price for which the promise of
the other is brought, and the promise thus given for value
is enforceable.

Patterson: Consideration means something, which is of
some value in the eye of the law. It may be some benefit
to the plaintiff or some detriment to the defendant.

Cheshire and Fifoot: The expression consideration has to
be understood as a price paid for a promise has been
commended.

Lush J: Lush J in Curie V. Misa (1875) LR10 Ex 153 in this
case it was held, that consideration is ―some right,
interest, profit or benefit accruing to one party or
forbearance, detriment, loss, or responsibility given,
suffered or undertaken by the other‖.

4.7 Having recorded the meaning of "consideration" as above
we also place on record the fact that in respect of business and
commerce, every act is for gain and there is no place for free
lunches in the scheme of Business and Commerce. There ain't no
such thing as a free lunch (TANSTAAFL) is a phrase that
describes the cost of decision-making and consumption. In
economics, TANSTAAFL describes the concept of opportunity
costs, which states that for every choice made, there is an
alternative not chosen which would also have produced some
utility. Decision-making requires trade-offs and assumes that
there are no real free offerings. In the case of Curie Vs Misa
referred above this principle has been applied. The consideration
as such can be in form monetary transaction or otherwise.

4.8 Hon‟ble Supreme Court has in case of Indian Bank Ltd.

[1965 AIR 1473 SC] held as follows:

Therefore, it seems to us that there is nothing in the
language of
S. 10
from which it can be fairly implied that
an expenditure or allowance falling within the section must
fulfill some other condition before it can be allowed.
Service Tax Appeal No.979 of 2009

A similar question arose in England in Hughes v. Bank of
New Zealand(21 T.C 472), and all the Judges took the view
that interest paid by the Bank on capital borrowed in the
course of its business and utilised in buying tax-free
securities had to be deducted in arriving at the taxable
profits of the business notwithstanding that the interest
earned by the Bank on the tax-free securities could not be
taxed.

Lord Thankerton put the reason shortly thus "It is perhaps
enough to say that the Crown are unable to point to any
statutory provision in support of their contention, whereas
the Respondents find full justification for their resistance in
the provisions of Rule 3 of the rules applicable to cases I
and II of Schedule D".

This rule is similar to
s. 10(2) (xv)
of the Indian Income
Tax Act. After setting out the rule and noticing its effect he
says "It seems to me to be incontrovertible that, in the
present case, the investments in question were part of the
business of the Respondents' trade, and that the expense
connected with them was wholly and exclusively laid out
for the purposes of the trade.

Expenditure, in course of the trade which is un-
remunerative is none the less a proper deduction, if wholly
and exclusively made for the purposes of the trade. It does
not require the presence of a receipt on the credit side to
justify the deduction of an expense."

Although the Master of Rolls found force in the argument
of the Crown, he could find nothing in the language of the

English Act
to eliminate a part of the expenses of an
indivisible trade. Similarly, Greene L.J., could find no
warrant in the language of the Statute to give effect to the
contention of the Crown. He observed that "when the
Statute says that interest is to be exempt, I am quite
unable to read it as meaning that in giving effect to that
exemption by implication, some repercussion is to take
Service Tax Appeal No.979 of 2009

place on a different provision of the Act altogether....... I
can find nothing in the Statute which requires this interest
to be treated, so to speak, as a trade within a trade. This
is really what the Crown contend that in some way this
interest which is to be brought into account as an item of
receipt is to be taken out of it with some (1) 21 T C 472
apportioned expenses appropriated to it as though it were
a trade by itself."

Mr. Sastri urges that the authority of the above decision
has been shaken in Mitchell and Edon (H. M. Inspectors of
Taxes) v. Ross (40 T.C. II), but we are unable to accept
this contention. The, point ,urged in this case was that the
authority of Fry v. Salisbury House Estate ([1930] A.C.

432) had been qualified by the decision in Hughes v. Bank
of New Zealand(21 T.C. 472), but this was negatived.

A number of Indian cases have been cited before us and
we will now proceed to examine them.

The Madras High Court's decision in
Commissioner of
Income 'Tax v. Somasundaran Chettiar (A.I.R.
1928 Mad.

487) does not assist Mr. sastri. The carried on business at
Madras, where his head office was, and Ipoh, a place in
the Federated Malay. Money was borrowed ,at Madras and
part of it sent to Ipoh where it was used as capital in the
conduct of Ipoh business. The High Court held that interest
,on the part of the borrowed money used at lpoh was
rightly disallowed as a deduction because the business
which was being taxed was the business at Madras and not
the business at Ipoh. No exception can be taken to the
decision but it does not advance the appellant's case
because we are concerned with one indivisible business.

In
Provident Investment Co. Ltd. v. C.I.T. Bombay
(6 I.T.C.

21), the assessee, an Indian Finance Company, borrowed
some money in India and purchased sterling securities out
of it and retained them in India. The Bombay High Court
held that interest on the borrowed money could not be
Service Tax Appeal No.979 of 2009

deducted because "qua the capital which it (the company)
is using outside British India and retaining for that length
of time outside British India, is not carrying on business in
respect of which profits assessable to Indian Income, tax
can be earned so that allowance can be claimed for
interest on capital borrowed within the meaning of
S.
10(2) (iii)
. It :appears to us that the Bombay High Court
divided the business in two separate businesses. But the
business of the present assessee cannot be divided into
two separate businesses. It is one and indivisible.

In
Chellappa Chettiar v. Commissioner of Income Tax
Madras
((1937) 5 I.T.R. 97), the assessee carrying on
business as a moneylender had borrowed money and lent
it out to constituents. He was obliged to receive
agricultural lands in repayment of his debts from such
constituents. The question arose whether he was entitled
to a deduction in respect of the interest paid by him on
capital represented by the agricultural lands.
The Court,
following Hughes v. Bank of New Zealand (21 T.C 472)
held that he was entitled notwithstanding that agricultural
income was not taxable under the
Income Tax Act
. Mr.
Sastri says that this was wrongly and was in fact dissented
from by the Rangoon High Court in C.I.T. Burma v.
N.S.A.R. Concern ((1938) 6 I.T.R. 194.). Dunkley J., in the
Rangoon case, distinguished Hughes v. Bank of New
Zealand(21 T.C 472) because he thought that the scheme
of the Burma Income Tax Act was entirely different from
the scheme of the English Income Tax Act, 1918. He
observed that "in England a person is assessed to income
tax in respect of his income, while under the Burma Act it
is the income which is taxed.
Under the English Act
no
class of income is outside the scope of the Act whereas by
s. 4(3) of the Burma Act the Act is made inapplicable to a
number of classes of income.
The English Act
merely
confers certain exemptions on a person in respect of his
income up to a certain amount or certain kinds, similar to
Service Tax Appeal No.979 of 2009

the exemptions conferred on certain classes of income by
the provisos to Secs. 8 and 9 of the Burma Act." Then he
noted the difference between the wording of s. 10 (2) (ix)
of the Burma Act and the corresponding clause in the

English Act
. But we are unable to appreciate that these
differences necessitate the rejection of the principle laid
down in Hughes v. The Bank of New Zealand (21 T.C 472).
It is true that under the
Indian Income Tax Act
it is income
that is taxed but it is not taxed in vacuo. It is taxed in the
hands of a person. In England, the interest of tax-free
securities was exempted much in the same way as in
India. It did not matter there who held them. Hughes v.
The Bank of New Zealand (21 T.C 472) cannot be
distinguished on the grounds mentioned by the Rangoon
High Court.
In our judgment
Chellapa Chettiar v. C.I.T.
Madras
((1937) 5 I.T.R. 97.) was correctly decided.

The
decision of this Court in indore Malwa United )Wills v.
C.I.T. (Central) Bombay
([1962] Supp. 3 S.C.R. 310) is
distinguishable. It appears to us that it was because
s. 14
(2) (c)
and
s. 4
(1 ) (a) and (c) existed at the relevant
time that the words 'profits and gains' in
s. 24
were limited
to such profits and gains as would have been assessable in
British India or the taxable territories. This is apparent
from the judgment and from the following observations of
Das J.

"Reading the provisions in
section 24
with the provision in

section 4 (1) (a)
and (c) and
section 14 (2) (c)
it seems
clear to us that
section 24 (1)
when it talks of profits or
gains has reference to taxable profits and gains; in other
words, it has reference to such profits and gains as would
have been assessable in British India or the taxable
territories. It has no reference to income accruing or
arising without British India or without taxable territories
which were not liable to be assessed in the case of non-
residents."
Service Tax Appeal No.979 of 2009

We cannot imply from this judgment that there is a
general principle that if a part of the income of a business
is tax- free, expenditure incurred for the purpose of
earning this income is outside the purview of
s. 10
.‖

4.9 From the above it is quite evident that activities of the
appellant are not limited to accepting deposit. They generate
funds from the deposits which are used by them to finance
various other activities undertaken by the appellant and in
process generate income by the use of such deposits. From the
balance sheet and profit loss account of M/s SIFCL it is evident
that they receive the deposits to fund and finance various
activities stated in their Memorandum of Association. The
principle
laid down by
the Hon‟ble Apex Court in the case

referred above
in para 4.5 is applied by the appellant themselves
while making their financial statements. To further elaborate on
the issue we reproduce the Balance Sheet and Profit & Loss
Accounts of Sahara India Financial Corporation during the
relevant period.

SAHARA INDIA FINANCIAL CORPORATION LIMITED
BALANCE SHEET
Schedul
e 2003-04 2004-05 2005-06 2006-07
SOURCES OF
FUNDS
Share Holder's
Fund:

Share Capital 1

Equity 930300000 930300000 930300000 980300000
Preference 3000000000 3000000000 3000000000 3000000000
Reserves &
Surplus 2 2883388594 2931588992 3138424648 3304569564
Loan funds
Liability Towards
Depositors 3 88035557912 115372586226 155612020135 181076117145
Deferred Tax
Liability 259730754 334541833 385731258 344270887
Total 95108977260 122569017051 163066476041 188705257596
APPLICATION OF FUNDS
Fixed Assets
Gross Block 4 4491944298 6277573468 6339358032 6205280536
Depreciation -984658566 -1220748980 -1481823472 -1596270028
Net Block 3507285732 5056824488 4857534560 4609010508
Capital Work In Progress 66043821 45762910 20863774 23742871
Investments 5 78764478548 106482448687 136837877678 149117032547
Current Assets Loans &
Advances
Inventories 36295834
Sundry debtors 6 2233193327 1308925760 1905277001 1003051703
Cash, Bank &
Money in
Collection Account
Including Working
Fund 7 2839065309 2882208018 3447645413 1097418516
Secured Loans 8 6566917339 6596565480 10379101930 15359194863
Tax Deducted at
Source 947411209
Service Tax Appeal No.979 of 2009

Other Current
Assets 9 1662429730 678041048 5329390623 20930766904
Sub Total 13301605705 11465740306 22008826176 38426727820
Current Laiblities &
Provisions -530436546 -481759340 -658626147 -3471256150
Net current
assets 12771169159 10983980966 21350200029 34955471670
Total 95108977260 122569017051 163066476041 188705257596

SCHEDULE 3
Liablity Toward Depositors
As per last balance
Sheet 72936347833 85106396262 110427525150 148237792325
Collection during
the year 58818457487 63916457889 79226393605 69158971003
Maturity during the
year -46648409058 -38595329001 -41416126430 -46808537903
Net deposits (a) 85106396262 110427525150 148237792325 170588225425
Interest accrued on above
As per last balance
Sheet 3467354679 2929161650 4945061076 7374227810
For the year 5441426333 5720571563 6241682372 6518052084
Interest paid
during the year -5979619362 -3704672137 -3812515638 -3404388174
Net Interest
accrued (b) 2929161650 4945061076 7374227810 10487891720
Aggregate deposit Liablity 88035557912 115372586226 155612020135 181076117145

SAHARA INDIA FINANCIAL CORPORATION LIMITED

PROFIT & LOSS ACCOUNT

SCHEDULE 2003-04 2004-05 2005-06 2006-07

INCOME

Interest 11 7497350531 7188616796 9235691340 11555467069

Dividend 12 322608583 87564291 11693627 2841124

Rental Income 815736235 882044915 1145979356 1062143231
Income from joint

venture 7917701 8537807 671168 0

Income from sale of
Securities 1010214949 1113803104 404405441 140106027

Profit on sale of Assets 0 0 19835399 1510541

Other Income 13 197685804 108968890 162897139 135363223

TOTAL 9851513803 9389535803 10981173470 12897431215

EXPENDITURE
Operational & Other
Expenses 14 3333310729 2899277022 3725676106 5301330585

Interest 15 5453170525 5728037917 6245763435 6548939672

Depreciation 198600873 229984844 273986802 258188283
Provisions,
depreciation & Write
off 16 213852490 99592118 215514577 575206838

TOTAL 9198934617 8956891901 10460940920 12683665378
Net Profit before
Tax etc. 652579186 432643902 520232550 213765837

Current Income tax 49558352 45232508 40792735 117294760

Deferred Income Tax 145797617 74811079 51189425 -41460371
Provision for Wealth
tax 2013459 2322513 2313101 2117600
Provision for fringe
benefit tax 0 0 7268869 13229349

Prior Period Expenses 5280527 7070932 7473710 6736569

Prior Period Income 58668742 2919300 415378 63832675
Income tax of earlier

years 0 76940057 0 0
Service Tax Appeal No.979 of 2009

Loss form joint
venture 0 0 0 2185755

Net Profit after tax 508597973 229186113 411610088 177494850
Surplus in Profit &
Loss Account 147557466 402138969 415884732 557031552
Dividend on
Preference Share 135000000 150000000 165000000 0
Corporate Dividend

Tax 17296875 19603125 23141250 0

Transfer to Special
Reserve u/s 45 IC of
RBI Act 101719595 45837225 82322018 35498970
Surplus in Profit &
Loss Account c/f 402138969 415884732 557031552 699027432

Schedule 11

INTEREST

On securities 5326750813 5564025007 6596335020 8410381283

On Loans & Advances 1166158682 854502147 797685179 1162091738

On Fixed Deposits 104613278 179605790 1297582145 1790194238
On Certificate of
Deposits 384802481 189018925 108864386 192349964

On Others 515025277 401464927 435224610 449846

Total 7497350531 7188616796 9235691340 11555467069

Schedule 15

INTEREST

Interest on deposit 5453161339 5727859463 6245763365 6548902359

Interest on Term Loan 647 0

Interest on TDS/
Others 8539 178454 70 37313

Total 5453170525 5728037917 6245763435 6548939672

4.10 From the perusal of the balance sheet and profit and loss
account of the appellant it is quite evident that main input for all
the activities undertaken by M/s SIFCL is deposits received by
them under various schemes. The profits made by M/s SIFCL are
used to project the financial health of the company to the
depositors and printed on the Forms for making deposit to gain
the confidence of the depositors. One such form is reproduced
below:
Service Tax Appeal No.979 of 2009

4.11 In case of deposits or investments made by the depositors
with the appellant, the opportunity cost of investing in some
other scheme of similar type is lost. The consideration for the
depositor is the risk associated with the investment/ deposit
made. Deposit made in one of the schemes floated by M/s
SIFCL, is the foregone opportunity to invest in an alternative,
riskier or less risky investment. As an investor moves higher on
the risk spectrum, the phrase TANSTAAFL becomes even more
relevant as investors provide capital with hopes of achieving
larger gains than what less-riskier deposits/ investments may
mean. From the balance sheet and profit and loss account of M/s
SIFCL reproduced above it is observed that the only input that
the M/s SIFCL receives is by way of collecting the deposits from
Service Tax Appeal No.979 of 2009

the depositor to generate capital for further use. We refer to
schedule 11 which gives the details of the interest earned on the
deposits made by the investors with Ms SIFCL and the Schedule
15 which gives the interest paid out by M/s SIFCL. Schedule 11
is in respect of the income of the appellants and schedule 15 is
in respect of expenditure of the appellants in procuring these
investments. The consideration in such a case can be well
explained by application of principal of TANSTAAFL.
Thus we do
not agree with the submissions made by the appellant in this
regard that there is no consideration received by M/s SIFCL for
accepting the deposit. The deposit made is itself the
consideration whereby the money of the depositor funds the
activities of M/s SIFCL. The depositor in a way transfers the right
to use the money deposited to M/s SIFCL for earning profits by
application of those deposits. This transfer of right to use the
funds of depositors in terms of various definitions
referred above

is consideration.

4.12 Mumbai Bench had categorically agreed to the submission
of similar nature as made in the present case that the accepting
deposits is without consideration and hence cannot be termed as
service. In case of ICICI Bank Ltd [2019 TIOL 589 CESTAT
Mumbai] following was observed:

―37. It is a common knowledge that the customers deposit
their money in the Banks and in turn receive interest as
consideration from the Banks. The money received by the
Bank from the customers is not kept idle but further
invested by them in various manners in furtherance to
their Banking business, one such way is by providing loans
or advances, for which the Banks receive consideration as
interest. The deposits kept in the Bank are in different
forms like, saving bank deposit, current deposit, fixed
deposit etc. The consideration received by the customers,
in the form of interest, and such deposit per se is not a
taxable service, since the consideration, in the form of
interest, does not come under the Service Tax net. Thus,
Service Tax Appeal No.979 of 2009

the inference that could safely be drawn from the above
analysis is that even though deposit is an activity relating
to banking business but not a taxable service under the

Finance Act, 1994
, as the consideration for such service is
exempted.

47.3 In para 32, Section 65B(44) definition of 'service' has
been extracted. It clearly shows that for an activity to
be considered as a service, the said activity should
be performed for a consideration. The word
'consideration' as used in the said section refers to
the consideration by the service recipient of the
service provided. Thus consideration is paid by
recipient to the service provider. In the present case
the deposits are being made by various depositors
with the financial institutions/banks. Banks need
these deposits for the purpose of conducting their
business and in turn for receiving deposits, paid
certain amounts as interest to the depositors. Thus
banks are not receiving any consideration for
deposits taken by them from the depositors. Even
otherwise the DICGC Act provides for protection of the
interest of the depositors and not the bank in case the
bank goes worst. In absence of any consideration from
the depositors to the bank for the activity of
accepting deposits, the same cannot be considered
as a service in terms of Section 65 B (44)."

However the above has not been agreed to by the larger bench
of Tribunal in case of South Indian Bank [2020 (41) G.S.T.L. 609
(Tri. - LB)] wherein following has been observed:

―9. The banks claim that they are engaged in ―accepting‖
deposits from the public, which deposits are used for the
purpose of lending or investment and though no consideration
is charged for making the deposits, but the banks thereafter
provide number of services like discounting of cheques,
minimum balance charges, handling charges for gold loans,
Service Tax Appeal No.979 of 2009

locker rent and similar services, which are in relation to
―banking and other financial services‖ and are chargeable to
service tax as consideration for providing such services are
not received in the form of interest. The list of services on
which the banks have to pay service tax under ―banking and
other financial services‖, can be bifurcated into two
categories. The first category consists of services which have
a direct nexus with the activity of ―accepting‖ deposits, while
the second category consists of those services which have a
direct nexus with the ―lending‖ activity of the banks. The
services under the aforesaid two categories have been stated
by the banks to be as follows :

(i) Direct nexus with the activity of accepting deposits.

a. Charges towards issuance of Cheque book;
b. Charges to maintain minimum balance;

c. Debit Card charges;

d. Duplicate Pass Book/Bank Statement charges.
e. Stop payment charges
f. Cheque return charges
g. Demand Draft charges
h. Charges for providing bank guarantee
i. Safe deposit locker facilities; etc.

(ii) Direct nexus with the lending activity.

a. Processing fee towards obtaining necessary
sanctions/ approvals for lending money to
customers;

b. Documentation charges towards completing loan
sanction with respect to preparing, printing and
executing the various documents required post
appropriate sanctions/approvals being taken.
c. Inspection charges towards compensation for the
time spent in visiting and inspecting the
factory/godown/other assets of the borrowers.

44. The basic activity of a banking company, as
contemplated under the definition of ―banking‖, either
Service Tax Appeal No.979 of 2009

under the Deposit Insurance Act or the
Banking Regulation
Act
, is to accept deposits from the public, which deposits
are used for the purpose of lending or investment by the
banks. Thus, the main activity of a banking company is to
mobilise the resources received by the banks in the form of
deposits from the public for the purpose of lending or
investment. These deposits, thus generate returns for the
banks. A part of the returns is given by the banks to the
depositors as a consideration, which consideration is
normally in the form of interest.

45. What also needs to be noticed is that the lending and
investment portfolio of banks are required to be funded by
deposits and the funds of the shareholders. The Credit
Deposit ratio is the percentage of how much the banks
lend out of the deposits they have mobilised and also
indicates how much of the core funds of the banks are
being utilised for lending. A higher ratio indicates more
reliance on deposits for lending. In such circumstances,
the raising of deposits is an important function of the
banks. In other words, the acceptance of deposits is not
only a pre-requisite for lending but is also necessary for
the banks since the entire activity undertaken by the bank
begins with the acceptance of deposits, without which the
subsequent activities of lending or investment cannot be
undertaken by the banks.

52. It is not in dispute that after accepting the deposits
there are a number of services on which the banks have to
pay service tax under ―banking and other financial
services‖. These services are in connection with both the
―accepting‖ of deposits and ―lending‖ activity of the banks.
Banks would be able to lend only if they accept deposits. It
has been seen that without payment of insurance premium
on the outstanding deposits, banks will not be able to
function or render any output service of ―banking and
Service Tax Appeal No.979 of 2009

other financial services‖ and the licence granted to the
banks by the Reserve Bank of India can be cancelled.

54. The contention of the Department is that ―accepting‖
of deposits is covered under
Section 66D(n)
of the Finance
Act which contains the negative list. As noticed above, the
negative list comprises, under sub-clause (n) of Section
66D, services by way of extending deposits, loans or
advances in so far as the consideration is represented by
way of interest or discount. The issue is whether extending
deposits would mean the activity of accepting deposits.
The activity of accepting deposits would be an activity
where the banks receive deposits from the customers in
the form of savings account, recurring deposits, for which
the banks pay interest to the customers. On the other
hand, the extending of deposits would be an activity of a
bank giving its surplus money in the form of deposit to
another person, where the consideration received would be
in the form of interest. This would be a case where in the
course of banking activities, one bank makes a deposit
with another bank for which it receives consideration in the
form of interest. It is this consideration received by the
banks in the form of interest which has been specified
under
Section 66D(n)
of the Finance Act in the negative
list of services. Thus, in case of accepting deposits, the
banks have to pay interest to the customers, whereas
while extending deposits, the banks receive interest from
other banks. It is for this reason that inter-bank deposits
are not included in the returns filed by the banks with the
Deposit Insurance Corporation for calculating the premium
payable. The banks cannot avail credit of service tax on
any amount of interest earned on extending of deposits. It
is, therefore, not possible to accept the contention of the
Department that ―accepting‖ of deposits is covered under

Section 66D(n)
of the Finance Act.
Service Tax Appeal No.979 of 2009

64. This view has been taken by the Tribunal in State
Bank of Bikaner. However, in ICICI Bank a contrary view
was taken. For ―all the reasons stated above, it is not
possible to accept the view taken by the Division Bench of
the Tribunal in ICICI Bank.‖

Thus in view of
the above decision
of the larger bench we
are not in position to agree with the submissions made by
the appellant in this regard.

4.13 The circular of 2003 was not quashed by the Hon'ble
Andhra Pradesh High Court in case of Karvy Securities Ltd.
[2006 (2) STR 481 (AP)] as argued by the appellant, holding
that circular clarified contrary to legal provisions but has been
quashed for the reason that Board was not having jurisdiction to
interfere in the matters which need to be decided by the
authorities in adequate proceedings. Hon'ble High Court has held
as follows:

"6. From bare perusal of the circular it would be
emphatically known that the respondents raised two
specific questions. First question is, Whether the
commission received by distributors on mutual fund
distribution as liable to Service Tax under the category of
Business Auxiliary Services? Second one is, Whether the
services provided is exempt from service tax in terms of
Notification No. 13/2003, dated 20-6-2003?

7. It appears that there is a notification granting
exemptions and this notification has been categorically
interpreted by the circular by saying that the activity does
not get covered under exemption notification. We fail to
understand whether the authorities would go against the
directions given in the circular. Besides that, the circular is
also, in our view, contrary to the proviso to
Section 37B
of
the Central Excise Act, 1944 (for short ‗the Act'). Section
37B reads as under :

―The Central Board of Excise and Customs constituted
under the
Central Boards of Revenue Act, 1963
(54 of
Service Tax Appeal No.979 of 2009

1963), may, if it considers it necessary or expedient so to
do for the purpose of uniformity in the classification of
excisable goods or with respect to levy of duties of excise
on such goods, issue such orders, instructions and
directions to the Central Excise Officers as it may deem fit,
and such officers and all other persons employed in the
execution of this Act shall observe and follow such orders,
instructions and directions of the said Board :

PROVIDED that no such orders, instructions or directions
shall be issued--

(a) so as to require any Central Excise Officer to make
particular assessment or to dispose of a particular case in
a particular manner; or

(b) so as to interfere with the discretion of the
[Commissioner of Central Excise (Appeals)] in the exercise
of his appellate functions.‖

8. If the circular is read along with clause (a) to proviso
to Section 37B, it becomes abundantly clear that if circular
is applied, the matters have to be decided in accordance
with the directions given in the circular.

9. For these reasons, we feel that the circular is illegal,
contrary to the proviso to
Section 37B(a)
of the Act and is
accordingly quashed. Writ Petition is allowed. By allowing
the writ petition, we have not expressed any opinion about
the notification and applicability of it in a particular case or
cases shall have to be determined by the appropriate
authorities. No costs."

Affirming the above order Hon'ble Supreme Court as reported at
[2015 (39) STR 705 (SC)] has observed as follows:

―The undisputed facts are that the Government had issued
Notification No. 13 of 2003-S.T. whereby it exempted the
‗Business Auxiliary Services provided by a commission
agent' from the Service Tax leviable thereon under sub-
section (2) of
Section 66
of the Finance Act, 1994.
Service Tax Appeal No.979 of 2009

Thereafter, Circular dated 5-11-2003 was issued in which
it is stated that having regard to some doubts that had
arisen regarding application of Service Tax on the activity
of mutual fund distribution, it was clarified that the
commission received by distributors on mutual fund
distribution would be liable to Service Tax as it would not
fall within the expression ‗Business Auxiliary Services'. This
circular dated 5-11-2003 has been set aside by the High
Court in the impugned judgment on the ground that it
amounts to foreclosing discretion or judgment that may be
exercised by the quasi-judicial authority while deciding a
particular lies under particular circumstances. The High
Court referred to the proviso to
Section 37B
of the Central
Excise Act, 1944, which categorically states that such kind
of circulars cannot be issued. We, thus, do not find any
error in the impugned judgment. This appeal is accordingly
dismissed.‖

Thus by quashing this circular the issue has been left open
by the Hon‟ble Apex Court to be decided by the authorities in
accordance with law. After quoting this circular Commissioner
has in the impugned order examined the provision of law and
the facts involved and arrived at her own findings in matter.

4.14 The issue with regards to applicability of
Section 65 (19)

needs to be considered in terms of the definition as it existed
then. Commissioner has in the impugned order analyzing the
definition as it existed during the relevant period vis a vis the
facts of the present case observed as follows:

―The noticee have contended that the allegation in the
show cause notice is with reference to the promotion in
marketing of the business of client and that the definition
under
Section 65 (19)
of FA'94 relates to promotion and
marketing of services by their client and not the business
of the client. The very business of the Noticee is in nature
of service as they are encouraging saving habits among
public, facilitating successful launching/ running of saving
Service Tax Appeal No.979 of 2009

schemes. Indirectly they are engaged in mobilization of
funds from public which tantamount to service. The word
‗business‖ used in the notice in relation to ‗promoting and
marketing of the business of client' is with reference to
sub clause (ii) of Clues 19 of
Section 65
of the FA'94 which
inter alis is ‗promotion and marketing of service provided
by the client'. In this connection it is observed that M/s
SIFCL are not dealing with goods which implies that they
are engaged in providing services i.e. their business comes
under the purview of service sector. Therefore the term
―promoting and marketing of business‖ of M/s SIFCL by
the noticee shall be construed accordingly i.e. promoting
and marketing of service. Hence the contention of the
Noticee is not acceptable and the service provided by the
Noticee is well covered under clause (ii) of the definition of
―BAS‖ w.e.f 01.07.2003.

From the perusal of the Show Cause Notice it is seen
that the notice proposes that the activities of the noticee is
very much covered under sub-clause (ii) and (iv) of clause
19 of
Section 65
of the FA'94 and further, since 10.9.04, in
sub clause (vi) of Clause 19 of
Section 65
of the FA 94.

The SCN, nowhere alleges the noticee of providing services
as defined in sub-clause (1) and () of the Clause 19 of

Section 65
of the FA'94 and after 10.9.04 does not allege
the noticee of providing services in sub clause (iv) and (v)
of the Clause 19 of
Section 65
of the FA'94. Therefore
noticee's contention in their defence reply needs no further
discussion.

Regarding noticee's contention that since they are
not providing services under subclause (i), (ii) and (iii) of
"Business Auxiliary Services", as it existed upto 9.9.04, the
provisions of sub-clause (iv) and later sub-clause (vii) is
not applicable in their case, it is seen from the definition of
BAS during 01.07.03 to 09.09.04 that Sub clause-(iv) is
independent of sub clause (i), (ii) and (iii). There is
Service Tax Appeal No.979 of 2009

nothing in the Section to suggest that the definition of
"BAS" is to be interpreted the way as made by the noticee.
The use of the word "or" at the end of each sub-clause is
more than sufficient to understand as to how the definition
is to be interpreted. On perusal of the Sub clause (iv) of
the definition it is clear that "Business Auxiliary Services"

includes 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.

Now I refer to the judicial pronouncements of Apex Court
with regards to the interpretation of statute.

(i) Hon'ble Supreme Court in the case of
Doypack
Systems Pvt. Ltd, Vs UOI,1988
(36)ELT 201, in para 56
has held:

"The words in the statute must, prima facie, be given its
ordinary meaning. Where the grammatical construction is
clear and manifest and without doubt, the construction
ought to prevail unless there are some strong and obvious
reasons to the contrary."

Further to quote Para 57 of the same case:

".....The dominant purpose in construing a statue is to
ascertain the intention of the legislature as expressed in
the statue, considering it as a whole and its context. That
intention, and therefore the meaning of the statue, is
primarily to be sought in the words used in the statute
itself, which must, if they are plain and unambiguous, be
applied as they stand."

(ii) In
Hemraj Gordhandas Vs Assistant Collector of
Customs and Central Excise
, AIR 1970SC 755, the Hon'ble
Supreme Court held that in a taxing statute, there was no
room for intendment.

(ii) In
Tata Consultancy Service Vs State of Andhra
Pradesh
, 2004(178) ELT 22, the Hon'ble Supreme Court
Service Tax Appeal No.979 of 2009

held that ordinarily statute had to be literally construed
and same cannot be denied merely because consequences
of such interpretation may lead to penalty.

(iv) In the case of Commissioner of Central Excise,
Chandigarh-Il Vs. Bhalla Enterprises,2004(173) ELT 225
(S.C), it was held that the principle of strict/liberal
interpretation applies only in case of ambiguity, otherwise
plain words of the statute must be given effect.

In all the pronouncements it is, therefore, clearly
held that the taxing statute has to be implemented literally
in the plain words as mentioned in the statute. There is no
ambiguity in the words used in the aforesaid provisions of
Service Tax Laws regarding the definition of "BAS" and the
plea of the noticee that they were not providing "BAS"
during 01.07.03 to 09.09.04 is not acceptable. The name
of the service itself suggests that all auxiliary activities
which support business must be brought into the ambit of
BAS.

After 10.9.04, the noticee is covered under sub-
clause (vi) of Clause 19 of
Section 65
of the FA'94. The
submission of the noticee is that SIFCL (Principal) is not
providing any taxable service, accordingly noticee would
not be covered under "BAS" The noticee has also pleaded
that their activities promote business of the clients but the
services are not rendered to the client, therefore, they do
not come under purview of "BAS".

The provision of service by noticee on behalf of M/S
SIFCL in the nature of deployment of manpower and
paraphernalia in implementing the scheme devised by M/s
SIFCL is evident. Therefore, noticee has provided services
falling under Sub clause (vi) of the definition of BAS
(Auxiliary and Support Service) incidental service. The plea
advanced by the noticee in this regard that there is no
provision of service is not correct and hence unacceptable.
Service Tax Appeal No.979 of 2009

22. On perusal of MOU effective from 01.04.01 and
20.09.2003 entered between the Noticee and M/S SIFCL, it
is observed that the Noticee is having well equipped
infrastructure facilities, having more than 1500 offices with
the required manpower at various places and in different
part of the country. The staff and officers of the Noticee
have sufficient expertise for running business of savings
and finance by deploying their field staff and field force like
Agents, Field Officers etc. The field workers of the Noticee
contract to the perspective customers and apprise about
various schemes of savings launched by M/S SIFCL, to
persuade depositors/customers in promoting the business
of M/S SIFCL. The MOU dated 20.09.03 states that
"Sahara India shall continue to work as Agent to Sahara
India Financial Corporation Limited to conduct,
promote introduce and secure business on behalf of
Sahara India Financial Corporation Limited under all
its scheme - which may be changed varied, suspended and
modified from time to time as per instruction of Sahara
India Financial Corporation Limited."

The definition of BAS include the services provided
by a commercial concern in relation to not only promotion,
marketing of services, provided by a client, but also any
incidental or auxiliary service commission such as billing,
collection or recovery of cheques, accounts and
remittance, evaluation of prospective customer and public
relation services. The use of the term "such as clearly
indicates the definition provided is only illustrative and not
exhaustive. There can be other service / services though
not specified in definition which can be classified as
auxiliary services and therefore will be liable to service tax
under this category of service.

The word "Service" as defined in Legal Glossary of
Government of India (2001) means "the action of serving,
Service Tax Appeal No.979 of 2009

helping or befitting, conduct tending to the welfare or
advantage of another.........

The dictionary (Oxford Modern English Dictionary) meaning
of word 'Service' is the act of helping or doing the work for
another.

Hence the definition of Business Auxiliary Services as
provided under
Section 65
of Finance Act, 1994 has to be
construed in much wider sense encompassing other
activities under the clause of 'service incidental or auxiliary
similar to the nature of define services in other different
clauses of the definition.

It is seen that the noticee is acting as agent of M/s
SIFCL as per clause (1) of MOU effective from 1.4.2001
and they are paid commission for provision of services as
mentioned in the MOU between both the commercial
concerns. The nature of work performed by the noticee is
purely incidental or auxiliary service on commission basis
to M/S SIFCL provided to customer, issuing receipt of
payments from the depositors under various scheme of
SIFCL, accountal of the money received and the payments
on maturity for M/S SIFCL. In the facts of the case there is
no doubt about the provision of service by the noticee to
M/S SIFCL which are taxable under the provisions of
Service Tax and they fall within the BAS. It can therefore
be concluded that the noticee are service provider and M/S
SIFCL are service receiver and the relationship between
the two is that of service provider and client.

22.1 On careful examination of the memorandum of
undertaking between the partners it is seen that the
noticee is an agent of M/S SIFCL in every reasonable way
including the provision of the services as agent rendered
under agreement for which the commission is paid to
them. It is not in dispute that M/S SIFCL shall pay the
noticee towards expenses incurred in running of its office,
branches and noticee is rendering all services as agent.
Service Tax Appeal No.979 of 2009

The agreement which is a part of MOU, elaborate the
system of working and covers different aspects of the
functioning by the noticee. The nature of services provided
by the noticee have also been mentioned in the said
agreement which states collection of requisite amount from
members under different saving schemes and arrangement
of payment of maturity, pre-maturity and loans to the
depositors etc. The nature of the services provided by the
noticee is corroborated in the statements as detailed supra
in the brief facts of the case. All the office bearers of the
noticee firm have categorically admitted the fact of
provision of the services to their principal M/S SIFCL. The
nature of the services is apparently covered under
conducting. promoting, introducing and securing business
on behalf of M/S SIFCL and the noticee has all
infrastructure and work force available with them for
enhancing the business of their client for set of
consideration as stipulated in MOU's entered during
relevant period. The activities of the noticee are to be
covered under BAS defined under clause 19 of the
Sec.65

of the FA'94 as amended from time to time since
01.07.2003, Thus it is seen that the noticee has rendered
auxiliary services to M/S SIFCL and for which the receipt of
money as commission as agreed upon and thus there is a
service provider - client (service receiver), relationship
between noticee and SIFCL.

The Noticee had pleaded that in their case there was
no client and accordingly no service tax could be leviable
on them. They have submitted that the existence of a
client, Service provider and payment for the service are
three parameters for levy Service Tax. In their case there
is no client and they are not liable to pay service tax.

However the noticee has understood the meaning of
the word 'client' in a very narrow sense on the basis of the
meanings given in different dictionaries. In Service Tax law
Service Tax Appeal No.979 of 2009

it is receiver of the service who is referred different names
i.e. client, subscriber, person etc. as per the
Section 65
of
FA'94 covering the definitions of different terms which
ultimately demote the service receiver. The three
parameters to quality to cover under service tax law or (i)
Service recipient, (ii) service provider & (iii) payments
made (consideration) which are satisfied in the present
case.

On the basis of the facts of the case, the inference
drawn is that all three prerequisite for coverage under
Service Tax, namely, event of provision of service tax,
presence of taxable service provider and service receiver
and the act of rendering taxable services against
commission are present in the instant case.

In the present case, SIFCL (entity) have employed
noticee (professional) for supporting in their "para banking
operations" service relating to collection of money from the
investors, preparing bills, collecting them and accounting
the same etc., which otherwise would have carried by the
SIFCL and the noticee is paid commission on such services,
thus establishing service provider - client relationship with
the SIFCL. The said activity, carried out by the noticee, is
that of "Service Provider" and the "Service Receiver is
SIFCL. The Service Tax is, therefore leviable as per law.

In the net analysis I find that w.e.f. 10.09.2004 the
provision of service on behalf of the client is covered under
"Business Auxiliary Services". I, therefore, hold that during
10.09.2004 to 31.07.2006 there was provision of
"Business Auxiliary Services" by the noticee was liable to
service tax as per the provision of Service Tax law.‖

4.15 From the perusal of the definition as per
Section 65 (19)
,
for the period prior to its amendment with effect from
10.09.2004, it is evident that (iv) is an independent entry and is
not linked with any of the entries at (i), (ii) & (iii) all the entries
Service Tax Appeal No.979 of 2009

are separated by „or‟. Even at the cost of repetition we reproduce
the entry at (iv) below:

(iv) any incidental or auxiliary support service such
as billing, collection or recovery of cheques,
accounts and remittances, evaluation of prospective
customer and public relation services,",

Even if the activity of accepting deposits by SIFCL, during this
period is held to be no service as claimed by the appellant, the
activities of appellant will qualify as incidental and auxiliary
support services, provided by the appellant to the business of
the M/s SIFCL. Hon‟ble Supreme Court has in the case of M/s
Good Year India Ltd [1997 (95) ELT 450 (SC)] held as follows:

"2. ..... The words "such as stainless steel, nickel
monel, incoloy, hastelloy" in sub-heading (2) are
only illustrative of the various metals from which
valves can be made but the said description is not
exhaustive of the metals. If the material from which
the valves are made is a corrosion-resisting material
then the valves would fall under sub-heading (2) of
Heading 84.61. ...."

Relying on this decision Hon‟ble Bombay High Court has in the
case of Coca Cola India Pvt Ltd [2009 (15) STR 657 (Bom)] held
as follows:

24. The next expression to be considered from the
definition is ‗such as'. A few dictionary meanings of the
term ‗such as' are reproduced. Concise Oxford Dictionary,
Such as means for example or of a kind that; Chambers
Dictionary, such as means for example :

In
Good Year India Ltd. v. Collector of Customs
- 1997
(95) E.L.T. 450 the Supreme Court observed as under :

....

The words such as therefore are illustrative and not
exhaustive. In the context of business, those are services,
Service Tax Appeal No.979 of 2009

related to the business. They may not be exhaustive, but
are illustrative.

25. The expression Business is an integrated/continuous
activity and is not confined restricted to mere manufacture
of the product. Therefore, activities in relation to business
can cover all the activities that are related to the
functioning of a business. The term business therefore, in
our opinion cannot be given a restricted definition to say
that business of a manufacturer is to manufacture final
products only. In a case like the present, business of
assessee being an integrated activity comprising of
manufacture of concentrate, entering in to franchise
agreement with bottlers permitting use of brand name by
bottlers promotion of brand name, etc. the expression will
have to be seen in that context See (i) Pepsi Foods Ltd. v.

Collector - 1996 (82) E.L.T. 33, (ii) Pepsi Foods Ltd. v.
Collector - 2003 (158) E.L.T. 552 (S.C.).

The Hon'ble Supreme Court in
State of Karnataka v.
Shreyas Paper Pvt. Ltd.
2006 SCC affirmed the view taken
by the Hon'ble Karnataka High Court reported at 2001
(121) STC 738, which, inter alia, held as under :

Business comprises of the regular and systematic activity
with an object of earning of profits. The machinery, plant,
building and the land over which they have erected or
constructed are only the tools of such business. Assets and
liabilities including goodwill are the necessary ingredients
to constitute a business, besides the stocks and other
movable and immovable items connected with the said
business.

In
Mazgaon Dock Ltd. v. Commissioner of Income
tax and
Excess Profits Tax - AIR 1958 SC 861 the Hon'ble Supreme
Court held as follows :

14. The word ―business‖ is, as has often been said, one
of the wide import and in fiscal statutes, it must be
construed in a broad rather than a restricted sense.
Service Tax Appeal No.979 of 2009

15. ―The word ‗business connotes‖, it was observed by
this court in
Narain Swadeshi Weaving Mills v.
Commissioner of Excess Profits Tax
, 1955 1 SCR 952
―some real, substantial and systematic or organized course
of activity or conduct with a set purpose.‖

The term ―business‖ therefore, particularly in fiscal,
statutes is of wide import.

Agreeing with
the above decision
Hon‟ble Bombay High Court
has in case of Ultratech Cement [2010 (260) E.L.T. 369 (Bom.)]
held as follows:

―35. The argument of the Revenue, that the expression
―such as‖ in the definition of input service is exhaustive
and is restricted to the services named therein, is also
devoid of any merit, because, the substantive part of the
definition of ‗input service' as well as the inclusive part of
the definition of ‗input service' purport to cover not only
services used prior to the manufacture of final products,
subsequent to the manufacture of final products but also
services relating to the business such as accounting,
auditing..... etc. Thus the definition of input service seeks
to cover every conceivable service used in the business of
manufacturing the final products. Moreover, the categories
of services enumerated after the expression ‗such as' in
the definition of ‗input service' do not relate to any
particular class or category of services, but refer to variety
of services used in the business of manufacturing the final
products. There is nothing in the definition of ‗input
service' to suggest that the Legislature intended to define
that expression restrictively. Therefore, in the absence of
any intention of the Legislature to restrict the definition of
‗input service' to any particular class or category of
services used in the business, it would be reasonable to
construe that the expression ‗such as' in the inclusive part
of the definition of input service is only illustrative and not
exhaustive. Accordingly, we hold that all services used in
Service Tax Appeal No.979 of 2009

relation to the business of manufacturing the final product
are covered under the definition of ‗input service' and in
the present case, the outdoor catering services being
integrally connected with the business of the manufacture
of cement, credit of service tax paid out on catering
services has been rightly allowed by the Tribunal.

36. The argument of the Revenue that the expression
―such as‖ in Rule 2(l) of 2004 Rules is restricted to the
categories specified therein, runs counter to the C.B.E.C.
Circular No. 97, dated 23rd August, 2007. In that Circular
the C.B.E.C. (vide para 8.3) has held that the credit of
service tax paid in respect of mobile phone service is
admissible provided the mobile phone is used for providing
output service or used in or in relation to manufacture of
finished goods. Mobile phone service is neither used in the
manufacture of final product nor it is specifically included
in the definition of input service. Even then, the C.B.E.C.
has construed the definition of input service widely so as to
cover not only the services specifically enumerated in the
definition of ‗input service' but also cover all services which
are used in relation to the business of manufacturing the
final products. Therefore, the argument of the revenue
which runs counter to stand taken by the C.B.E.C. cannot
be accepted.

37.
In the case of
Coca Cola India Pvt. Ltd.
(supra) a
Division Bench of this Court has considered scope of the
expression ―input service‖ as defined in Rule 2(l) of 2004
Rules. In that case, the question for consideration was,
whether a manufacturer of non-alcoholic beverage bases
(concentrates) is eligible to avail credit of service tax paid
on advertisement, sales promotion, market research etc.

The argument of the revenue
in that case
was that the
advertisements are not relatable to the concentrate
manufactured by
Coca Cola India Pvt. Ltd.
(supra) and
hence, the credit in respect thereof cannot be allowed.
Service Tax Appeal No.979 of 2009

Considering the Finance Minister's Budget Speech for
2004-05, press note issued by the Ministry of finance along
with the Draft 2004 Rules and various decisions of the
Apex Court, this Court held that the expression ‗activities
in relation to business' in the inclusive part of the definition
of ‗input service' further widens the scope of input service
so as to cover all services used in the business of
manufacturing the final products and that the said
definition is not restricted to the services enumerated in
the definition of input service itself. The Court rejected the
contention of the revenue that a service to qualify as an
input service must be used in or in relation to the
manufacture of the final products and held that any service
used in relation to the business of manufacturing the final
product would be an eligible input service.

38. We concur with
the above decision
of this Court in the
case of
Coca Cola India Pvt. Ltd.
(supra)...‖

4.16 It is the submission of the appellants that by
Finance Act,
, the sub
section 104(c)
was inserted in the
Section 65
of
the Finance Act, 1994 defining the business support services as
follows:

―support services of business or commerce‖ means
services provided in relation to business or commerce and
includes evaluation of prospective customers,
telemarketing, processing of purchase orders and
fulfillment services, information and tracking of delivery
schedules, managing distribution and logistics, customer
relationship management services, accounting and
processing of transactions, operational assistance for
marketing, formulation of customer service and pricing
policies, infrastructural support services and other
transaction processing.

Explanation.--For the purposes of this clause, the
expression ―infrastructural support services‖ includes
providing office along with office utilities, lounge, reception
Service Tax Appeal No.979 of 2009

with competent personnel to handle messages, secretarial
services, internet and telecom facilities, pantry and
security; ';

As they are covered by the definition as introduced by the

Finance Act, 2006
they took the registration under this category
and started paying service tax under this category. It is the
submission of the appellant thus that they are providing support
services to the business of M/s SIFCL and hence they are not
covered by the scope of any clause
Section 65 (19)
. They rely on
the following decisions of to buttress their arguments:

⮚ Indian national Ship-owners Association [2009 (14)
STR 289 (Bom)]
⮚ CBRE South Asia Pvt Ltd [2020-TIOL-197-CESTAT-
Del
⮚ CBRE South Asia Pvt Ltd [2021-TIOL-06-SC-ST-LB]
⮚ Malviya National Institute of Technology [2019 (6)
TMI 127-CESTAT New Delhi]
⮚ Global Coal & Mining Pvt Ltd [2020 (36) GSTL 77 (T-
Del)]
⮚ Capital Transport Convoy Contractor [2016 (2) TMI
546 CESTAT New Delhi]

4.17 These decisions do not support the case of appellant as in
all the cases the court/ tribunal concluded that the services
provided were not classifiable under the earlier entry and
became taxable only after introduction of new entry. In the
present case when we conclude that the services provided by the
appellant were classifiable under the taxable category of
Business Auxiliary Services, subsequent introduction of new
service will not alter the classification of service. The crux of the
issue is that classification of the service is to be considered in
terms of the definition as it existed at the relevant time. Our
view is strengthened by the provisions contained in
Section 65 A

of Finance Act, 1994 and reproduced below:

"65A Classification of Taxable Services,-
Service Tax Appeal No.979 of 2009

(1) For the purposes of this Chapter, classification of
taxable services shall be determined according to
the terms of the sub clause s of clause (10% of

Section 65
.

(2) When for any reason, a taxable service is prima
facie, classifiable under two or more sub-clauses
of clause 9105) of
section 65
classification shall
be effected as follows:

(a) The sub clasuse which provides the most
specific description shall be preferred to sub
clauses providing a more general
description.

(b) ......

(c) ....‖

4.18 It is also noted that the appellant had never before raised
this ground either before the adjudicating authority or in their
appeal memo. Hence this ground which has been urged for first
time at the time of hearing of appeal cannot be admitted in view
of the observations as follows made by the Ahmedabad Bench in
the case of DLF Limited [2014 (302) ELT 303 (T-Ahmd)]:

―6.So far as the issues outlined at para 2(iv) an (v) above
are concerned it is observed that the same were not raised
by the appellant before the lower authorities and have also
not been raised in the grounds of appeal before us,
therefore, the same cannot allowed to be raised at the
time of final hearing before CESTAT for the first time.‖

4.19 Appellant have relied upon the decision of tribunal in case
of Jetlite (India) Ltd [2011 (21) STR 119 (T-Del)] and Steria
India Limited [2017-TIOL-3837-CESTAT-ALL to argue that for
holding the services rendered by them to the service recipient,
to be taxable under these clauses of
Section 65 (19)
, it is
necessary to show that the service recipient was providing
taxable services to the third party. However on perusal we do
not find any such averment made in any of these orders. In case
of Jetlite, tribunal has observed:
Service Tax Appeal No.979 of 2009

"61.
The Finance Act, 1994
does not define the term
―Service‖. It merely describes the expression ―Taxable
Service‖. As far as the matter in hand is concerned the
liability of the appellants is said to be in terms of
Section
65(19)(ii)
read with
Section 65(105)(zzb)
of the said Act.

62.
Section 65(19)
of the said Act defines the ―Business
Auxiliary Services‖ and under clause (ii) thereof it provides
that Business Auxiliary Service means, any service in
relation to promotion or marketing of service provided by
the client.
Section 65(105)(zzb)
defines the ―Taxable
Service‖ means, any service provided or to be provided to
a client by any person in relation to Business Auxiliary
Service. In fact, the expression ―any person‖ was
substituted for the earlier expression ―a commercial
concern‖ since 18th April, 2006, consequent to the
amendment to
Finance Act
.

63. Perusal of the above provisions of law, therefore,
would disclose that a person can be said to have rendered
Business Auxiliary Service in terms of the provisions of law
in force, on being established that he has rendered service
in relation to either promotion or marketing of some
service provided by the client. The fact, that the service
provider has rendered the service of promotion or
marketing of the service provided to others by the service
recipient, has to be established before such person can be
said to have rendered the taxable service which can be
classified under the said clause. Unless the service
recipient is shown to have been engaged in rendering
some service to others and the service provider is shown
to have rendered his service for promotion or marketing of
such service provided by the service recipient to others,
the question of creating liability under the said Act in terms
of
Section 65(19)(ii)
read with 65(105) (zzb) of the said
Act does not arise.
Service Tax Appeal No.979 of 2009

65. As already stated above, the term ―Service‖ has not
been defined under the said Act. In Black's Law Dictionary
the term ―service‖ has been defined to be an act of doing
something useful for a person or a company for a fee. The
expression ―service charges‖ is defined therein to mean
charge assessed for performing of service, such as charges
assessed by bank against the expenses of maintaining or
servicing a customer checking account. Even while defining
the term taxable service under the said Act, the definition
specifies the taxable service to mean any service provided
or to be provided to any person whereas the business
auxiliary service has been defined to mean any service in
relation to the service provided by the client. Being so,
taking into consideration the common understanding of the
definition of the term ―service‖ as well as the definition of
the term ―taxable service‖ under the said Act, it is evident
that the service contemplated under
Section 65(19)
is the
one which relates to service rendered by the service
recipient. It may be taxable service or may not be so.
However, the situation invariably contemplates existence
of two entities in order to bring the case within the scope
of definition of business auxiliary service. One entity which
provides service to others is called a service recipient.
Another entity is one which provides service to the service
recipient in relation to the service rendered by such service
recipient to others, and such entity is called the service
provider.

77. The discussion on the point in issue would be
incomplete without reference to some more decisions of
the Apex Court, and they are
Tamilnadu Kalyan Mandapam
Association v. Union of India
reported in 2006 (
3) S.T.R.
260 = 2004 (167) E.L.T. 3, Fakir Chand Gulati v. Uppal
Agencies Private Limited
reported in 2008 (
12) S.T.R. 401,
Home Solutions Retail India Limited v. Union of India

reported in 2009 (14) S.T.R. 433 = 2009 (237) E.L.T. 209
Service Tax Appeal No.979 of 2009

(Del.
),
Association of Leasing & Financial Service
Companies
(supra),
All India Federation of Tax
Practitioners v. Union of India
reported in
2007-TIOL-149-
SC-ST = 2007 (7) S.T.R. 625 (S.C.), Bharat Sanchar
Nigam
(supra) and Gannon Dunkerley's case.

78.
In
Tamilnadu Kalyana Mandapam Association
case,
the Apex Court while dealing with the issue as to whether
the High Court was correct in coming to the conclusion
that the provisions in the
Finance Act, 1994
imposing
Service tax on the services rendered by the Mandap
Keeper were intra virus of the Constitution of India or not.
After going through the scheme of the said Act and various
judgements relevant for the decision in the matter, it was
observed that the Mandap Keeper provide a wide variety of
services apart from the service of allowing temporary
occupation of mandap. Apart from proper maintenance of
the mandap, they were providing the necessary
paraphernalia for holding function, besides providing
condition and ambience required by the customers which
included provision for lighting arrangements, furniture and
fixtures, floor covering etc, decoration and organizing
catering services in the mandap. In fact, the logistic of
setting up, selection and maintenance was the
responsibility of the Mandap Keeper. The services of
Mandap Keeper could not possibly be termed as a higher
purchase agreement of a right to use goods or property.
The services provided by Mandap Keeper are professional
services which he alone by virtue of his experience as the
wherewithal to provide. However, temporary occupation of
mandap does not involve transfer of the property either
under
Transfer of Proper Act
or otherwise. The nature and
character of the Service tax levied on Mandap Keeper is in
relation to transaction between the Mandap Keeper and his
customer which is essentially that of providing a service.
Service Tax Appeal No.979 of 2009

79.
In
Fakir Chand Gulati
case, the point for consideration
before the Apex Court was whether a land owner who
enters into agreement with a builder for construction of an
apartment building and for sharing of the constructed area
is a consumer entitled to maintain a complaint against the
builder as a service provider under the
Consumer
Protection Act, 1986
. It was held therein that the basic
underlying purpose of such agreement is the construction
of a house or an apartment in accordance with the
specification by builder for the owner, the consideration for
such construction being the transfer of undivide share in
land to the builder and grant of permission to the builder
to construct two or more floors. Apart from consideration
flowing from the land owner to the builder in the form of
sale of undivided share in the land and permission to
construct and sell other floors of the building is to adjust
the value to the extent of land to be transferred to the
builder, the important aspect is the availment of services
of the builder by the land owner for house construction for
a consideration. To that extent, the land owner would be a
consumer and the builder to be a service provider.

80.
In
Home Solution
case, the point for consideration
before the Apex Court was whether the
Finance Act, 1994

envisages the levy of Service tax on letting out/renting out
of immovable property per se. The Apex Court after
referring to various relevant provisions of the said Act as
well as taking into consideration the various reported
decisions including
Kalyan Mandapam Association
case
held that the Supreme Court in
Kalyan Mandapam
case
had held that the service of a Mandap Keeper does not
involve transfer of movable property nor does it involve a
transfer of any immovable property of any kind known to
law either under the
Transfer of Property Act
or otherwise
and therefore, the said activity could be only classified as a
service.

It was further held that the observation of the
Service Tax Appeal No.979 of 2009

Supreme Court in
Kalyan Mandapal
case that the utilization
of the premises as a mandap by itself would constitute a
service was required to be distinguished from the kind of
activity that is contemplated under
Section 65(105)(zzzz)

of the said Act. The case of a mandap and service provided
by Mandap Keeper would not be applicable to a case of
renting of immovable property simplicitor. It was further
held that the Service tax is a value added tax. It is a tax
on value addition provided by a service provider. It is,
therefore, obvious that it must have connection with a
service and there must be some value addition by that
service. If there is no value addition then there is no
service. In so far as renting of immovable property for use
in the course of or furtherance of the business or
commerce is concerned by itself does not entail any value
addition and, therefore, cannot be regarded as a service.

81. In Association of Leasing & Financial Service
Companies the Apex Court was dealing with the matter of
an association of lending and financial companies.
The
Finance Act
provided for levy of Service tax for banking
and other financial services.
Section 137
of the Finance
Act, 2001 substituted
Section 65
which defined banking
and other financial services. Subsequently the definition
underwent changes which were introduced by way of

Section 90
of the Finance Act, 2004 and
Section 135
of the
Finance Act, 2007. The appellant filed writ petition in the
High Court challenging the levy of Service tax imposed by

Section 65(12)(a)(i)
of the said Act. During the pendency
of the writ petition, the government issued a Notification
dated 1-3-2006 exempting 90% of the amount payable
under higher purchase/equipment leasing agreements
from Service tax on the ground that the said 90%
represented interest income earned by the service
provider. By virtue of the amended definition of the
expression banking and other financial services, the
Service Tax Appeal No.979 of 2009

transactions in the nature of financial leasing, equipment
leasing and hire-purchase had been sought to be brought
within the Service tax net. The Apex court after taking
note of various provisions of law observed that the Reserve
Bank of India was constituted under
RBI Act, 1934
inter
alia to regulate the country's monetary system.
Chapter
III-B of the RBI Act
deals with the provision relating to
non-banking financial companies and financial institutions.
Section 45-I(c ) of
RBI Act
treats financing as an activity.
Those activities are regulated by Reserve Bank of India.
The expression financial institution means any non banking
institution which carries on as its business and activity
inter alia of financing, whether by way of making loans or
advances or otherwise. Under notification dated 2-1-1998,
the deposit taking activities of non-banking financial
companies were also sought to be regulated. Similarly,
under RBI guidelines dealing with the accounting for
investments, the non-banking financial companies having
not less than 60% of the total assets in lease and higher
purchase and deriving not less than 60% of their total
income from such activities can be classified as higher
purchase/equipment leasing companies. The Apex Court
further observed that the significance of the said circulars
and guidelines is to show that the activities undertaken by
non-banking financial companies of equipment leasing and
hire-purchase finance are facilities extended by non-
banking financial companies to their customers. They are
financial services rendered by such non-banking financial
companies to their customers and they fall within the
meaning of the words banking and other financial services
which were sought to be brought within the Service tax net
under
Section 66
of the said Act. Referring to the Sale of
Goods Act and commentary of the said statute by Mulla,
the Apex Court specifically observed that :
Service Tax Appeal No.979 of 2009

―a common method of selling goods is by means of an
agreement commonly known as a hire-purchase
agreement which is more aptly described as a hiring
agreement coupled with an option or purchase, i.e. To say
that the owner lets out the chattel on higher and
undertakes to sell it to the hirer on his making certain
number of payments. If that is the real effect of the
agreement there is no contract of sale until the hirer has
made the required number of payments and he remains a
bailee till then. But some so-called hire-purchase
agreements are in reality contracts to purchase, the price
to be paid by installments and in those cases the contract
is a contract of sale and not of hiring. It depends on the
terms of the contract whether it is to be regarded as a
contract of hiring or a contract of sale‖.

82. The Apex Court further observed that in All India
Federation of Tax Practitioners' the Apex Court had
explained the concept of Service tax and had held that the
Service tax is a valued added tax which in turn is
destination based consumption tax in the sense that it is
levied on commercial activities and it is not a charge on
the business but on the consumer. And that the Service
tax is an economic concept based on the principle of
equivalence in a sense that consumption of goods and
consumption of services are similar as they both satisfy
human needs. It was further held by the Apex Court that
:-

―Today with the technological advancement there is a very
thin line which divides a ―sale‖ from ―service‖. That,
applying the principle of equivalence, there is no difference
between production or manufacture of saleable goods and
production of marketable/saleable services in the form of
an activity undertaken by the service provider for
consideration, which correspondingly stands consumed by
the service receiver. It is this principle of equivalence
Service Tax Appeal No.979 of 2009

which inbuilt into the concept of Service tax under the

Finance Act, 1994
. That Service tax is, therefore, a tax on
an activity. That, Service tax is a value added tax. The
value addition is on account of the activity which provides
value addition, for example, an activity undertaken by a
Chartered Accountant or a broker is an activity undertaken
by him based on his performance and skill. This is from the
point of view of the professional. However, from the point
of view of his client, the Chartered Accountant/broker is
his service provider. The value addition comes in on
account of the activity undertaken by the professional like
tax planning, advising, consultation etc. It gives value
addition to the goods manufactured or produced or sold.
Thus, Service tax is imposed every time service is
rendered to the customer/client‖.

The Apex
Court further held
that ―every tax may be levied
on an object or on the event of taxation. Service tax is,
thus, a tax on activity whereas sales tax is a tax on sale of
a thing or goods‖.

Having held so, it was also ruled that :

―A contract of sale is different from an agreement to sell
and unlike other contracts, operates by itself and without
delivery to transfer the property in the goods sold. The
word ―sale‖ connotes both a contract and a conveyance or
transfer of property. The law relating to building contracts
was well known when Gannon Dunkerlay's case was
decided and under that law the supply of goods as part of
the works contract was not a sale. Thus, the essential
ingredients of the ―sale‖ are agreement to sell movables
for a price and property passing therein pursuant to an
agreement‖.
Service Tax Appeal No.979 of 2009

83. Referring to the facts of the case of Association of
Leasing & Financial Service Companies, the Apex Court
held that :

―the impugned levy relates to or is with respect to the
particular topic of ―banking and other financial services‖
which includes within it one of the several enumerated
services, viz, financial leasing services. These include long
time financing by banks and other financial institutions
(including NBFCs). These are services rendered to their
customers which comes within the meaning of the
expression ―taxable services‖ as defined in
Section
65(105)(zm)
. The taxable event under the impugned law
is the rendition of service. The impugned tax is not on
material or sale. It is on activity/service rendered by the
service provider to its customer. Equipment Leasing/Hire-
Purchase finance are long term financing activities
rendered. Such amount is credited to the capital account of
the lessor/hire-purchase service provider. It is the
interest/finance charge which is treated as income or
revenue and which is credited to the revenue account,
Such interest or finance charges together with the lease
management fee/processing fee/documentation charges
are treated as considerations for the services rendered and
accordingly they constitute the value of taxable services on
which Service tax is made payable‖.

84. In Bharat Sanchar Nigam's case the matter related to
the state Legislative competency to levy sale tax on the
transaction, by which mobile phone connections are
enjoyed by the customers, under Entry 54 List-II of the
Seventh Schedule to the Constitution. After taking note of
the consensus amongst the parties on the point that the
―goods‖ element in telecommunication were the
electromagnetic waves by which data generated by the
subscriber was transmitted to the desired destination and
proceeding on the basis that incorporeal rights may be
Service Tax Appeal No.979 of 2009

―goods‖ for the purpose of levying sale tax, it was held
that electromagnetic waves are neither abstracted nor are
they consumed in the sense that they are not extinguished
by their user. They are not delivered, stored or possessed.
Nor are they marketable. They are merely the medium of
communication, what is transmitted is not an
electromagnetic wave but the signal through such means.
The signals are generated by the subscribers themselves.
In telecommunication what is transmitted is the message
by means of the telegraph. No part of the telegraph itself
is transferable or deliverable to the subscribers. It was
ruled that ―the electromagnetic waves are not ‗goods'
within the meaning of the word either in
Article 366(12)
or
in the State Legislation‖. It was further observed that ―it is
not in the circumstances necessary for us to determine
whether telephone system including the telephone
exchange was not goods but immovable property as
contended by some of the petitioners‖. It was further held
that ―a telephone service is nothing but a service. There is
no sale element apart from obvious one relating to the
hand set if any. That and any other accessory supplied by
the service provider in our opinion remain to be taxed
under the State Sales Tax Laws‖. It was also held that the
nature of the transaction involved in providing the
telephone connection may be a composite contract of
service and sale. It is possible for the State to tax the sale
element provided there is a discernible sale and only to the
extent relatable to such sale.

85. In Gannon Dunkerley case it was held that if there is
an instrument of contract which may be composite in form
in any case other than the exceptions in
Article 366(29A)
,
unless the transaction in truth represents two distinct and
separate contracts and is discernible as such, then the
State would not have the power to separate the agreement
to sell from the agreement to render service and impose
Service Tax Appeal No.979 of 2009

the tax on sale. However, the said finding was preceded by
the reasoning that ―we are concerned herewith a building
contract, and in the case of such a contract, the theory
that it can be broken up into its component parts and as
regards one of them it can be said that there is a sale
must fail both on the grounds that there is no agreement
to sell materials as such, and that property in them does
not pose as movables‖.

86. Plain reading of the decisions of the Apex Court would
disclose that the Apex Court clearly brought out the
difference between sale and services. Besides it has been
clearly clarified that the taxable event under the said Act is
the rendition of service. It is on the activity conducted or
service rendered by the service provider to its customer
that attracts the provisions of the said Act. The tax under
the said Act cannot be levied on materials or on sale.
Undoubtedly, in case of sale, if any services are rendered
in the nature of processing fee or documentation charges,
etc., that could form part of the services rendered and
may constitute the value of taxable service on which the
Service tax may be leviable. In other words, sale, by itself,
of immovable property, either developed or undeveloped,
or even alongwith construction therein, would not amount
to rendering any service, either taxable or otherwise. But
at the same time, any service rendered in the form of
documentation or the like, certainly the same could
amount to rendering service and would attract the
provisions of the said Act. It is, therefore, necessary for
the department before classifying an activity of service
provider to be taxable service, to establish the factum of
rendering of any such service by the service recipient to
others in the course of sale of the immovable property by
such service recipient, and only then it could be said that
the service provider had provided Business Auxiliary
Service by promoting or marketing such services of the
Service Tax Appeal No.979 of 2009

service recipient. Needless to say that to establish such
facts, it is primarily necessary to have a clear charge in
that regard with the factual foundation in the show cause
notice to give proper and fair opportunity to the assessee
to meet the case of the department and thereupon to
establish such charge in the course of adjudication
proceedings. As far as the case in hand is concerned, as
already seen above in relation to the service aspect is
concerned, the allegation or charge in that regard relates
to the sale of immovable properties or the developed
properties or the constructed project by Sahara
Corporation. It does not relate to any service rendered by
Sahara Corporation to others in relation to the sale of such
properties or projects.‖

4.20 From the observations made in the said decision it is quite
evident that the issue under consideration of the tribunal in this
case was making distinction between sale and service. Tribunal
has in the above decision nowhere concluded that the service
rendered by the service recipient should have been taxable
service. Similarly we do not find any such finding recorded by
the tribunal in the case of Steria also. Therefore the submissions
made by the appellant on the basis of these decisions cannot be
accepted. We have referred to the memorandum of
understanding, balance sheet and other documents in the earlier
part of our order, and have concluded that the client of appellant
was engaged in the business of providing services to his clients.

4.21 Appellant has relied upon the decision of Federal Bank
Limited [2008 (10) STR 320 (T-Bang)] and the decision in case
of Atlas Documentary Facilitators Company (P) Ltd [2017 (50)
STR 22 (T-Mum)] to argue that for the purpose of classifying the
services as ancillary or incidental service as per clause (iv) for
the period prior to 09.10.2004 the services should fall in one of
the principal clause i.e. (i), (ii) or (iii). These decisions also do
not support the case of the appellant. In case of Federal bank
the observations made by the tribunal were in respect of the
Service Tax Appeal No.979 of 2009

amended
Section 65 (19)
as is evident from the decision of
Hon‟ble Kerala High Court as reported at [2013 (29) S.T.R. 554
(Ker.)] and the decision of Hon‟ble Apex Court as reported at
[2016 (42) S.T.R. 418 (S.C.)] affirming the above decision of
Tribunal. We do not dispute that post the amendments made
from 09.10.2004, the sub clause (vii) linked the incidental and
ancillary activities with the activities specified in clause (i) to

(vi).

4.22 With effect from 09.10.2004
Section 65 (19)
was amended
substituting the existing section by new section wherein sub
clauses (iv) was replaced by (iv), (v), (vi) and (vii) which are
reproduced below:

(iv) procurement of goods or services, which are inputs
for the client; or

(v) production of goods 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 remittances, inventory
management, evaluation or development of
prospective customer or vendor, public relation
services, management or supervision;

Impugned order holds that the services provided by the
appellant to his client are covered by (vi). From the terms of the
Memorandum of understanding referred earlier it is evident that
the appellant is providing the service of accepting deposit on the
behalf of his client. We have also held that the activity of
accepting deposits is a service. From the perusal of the definition
of the clauses as above we find that the word used in clauses

(iv), (v) (vi) and (vii) is "service‟ and not taxable service. It is
settled principle in law that the taxing statute need to be
considered on the basis of the words used by the legislature and
there is no room for intendment etc. reliance is placed on the
decisions of the Hon‟ble apex Court in the case of Dilip Kumar &
Service Tax Appeal No.979 of 2009

Company [2019 (361) ELT 577 (SC)] wherein following has
been held:

18. It is well accepted that a statute must be construed
according to the intention of the Legislature and the Courts
should act upon the true intention of the legislation while
applying law and while interpreting law. If a statutory
provision is open to more than one meaning, the Court has
to choose the interpretation which represents the intention
of the Legislature.
In this connection, the following
observations made by this Court in
District Mining Officer
v. Tata Iron and Steel Co.
, (2001) 7 SCC 358, may be
noticed :

―... A statute is an edict of the Legislature and in construing
a statute, it is necessary, to seek the intention of its
maker. A statute has to be construed according to the
intent of them that make it and the duty of the Court is to
act upon the true intention of the Legislature. If a
statutory provision is open to more than one interpretation
the Court has to choose that interpretation which
represents the true intention of the Legislature. This task
very often raises the difficulties because of various
reasons, inasmuch as the words used may not be scientific
symbols having any precise or definite meaning and the
language may be an imperfect medium to convey one's
thought or that the assembly of Legislatures consisting of
persons of various shades of opinion purport to convey a
meaning which may be obscure. It is impossible even for
the most imaginative Legislature to forestall exhaustively
situations and circumstances that may emerge after
enacting a statute where its application may be called for.
Nonetheless, the function of the Courts is only to expound
and not to legislate. Legislation in a modern State is
actuated with some policy to curb some public evil or to
effectuate some public benefit. The legislation is primarily
directed to the problems before the Legislature based on
Service Tax Appeal No.979 of 2009

information derived from past and present experience. It
may also be designed by use of general words to cover
similar problems arising in future. But, from the very
nature of things, it is impossible to anticipate fully the
varied situations arising in future in which the application
of the legislation in hand may be called for, and, words
chosen to communicate such indefinite referents are bound
to be in many cases lacking in clarity and precision and
thus giving rise to controversial questions of construction.
The process of construction combines both literal and
purposive approaches. In other words the legislative
intention, i.e., the true or legal meaning of an enactment
is derived by considering the meaning of the words used in
the enactment in the light of any discernible purpose or
object which comprehends the mischief and its remedy to
which the enactment is directed...‖

19. The well-settled principle is that when the words in a
statute are clear, plain and unambiguous and only one
meaning can be inferred, the Courts are bound to give
effect to the said meaning irrespective of consequences. If
the words in the statute are plain and unambiguous, it
becomes necessary to expound those words in their
natural and ordinary sense. The words used declare the
intention of the Legislature.
In
Kanai Lal Sur v. Paramnidhi
Sadhukhan
, AIR 1957 SC 907, it was held that if the words
used are capable of one construction only then it would not
be open to the Courts to adopt any other hypothetical
construction on the ground that such construction is more
consistent with the alleged object and policy of the Act.

20. In applying rule of plain meaning any hardship and
inconvenience cannot be the basis to alter the meaning to
the language employed by the legislation. This is especially
so in fiscal statutes and penal statutes. Nevertheless, if the
plain language results in absurdity, the Court is entitled to
determine the meaning of the word in the context in which
Service Tax Appeal No.979 of 2009

it is used keeping in view the legislative purpose [
Assistant
Commissioner, Gadag Sub-Division, Gadag v. Mathapathi
Basavannewwa
, 1995 (6) SCC 355]. Not only that, if the
plain construction leads to anomaly and absurdity, the
Court having regard to the hardship and consequences
that flow from such a provision can even explain the true
intention of the legislation. Having observed general
principles applicable to statutory interpretation, it is now
time to consider rules of interpretation with respect to
taxation.

21. In construing penal statutes and taxation statutes,
the Court has to apply strict rule of interpretation. The
penal statute which tends to deprive a person of right to
life and liberty has to be given strict interpretation or else
many innocent might become victims of discretionary
decision-making. Insofar as taxation statutes are
concerned,
Article 265
of the Constitution [265. Taxes not
to be imposed save by authority of law - No tax shall be
levied or collected except by authority of law.] prohibits
the State from extracting tax from the citizens without
authority of law. It is axiomatic that taxation statute has to
be interpreted strictly because State cannot at their whims
and fancies burden the citizens without authority of law. In
other words, when competent Legislature mandates taxing
certain persons/certain objects in certain circumstances, it
cannot be expanded/interpreted to include those, which
were not intended by the Legislature.

22. At the outset, we must clarify the position of ‗plain
meaning rule or clear and unambiguous rule' with respect
of tax law. ‗The plain meaning rule' suggests that when the
language in the statute is plain and unambiguous, the
Court has to read and understand the plain language as
such, and there is no scope for any interpretation. This
salutary maxim flows from the phrase ―cum inverbis nulla
ambiguitas est, non debet admitti voluntatis quaestio‖.
Service Tax Appeal No.979 of 2009

Following such maxim, the Courts sometimes have made
strict interpretation subordinate to the plain meaning rule
[Mangalore Chemicals case (Infra para 37).], though strict
interpretation is used in the precise sense. To say that
strict interpretation involves plain reading of the statute
and to say that one has to utilize strict interpretation in the
event of ambiguity is self-contradictory.

23. Next, we may consider the meaning and scope of
‗strict interpretation', as evolved in Indian law and how the
higher Courts have made a distinction while interpreting a
taxation statute on one hand and tax exemption
notification on the other. In Black's Law Dictionary (10th
Edn.) ‗strict interpretation' is described as under :

Strict interpretation. (16c) 1. An interpretation according
to the narrowest, most literal meaning of the words
without regard for context and other permissible
meanings. 2. An interpretation according to what the
interpreter narrowly believes to have been the specific
intentions or understandings of the text's authors or
ratifiers, and no more. - Also termed (in senses 1 & 2)
strict construction, literal interpretation; literal
construction; restricted interpretation; interpretatio stricta;
interpretatio restricta; interpretatio verbalis. 3. The
philosophy underlying strict interpretation of statutes. -
Also termed as close interpretation; interpretatio
restrictive.

See strict constructionism under constructionism. Cf. large
interpretation; liberal interpretation (2).

―Strict construction of a statute is that which refuses to
expand the law by implications or equitable considerations,
but confines its operation to cases which are clearly within
the letter of the statute, as well as within its spirit or
reason, not so as to defeat the manifest purpose of the
legislature, but so as to resolve all reasonable doubts
against the applicability of the statute to the particular
Service Tax Appeal No.979 of 2009

case.' Wiliam M. Lile et al., Brief Making and the use of
Law Books 343 (Roger W. Cooley & Charles Lesly Ames
eds., 3d ed. 1914).

―Strict interpretation is an equivocal expression, for it
means either literal or narrow. When a provision is
ambiguous, one of its meaning may be wider than the
other, and the strict (i.e., narrow) sense is not necessarily
the strict (i.e., literal) sense.‖ John Salmond,
Jurisprudence 171 n. (t) (Glanville L. Williams ed., 10th
ed. 1947).

24. As contended by Ms. Pinky Anand, Learned Additional
Solicitor General, the principle of literal interpretation and
the principle of strict interpretation are sometimes used
interchangeably. This principle, however, may not be
sustainable in all contexts and situations. There is certainly
scope to sustain an argument that all cases of literal
interpretation would involve strict rule of interpretation,
but strict rule may not necessarily involve the former,
especially in the area of taxation. The decision of this Court
in
Punjab Land Development and Reclamation Corporation
Ltd., Chandigarh v. Presiding Officer, Labour
Court
Chandigarh and Ors., (1990) 3 SCC 682, made the said
distinction, and explained the literal rule-

―The literal rules of construction require the wording of the
Act to be construed according to its literal and grammatical
meaning whatever the result may be. Unless otherwise
provided, the same word must normally be construed
throughout the Act in the same sense, and in the case of
old statutes regard must be had to its contemporary
meaning if there has been no change with the passage of
time.‖

That strict interpretation does not encompass strict -
literalism into its fold. It may be relevant to note that
simply juxtaposing ‗strict interpretation' with literal rule'
would result in ignoring an important aspect that is
Service Tax Appeal No.979 of 2009

‗apparent legislative intent'. We are alive to the fact that
there may be overlapping in some cases between the
aforesaid two rules. With certainty, we can observe that,
‗strict interpretation' does not encompass such literalism,
which lead to absurdity and go against the legislative
intent. As noted above, if literalism is at the far end of the
spectrum, wherein it accepts no implications or inferences,
then ‗strict interpretation' can be implied to accept some
form of essential inferences which literal rule may not
accept.

25. We are not suggesting that literal rule de hors the
strict interpretation nor one should ignore to ascertain the
interplay between ‗strict interpretation' and ‗literal
interpretation'. We may reiterate at the cost of repetition
that strict interpretation of a statute certainly involves
literal or plain meaning test. The other tools of
interpretation, namely contextual or purposive
interpretation cannot be applied nor any resort be made to
look to other supporting material, especially in taxation
statutes. Indeed, it is well-settled that in a taxation
statute, there is no room for any intendment; that regard
must be had to the clear meaning of the words and that
the matter should be governed wholly by the language of
the notification. Equity has no place in interpretation of a
tax statute. Strictly one has to look to the language used;
there is no room for searching intendment nor drawing any
presumption. Furthermore, nothing has to be read into nor
should anything be implied other than essential inferences
while considering a taxation statute.

26. Justice G.P. Singh, in his treatise ‗Principles of
Statutory Interpretation' (14th ed. 2016 p.-879) after
referring to Re, Micklethwait, (1885) 11 Ex 452; Partington
v. A.G., (1869) LR 4 HL 100;
Rajasthan Rajya Sahakari
Spinning & Ginning Mills Federation Ltd. v. Deputy CIT,
Jaipur
, (2014) 11 SCC 672, State Bank of Travancore v.
Service Tax Appeal No.979 of 2009

Commissioner of Income Tax, (1986) 2 SCC 11 and Cape
Brandy Syndicate v. IRC, (1921) 1 KB 64, summed up the
law in the following manner -

―A taxing statute is to be strictly construed. The well-
established rule in the familiar words of LORD
WENSLEYDALE, reaffirmed by LORD HALSBURY AND LORD
SIMONDS, means : ‗The subject is not to be taxed without
clear words for that purpose : and also that every Act of
Parliament must be read according to the natural
construction of its words. In a classic passage LORD
CAIRNS stated the principle thus : ―If the person sought to
be taxed comes within the letter of the law he must be
taxed, however great the hardship may appear to the
judicial mind to be. On the other hand, if the Crown
seeking to recover the tax, cannot bring the subject within
the letter of the law, the subject is free, however
apparently within the spirit of law the case might otherwise
appear to be. In other words, if there be admissible in any
statute, what is called an equitable construction, certainly,
such a construction is not admissible in a taxing statute
where you can simply adhere to the words of the statute.
VISCOUNT SIMON quoted with approval a passage from
ROWLATT, J. expressing the principle in the following
words : ―In a taxing Act one has to look merely at what is
clearly said. This is no room for any intendment. There is
no equity about a tax. There is no presumption as to tax.
Nothing is to be read in, nothing is to be implied. One can
only look fairly at the language used.‖

It was further observed :

―In all tax matters one has to interpret the taxation statute
strictly. Simply because one class of legal entities is given
a benefit which is specifically stated in the Act, does not
mean that the benefit can be extended to legal entities not
referred to in the Act as there is no equity in matters of
taxation....‖
Service Tax Appeal No.979 of 2009

Yet again, it was observed :

―It may thus be taken as a maxim of tax law, which
although not to be overstressed ought not to be forgotten
that, ―the subject is not to be taxed unless the words of
the taxing statute unambiguously impose the tax on him‖,
[Russel v. Scott, (1948) 2 All ER 1]. The proper course in
construing revenue Acts is to give a fair and reasonable
construction to their language without leaning to one side
or the other but keeping in mind that no tax can be
imposed without words clearly showing an intention to lay
the burden and that equitable construction of the words is
not permissible [Ormond Investment Co. v. Betts, (1928)
AC 143]. Considerations of hardship, injustice or anomalies
do not play any useful role in construing taxing statutes
unless there be some real ambiguity [Mapp v. Oram,
(1969) 3 All ER 215]. It has also been said that if taxing
provision is ―so wanting in clarity that no meaning is
reasonably clear, the Courts will be unable to regard it as
of any effect [IRC v. Ross and Coutler, (1948) 1 All ER
616].‖

Further elaborating on this aspect, the Learned author
stated as follows :

―Therefore, if the words used are ambiguous and
reasonable open to two interpretations benefit of
interpretation is given to the subject [Express Mill v.
Municipal Committee, Wardha, AIR 1958 SC 341].
If the
Legislature fails to express itself clearly and the taxpayer
escapes by not being brought within the letter of the law,
no question of unjustness as such arises [
CIT v. Jalgaon
Electric Supply Co.
, AIR 1960 SC 1182].

But equitable
considerations are not relevant in construing a taxing
statute, [
CIT, W.B. v. Central India Industries
, AIR 1972
SC 397], and similarly logic or reason cannot be of much
avail in interpreting a taxing statute [
Azam Jha v.
Expenditure Tax Officer, Hyderabad
, AIR 1972 SC 2319].
Service Tax Appeal No.979 of 2009

It is well-settled that in the field of taxation, hardship or
equity has no role to play in determining eligibility to tax
and it is for the Legislature to determine the same [
Kapil
Mohan v. Commr. of Income Tax, Delhi
, AIR 1999 SC
573].

Similarly, hardship or equity is not relevant in
interpreting provisions imposing stamp duty, which is a
tax, and the Court should not concern itself with the
intention of the Legislature when the language expressing
such intention is plain and unambiguous [
State of Madhya
Pradesh v. Rakesh Kohli & Anr.
, (2012) 6 SCC 312].

But
just as reliance upon equity does not avail an assesse, so it
does not avail the Revenue.‖

The passages extracted above, were quoted with approval
by this Court in at least two decisions being
Commissioner
of Income Tax v. Kasturi Sons Ltd.
, (
1999) 3 SCC 346 and
State of West Bengal v. Kesoram Industries Limited
,
(2004) 10 SCC 201 [hereinafter referred as
‗Kesoram
Industries
case' for brevity]. In the later decision, a Bench
of seven-Judges, after citing the above passage from
Justice G.P. Singh's treatise, summed up the following
principles applicable to the interpretation of a taxing
statute :

―(i) In interpreting a taxing statute, equitable
considerations are entirely out of place. A taxing statute
cannot be interpreted on any presumption or assumption.
A taxing statute has to be interpreted in the light of what
is clearly expressed : it cannot imply anything which is not
expressed : it cannot import provisions in the statute so as
to supply any deficiency : (ii) Before taxing any person, it
must be shown that he falls within the ambit of the
charging section by clear words used in the section; and

(iii) If the words are ambiguous and open to two
interpretations, the benefit of interpretation is given to the
subject and there is nothing unjust in a taxpayer escaping
if the letter of the law fails to catch him on account of
Legislature's failure to express itself clearly‖.
Service Tax Appeal No.979 of 2009

4.23 Relying on the decision of Hon‟ble Supreme Court as

referred above
Hon‟ble Madras High Court has in the case of
Premier Garment Process [2022 (67) G.S.T.L. 514 (Mad.)] held
as follows:

9. Prior to the aforesaid period, the appellant was liable
to pay tax service provider as ―Business Auxiliary Service‖
as defined under
Section 65(19)
of the Finance Act, 1994,
which reads as under:

―(iii) for clause (19) the following clauses shall be
substituted, namely :-

(19) ―business auxiliary service‖ means any service in
relation to -

(i) ......‖

10. The appellant was liable to pay tax, as the service
provided by the appellant squarely falls within the ambit of
Clause (iii) of
Section 65(19)
of Finance Act, 1994, which
reads as under :

(iii) any customer care service provided on behalf of the
client.

11. For the period after 1-7-2012, the service provided
by the appellant fall within the definition of ‗service' as
under
Section 65(b)(44)
of the Finance Act, 1994 w.e.f. 1-
7-2012, which reads as follows :

.......

12. The reliance placed on
Section 99
of the Finance Act,
2013 by the appellant in this appeal, at this stage, is of no
relevance as it applies only to taxable service
provided by the Indian Railways. The service provided
by the appellant to the Railways cannot be construed as
the service provided by the Railways. What is provided by
the appellant is the service of supply of bed rolls alone for
the passengers travelling in AC compartments. Therefore,
the appellant cannot claim any exemption in terms of the
aforesaid provisions of the
Finance Act, 2013
. That apart,
Service Tax Appeal No.979 of 2009

while claiming exemption, the Hon'ble Supreme Court in

Union of India v. Wood Papers Ltd.
1991 taxmann.com 77
(SC) = 1990 (47) E.L.T. 500 (S.C.) has held as under :

―....Literally exemption is freedom from liability, tax or
duty. Fiscally, it may assume varying shapes, specially, in
a growing economy. For instance tax holiday to new units,
concessional rate of tax to goods or persons for limited
period or with the specific objective etc. That is why its
construction, unlike charging provision, has to be tested on
different touchstone. In fact, an exemption provision is like
an exception and on normal principle of construction or
interpretation of statutes it is construed strictly either
because of legislative intention or on economic justification
of inequitable burden or progressive approach of fiscal
provisions intended to augment State revenue. But once
exception or exemption becomes applicable no rule or
principles requires it to be construed strictly. Truly
speaking liberal and strict construction of an exemption
provision are to be invoked at different stages of
interpreting it. When the question is whether a subject falls
in the notification or in the exemption clause then it being
in nature of exception is to be construed strictly and
against the subject, but once ambiguity or doubt about
applicability is lifted and the subject falls in the notification
then full play should be given to it and it calls for a wider
and liberal construction......‖

13. This view has been followed repeatedly by the
Hon'ble Supreme Court and recently in
Commissioner of
Customs (Import), Mumbai v. Dilip Kumar & Company

[2018 (361) E.L.T. 577 (S.C.)], the law has been
summarised by the Hon'ble Supreme Court as follows :

―(1) Exemption notification should be interpreted
strictly; the burden of proving applicability would be
on the assessee to show that his case comes within
Service Tax Appeal No.979 of 2009

the parameters of the exemption clause or
exemption notification.

(2) When there is ambiguity in exemption
notification which is subject to strict interpretation,
the benefit of such ambiguity cannot be claimed by
the subject/assessee and it must be interpreted in
favour of the revenue.

(3) The ratio in Sun Export case is not correct and
all the decisions which took similar view as in Sun
Export Case stands overruled.‖

14. Once the language in taxing statute is clear, there is
no scope in interpreting the same as the tax provisions has
to be read as it is and nothing is to be intended. In this
connection, the decision of the Privy Council in Cape
Brandy Syndicate v. Inland Revenue Commissioner
[(1921) 1KB 64] wherein it is held as follows :

―In a taxing Act one has to look merely at what is clearly
said. There is no room for any intendment. There is no
equity about a tax. There is no presumption as to tax.
Nothing is to be read in, nothing is to be implied. One can
only took fairly at the language used.‖

15. This view has also been followed by the Hon'ble
Supreme Court repeatedly in several cases dealing with
taxing enactment. Therefore, we are not inclined to
interfere with the order passed by the Central Excise
Service Tax Appellate Tribunal. Accordingly, these Civil
Miscellaneous Appeals are dismissed. We, however, give
liberty to the appellant to work out their remedy in terms
of
Section 64A
of the Sale of Goods Act, 1930.‖

4.24 Thus in view of the discussions as above we hold that the
services provided by the Appellant to M/s SIFCL were correctly
classifiable under the taxable category of Business Auxiliary
Service as defined by
Section 65 (19)
and amended from time to
time during the relevant period.
Service Tax Appeal No.979 of 2009

4.25 On the issue of reimbursable expenses, adjudicating
authority has observed as follows:

―22.5 Reimbursement of Expenses: At the time of hearing
on 31.7.08, the Noticee submitted a copy of various
clarifications in support of their stand that they should get
the benefit of reimbursement. The Noticee has made
reference to DGST letter F No V/DGST/Misc-7/98/Mumbai
dt 11th Feb 1999 which states; ―As regards charges billed
to the client on account of out of pocket expenses which
are reimbursable on actual basis, such as traveling,
boarding and lodging expenses is concerned, the same are
not subject to service tax. In this respect, the service tax
assessee may be required by the jurisdictional
Commissioner of Central Excise to provide documentary
evidence substantiating his claim for abatement from the
gross amount received from the client for services
rendered.

The noticee has also relied on various clarifications in
respect of various services like custom house agent,
market research agency, security agency and manpower
recruitment agency in which reimbursement on actual
basis is kept out of the service tax net.

Here the principle of keeping reimbursement on actual
expenses outside the service tax net is not disputed. But
as DGST letter, documentary evidence is a must for
considering reimbursement on actual basis to be kept
outside the service tax net. The Noticee has submitted
certificate dt 11.8.2009 by M/s CPS & Company Chartered
Accountants, that direct expenses incurred by M/s Sahara
India, during the relevant period, has been reimbursed by
M/s SIFCL. They also submitted some copies of Debit notes
and details period wise direct expenses and uncertified
copy of general ledger of M/s Sahara India for the relevant
period. The Noticee has not submitted any clinching
evidence as to how these expenses have accrued to be
Service Tax Appeal No.979 of 2009

reimbursed by M/s SIFCL nor they have submitted any
detailed breakup of said expenses. Thus the documents
provided by the Noticee are not sufficient to substantiate
Noticees claim that the said amount has been received by
them as reimbursement on actual basis and hence should
be outside the service tax net.‖

From the above it is evident that impugned order in no way
disputes that reimbursable expenses need to be deducted from
the gross amount for determining the taxable value. However
have denied the same only for the reason that appellant has
failed to provide the documents and evidence in respect of these
expenses. We are inclined to accept the submissions made by
the appellant relying on the decision of Hon‟ble Delhi High Court
in the case of Intercontinental Consultants and Technocrats P ltd
[2012-TIOL-966-HC-ST-Del] and affirmed by the Hon‟ble Apex
Court as reported at [2018 (10) GSTL 401 (SC)], subject to
production of documents and evidences in this regard before the
adjudicating authority for re-determination of the taxable value.
Thus matter to this extent needs to be remanded to the
adjudicating authority.

4.26 On the claim of CENVAT Credit, Commissioner has
observed as follows:

―22.4 Whether CENVAT Credit to the noticee was
admissible during the period of demand:

It has been pleaded by the noticee that in the case
of confirmation of demand in respect of business Auxiliary
Services they should be extended benefit of CENVAT
service tax paid on input service used in relation to output
service provided by them.

In this connection, for consideration of the plea of
the noticee, it is pertinent to examine the relevant
provisions of the CENVAT Credit Rules, 2004. Sub Rule 7 of
Rule 4 of the CXENVAT Credit Rules, 2004 which prescribes
the condition for allowing Cenvat Credit in respect of
Service provider of output service is as under:
Service Tax Appeal No.979 of 2009

―The Cenvat Credit in respect of input services shall be
allowed, on or after the day which payment is made of the
value of input service and the service tax paid or payable
as indicated in invoice, bill or as the case may be challan
referred to in Rule, 9.‖

It is seen that the condition prescribed for availment of
CENVAT by service tax provider in the instant case has not
been fulfilled. As the Noticee has neither obtained
registration under service tax nor has submitted relevant
documents as specified under Rule 4 and Rule 9 of the
CENVAT Credit Rules, 2004, therefore they are not eligible
to take the benefit of CENVAT credit.

It is also pertinent to point out that the burden of proof
that they are entitled for availment of CENVAT Credit is on
the noticee in terms of Rule 9 (5) of the CENVAT Credit
Rules, 2004. In absence of such proof from the Noticee the
plea cannot be as per Service tax Law. The question at this
stage is theoretical. CENVAT Credit is governed by various
stipulations and it is for the assessee to follow the
prescribed procedure to claim the credit on input services.

It is seen that during the course of investigations by
DHGCEI and thereafter during substantial submission of
reply by the noticee has not brought on records the
documents maintained by them and to the availment of
input services under the provisions of ―Business Auxiliary
Services‖. It is also seen that the noticee has not
submitted any documentary evidences for consideration of
CENVAT Credit of input services or any other compliance of
provisions relating TO Cenvat Credit.

I therefore, hold that CENVAT Credit of input service and
documentary evidences in respect of payment of Service
tax on input service the compliance of Service tax Rules
for availment of Cenvat Credit has not been done. The
noticee is not entitled to benefit of CENVAT Credit at this
stage of proceedings.
Service Tax Appeal No.979 of 2009

Limitation and Penalties:

4.27 On the issue of limitation and imposition of penalties,
adjudicating authority has in the impugned order observed as
follows:

―22.2.2 The noticee had contended that they had
enquired vide their letter dt 19.07.03 to Superintendent,
Central Range -II, Lal Imli, Kanpur mentioning therein that
they had been providing service to M/s SIFCL in promotion
of their work as an agent. They have pleaded that because
all the facts had been brought to in the notice of the
department about their activities and therefore the
extended period therefore the extended period invoked in
the show cause notice was not proper.

I have perused the referred letter dt 19.07.03 by the
noticee. It is addressed to Superintendent, Central Range

-II, Lal Imli, Kanpur and signed by Regional Manager of
M/s Sahara India located at Kanpur. The question of
relying of this letter does not arise even if was in fact sent
to some officer in Kanpur in light of Hon'ble High Court's
judgment in the case of Commissioner of Customs and
Central Excise, Meerut Vs Kushal Fertilizers (P) Ltd [2008
(229) ELT 652 (Uttarakhand)] wherein it has been held
that information given to Inspector of range with regard to
which he had no jurisdiction in the matter, cannot be said
to information to Office of Assistant Collector I.e. the
concerned Central Excise Officer.

It is seen that the head office of the Noticee was at
Bombay and the Noticee itself is located at Lucknow. The
Noticee was well in position to write / approach Bombay/
Lucknow Service Tax offices to ascertain the position of the
taxable service and its classification. As per the case
record it was not done. Moreover, this fact was not
brought to the notice of DGCEI Officers at the time of
investigation. This indicates that the noticee had not
supplied the material facts to the department or DGCEI
Service Tax Appeal No.979 of 2009

Officers at the time of investigation. I do not find any
reason to give any weightage to the submission of the
noticee at this belated stage. Accordingly, I conclude that
the letter dt 19.07.03 is of no relevance and rather it
would support the view taken by the Department that
inspite of having an idea that service tax is payable, the
Noticee adopted evasioning tactics to willfully avoid the tax
and follow the required procedure.

22.2.3 The party has relied upon the following case
laws in their defence to plead that the demand was time
barred and extended period was not applicable on them.
They have cited following judgment in their defence:

(
a) Cosmic Dye Chemical Vs Collector of Central Excise
Bombay
1995 (75) ELT 721 (SC): ......

(b) CCE Vs Cemphar Drug and Liniments 1989 (40) ELT
276 (SC) ―....‖

(c) Pushpam Pharmaceuticals Company 1995 (78) ELT
401 9SC) ―....‖

(
d) Continental Foundation Jt Venture Vs Commissioner
of Central Excise Chandigarh
2007 (216) ELT 177 (SC) ―...‖

(e) Bhayalakshmi Poha Industries ―....‖

Thus it is seen that the ratio of the above cases is not
applicable in the present case.

22.2.4 Under the provisions of
Section 69
of FA'94
any service tax provider providing taxable service and
liable to pay service tax has to obtain registration from
the jurisdictional Superintendent of Central Excise. The
relevant provision of the
Finance Act, 1994
is as under:

―
Section 69
: - Registration

(1) Every person liable to pay the service tax under this
Chapter or the rules made thereunder shall, within such
time and in such manner and in such form as may be
Service Tax Appeal No.979 of 2009

prescribed, make an application for registration to the
Superintendent of Central Excise.‖

It is admitted fact that the noticee did not obtain
registration from the Central Excise Department for which
they were statutorily required.

22.2.5 The noticee under the provision of
Section 70

of the Finance Act was under statutory obligation to file
service tax return. The relevant extract of
Section 70
is as
under:

―
Section 70
: - Furnishing of returns:

a) 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
and with such late fee not exceeding twenty
thousand rupees, for delayed furnishing of return,
as may be prescribed.

It is evident from the ace records that the noticee had not
furnished any return to the Superintendent of Central
Excise during the relevant period.

22.2.6 It is evident from the Para 20.2.3 and para
20.2.4 that the noticee did not obtain any registration from
the department under the provisions of
Section 69
of the
Act, ibid, did not furnish any return to the department
under the provisions for the provision of
Section 70
of the
Act, ibid; they did not pay any Service tax. It simply
implies that the noticee did not discharge his statutory
obligations and liability of payment of service tax under
Service tax law. The contention of the noticee that the
service Tax was not paid on bonafide belief that they were
not liable to pay service tax is not established. The
services provided by the noticee are clearly and
unambiguously within the purview of the definition of
Service Tax Appeal No.979 of 2009

―Business Auxiliary Service‖ as defined in
Section 65 (19)

of the Finance Act, 1994. Keeping in view the status of the
noticee and paraphernalia of the noticee the submission of
ignorance and that of ambiguity in the interpretation of
definition of ―Business Auxiliary service‖ is not acceptable
from the facts of the case on record. The material facts
were suppressed by the noticee from the department in as
much as the registration was not taken, returns were not
filed and the service tax was not paid and with the clear
intention to evade it. The noticee deliberately did not
comply with the provisions of service tax law with intent to
evade Service tax due to the Govt. exchequer. The noticee
has however obtained registration under business support
service on 10.11.06.

I therefore, hold that the noticee consciously
suppressed material facts from the Department with intent
to evade Service Tax by not taking registration and not
filing returns as per the Service Tax Law. Furthermore, the
noticee did not discharge its statutory obligation of Service
Tax payment. The provision of taxable service and evasion
of service tax by the noticee was detected by the
Department. After taking into all the facts and
circumstances of the case, I hold that the extended period
for demand of Service tax under
Section 73 (1)
of the
Finance Act, 1994 is invokable.‖

23. Whether the noticee is liable to Penalty under

Section 76
,
and &8 of
Finance Act, 1994
.

a) The submission of the noticee is that there was
ambiguity regarding the scope of ―Business
Auxiliary Services‖ during the relevant period as
the noticee was not sure whether the services
provided by them are taxable in light of discussion
held herein before.
Service Tax Appeal No.979 of 2009

b) The noticee did not obtain any registration under
the provisions of FA'94. More so the noticee did
not furnish any return to the department.

c) The noticee did not file and discharge service tax
liability on them under Service Tax law during the
relevant period.

d) The noticee deliberately with intent to evade
service tax did not supply correct and true
information and suppress material facts during
the relevant period from the Department and the
investigating officers of DGCEI.

The noticee has relied upon the following decisions of
the Hon'ble Tribunal in their defence that penalty is not
impossible:

In the instant case, the noticee has never approached
the department for taking registration and discharging
its service tax liability. The noticee by action of omission
or failure to make a return under
Section 70
for the
period 1.7.03 to 31.7.06 to disclose wholly or truly all
material facts viz, nature of a service provided by them
and the gross amount of pay out/ commission received
by them, necessary for their assessment for the sad
period, the value of taxable service had escaped
assessment. The noticee did so with intent to evade
payment of service tax. Thus Noticee has rendered
themselves liable to penal action under
Section 76
,
and
of FA' 94‖.

4.28 The sole reliance for arguing against invocation of the
extended period of limitation by the appellant in the present case
is on the letter dated 19.07.2003 2hich the some regional office
of the appellant has written to some unconcerned range officer.

The Commissioner has rightly stated that nothing was
communicated to the concerned officers which can be said to be
the jurisdictional officers in the matter. Further this letter do not
establish any bonafides on the behalf of the appellant as nothing
Service Tax Appeal No.979 of 2009

has been placed on record to show that they had even pursued
for the response to the said letter. However this letter clearly
establishes that the appellant was aware of the fact that the
services provided by them are liable to be taxed under the
category of Business Auxiliary Services but with the intention to
evade the payment of tax they avoided approaching the
jurisdictional officers, with all the relevant facts. Hon‟ble
Supreme Court has in the case of Gujarat Industries [2015 (326)
E.L.T. 625 (S.C.)] held as follows:

"13. Once, we keep the aforesaid facts in mind, it is difficult to
accept that the assessee was under bona fide belief that Excise
duty was not payable and that it was not permissible for the
Department to avail the larger period of limitation by invoking
proviso to
Section 11A
of the Act. All the Authorities below have
rejected this argument of the assessee. The Tribunal while
upholding the view of the Commissioner agreed with the reasons
given by the Commissioner in the following manner :

―The Commissioner has also for valid reasons held that the
extended period of limitation was applicable and that the
Department's record did not show the receipt of any letter
allegedly written on 28-9-1996. The assessee, dealing with
several similar manufacturing units who paid excise duty on
identical processes, and doing job work on their behalf would
have obviously known that excise registration was required for
the cold rolling mills in its factory for the purpose of
manufacturing cold-rolled pattas/pattis. The partner of the
assessee was fully aware that such activity was dutiable, in view
of the fact that four out of six units from which the goods were
received by M/s. Gujarat Industries were paying duty on similar
manufacturing activity. Thus, the Commissioner is right in
issuing the show cause notice by invoking the extended period of
limitation and also holding that the assessee had connived and
deliberately acted in a manner to defraud the Revenue. The
Division Bench of this Tribunal in
Indian Strips v. CCE,
Ahmedabad
- 2004 (173) E.L.T. 265 took note of the Chapter
Service Tax Appeal No.979 of 2009

Note 4 of Chapter 72 for holding that cold-rolling process on flat
rolled product would amount to manufacture. This decision was
rendered after considering the decision of Hon. Supreme Court in
Steel Strips Ltd. - 1995 (77) E.L.T. 248 (S.C.), which was
rendered prior to the enactment of the said Chapter Note 4
which had the effect of including the process of hardening or
tempering in relation to flat-rolled products in the definition of
‗manufacture'.

The subsequent decision in
Lalit Engineering
Works v. CCE, Ahmedabad
could not have taken a view contrary
to the earlier binding decision in
Indian Strips v. CCE,
Aurangabad
(supra) is required to be followed in a subsequent
decision of the Division Bench. The assessee M/s. Gujarat
Industries removed the goods without any cover of excise
invoices and the other assessees received the cold-worked goods
without cover of such excise invoices.‖

4.29 In the case of L.R. Brothers Indo Flora Ltd [2020 (373)
E.L.T. 721 (S.C.)] Hon‟ble Supreme Court has held as follows:

"34. In the fact situation of the present case, the appellant was
issued a show cause notice mentioning that it had suppressed
the DTA sales of cut flowers to evade payment of duty. Had the
appellant in good faith believed that no duty was payable upon
the DTA sales of cut flowers, it would have sought prior approval
of the Development Commissioner, which it failed to do. Even in
the letter seeking ex post facto approval, the appellant claimed
that they had not used any imported input such as fertilizer,
plant growth regulations, etc. in growing flowers sold in DTA,
despite having imported green house equipment, raw materials
like Live Rose Plants and consumables like planting materials
and fertilizers. Therefore, it prima facie appeared that
suppression by the appellant was ―wilful‖. The burden of proving
to the contrary rested upon the appellant, which the appellant
failed to discharge by failing to establish that the imported inputs
were not used in the production of the cut flowers sold in DTA.

In view thereof, the authorities below have rightly invoked

Section 28
of the 1962 Act and allied provisions.‖
Service Tax Appeal No.979 of 2009

4.30 In case of Kitply Industries [2011 (264) E.L.T. 481 (S.C.)]
Hon‟ble Supreme Court ahs held as follows:

"22. Consequently, we propose to look into the first issue in
the light of the background facts as stated hereinbefore. The
specific case of the appellant is that the respondent having
manufactured the excisable goods covered under different
chapter headings, removed them without payment of proper
duty of excise and that from the aforesaid action it is explicit
that there was an intention on the part of the respondent to
evade payment of duty particularly when the contract clause
between the respondent and M/s. Adyar Gate Hotel Ltd. clearly
mentioned that the contractors quoted rate would also include
excise duty.

23. Although, the respondent has pleaded that it was done out
of ignorance, but in our considered opinion there appears to be
an intention to evade excise duty and contravention of the
provisions of the Act. Therefore, proviso of
Section 11A(i)
of the
Act would get attracted to the facts and circumstances of the
present case.

24. The cause of action, i.e., date of knowledge could be
attributed to the appellant in the year 1997 when in compliance
of the memo issued by the appellant and also the summons
issued, the hotel furnished its reply setting out the details of the
work done by the appellant amounting to Rs. 991.66 lakhs and
at that stage only the department came to know that the work
order was to carry out the job for furniture also. A bare perusal
of the records shows that the aforesaid reply was sent by the
respondent on receipt of a letter issued by the Commissioner of
Central Excise on 27-2-1997. If the period of limitation of five
years is computed from the aforesaid date, the show cause
notice having been issued on 15-5-2000, the demand made was
clearly within the period of limitation as prescribed, which is five
years.‖
Service Tax Appeal No.979 of 2009

4.31 In case of Bombay Dyeing & Mfg Co Pvt Ltd [1999 (113)
ELT 331 (T)] following has been held:

―9. Where this situation prevails, the assessee who is in
the knowledge that the inputs so received are less than
those shown in the covering documents, it is for him to
voluntarily take the less credit. Where the assessee is in
such knowledge and where the department have no
knowledge of the situation, the department can allege
suppression of facts. Weighment sheets are not the
documents prescribed in the legislature. The assessee was
working under the self removal procedure and therefore,
there is no reason or cause for the jurisdictional officer to
know about the existence of the weighment sheets and the
shortages in the weighment of inputs that they indicated.
In this situation, we do not see any reason to agree with
the submission on limitation.‖

4.32 Similarly tribunal has in case of Tech Mahindra [2015 (38)
STR 1200 (T)] has held as follows:

―6.4 As regards the contention raised by the appellant that
the appellant in their annual balance sheets provided the
relevant information, we have perused the balance sheets
and the balance sheets do not reflect the payments made
for the various transactions separately. It only gives the
gross amount of the expenditure incurred, in terms of
foreign currency. From that information it cannot be
gathered, for what purpose the expenditure was incurred,
whether it was for a taxable service or otherwise.
Therefore, unless the details of the expenditure incurred
are given, it is not possible to make any conclusion one
way or the other. It is on record that the appellant had not
provided copy of the agreement to the department in
respect of the services received from abroad and these
were provided only in 2010 when the investigation
commenced. Further, the exact details of the payments
made in respect of the marketing promotion activities were
Service Tax Appeal No.979 of 2009

given to the department for the first time only in January,
2011 vide letters dated 5-1-2011 and 7-1-2011. The show
cause notice has been issued on 20-4-2011 and, therefore,
it cannot be said that the show cause notice is barred by
limitation of time.

4.33 In the case of Mehta & Co. [2011 (264) E.L.T. 481 (S.C.)]
Hon‟ble Apex Court held as follows:

―The cause of action, i.e., date of knowledge could be
attributed to the appellant in the year 1997 when in
compliance of the memo issued by the appellant and also
the summons issued; the hotel furnished its reply setting
out the details of the work done by the appellant
amounting to Rs. 991.66 lakhs and at that stage only the
department came to know that the work order was to carry
out the job for furniture also. A bare perusal of the records
shows that the aforesaid reply was sent by the respondent
on receipt of a letter issued by the Commissioner of
Central Excise on 27-2-1997. If the period of limitation of
five years is computed from the aforesaid date, the show
cause notice having been issued on 15-5-2000, the
demand made was clearly within the period of limitation as
prescribed, which is five years.‖

In our considered view, the ratio of the aforesaid decision
squarely applies to the facts of the present case. Since the
copy of the agreement and relevant information were
provided to the department only in 2011 the show cause
notice issued in April, 2011 is clearly within the period of
limitation and therefore, the demands confirmed as above
for the period on or after 18-4-2006 cannot be said to be
time-barred at all.‖

4.34 In case of Usha Rectifier Corpn (I) Ltd [2011 (263) E.L.T.
655 (S.C.)] where appellant had failed to take registration and
discharge the duty liablity, Hon‟ble Supreme Court has held as
follows:
Service Tax Appeal No.979 of 2009

"12. Submission was also made regarding use of the
extended period limitation contending inter alia that such
extended period of limitation could not have been used by
the respondent. The aforesaid contention is also found to
be without any merit as the appellant has not obtained L-4
licence nor they had disclosed the fact of manufacturing of
the aforesaid goods to the department. The aforesaid
knowledge of manufacture came to be acquired by the
department only subsequently and in view of non-

disclosure of such information by the appellant and
suppression of relevant facts, the extended period of
limitation was rightly invoked by the department.‖

4.35 In view of the discussions as above we do not find any
merits in the submissions of the appellant that an extended
period should not have been invoked for making this demand.
The issue of limitation has to be considered on the facts of case
in hand and the conduct of the assessee/ appellant. There
cannot be application of the decisions in determining the issue of
limitation on the basis of the law laid down therein ignoring the
facts of case in hand. We do not find that decisions relied upon
by the appellants will advance their case any further in the facts
of the present case. In case of Bajaj Travels Co [2012 (25)
S.T.R. 417 (Del.)] Hon‟ble Delhi High Court held as follows:

13. We have given our due considerations to the
aforesaid submissions made by the learned counsel for
both the parties. The service tax was introduced by the

Finance Act, 1994
and the relevant provisions are
contained in Chapter-V of the said Act,
Section 66
is the
charging Section and
Section 67
provides the manner of
valuation of taxable services for charging service tax.

Section 68
of the Act, cast an obligation on every person
providing taxable service to any person to collect the
service tax at the rate specified in
Section 66
of the Act.
From
Section 76
to
Section 80
of the Act, different kinds of
penalties are provided for varying default/failure on the
Service Tax Appeal No.979 of 2009

part of those who are liable to pay service tax. Since in the
instance case the penalties are levied under
Section 76

and
of the Act, we reproduce these two Sections
hereunder :-

―76. Penalty for failure to pay service tax -

Any person, liable to pay service tax in accordance with
the provisions of
Section 68
or the rules made under this
Chapter, who fails to pay such tax, shall pay, in addition to
such tax and the interest on that tax amount in accordance
with the provisions of
Section 75
, a penalty which shall not
be less than two hundred rupees for every day during
which such failure continues or at the rate of two per cent.
of such tax, per month, whichever is higher, starting with
the first day after the due date till the date of actual
payment of the outstanding amount of service tax :

Provided that the total amount of the penalty payable in
terms of this section shall not exceed the service tax
payable.‖

―78. Penalty for suppressing value of taxable service :

[Where any service tax has not been levied or paid or has
been short-levied or short-paid or erroneously refunded,
by reason of -

(a) fraud; or

(b) collusion; or

(c) Wilful mis-statement; or

(d) suppression of facts; or

(e) contravention of any of the provisions of this
Chapter or of the rules made thereunder with intent to
evade payment of service tax.

the person, liable, to pay such service tax or erroneous
refund, as determined under sub-section (2) of
Section 73
,
shall also be liable to pay a penalty, in addition to such
Service Tax Appeal No.979 of 2009

service tax and interest thereon; if any, payable by him,
which shall not be less than, but which shall not exceed
twice, the amount of service tax so not levied or paid or
short-levied or short-paid or erroneously refunded]

[Provided that where such service tax as determined under
sub-section (2) of
Section 73
, and the interest payable
thereon under
Section 75
is paid within thirty days from
the date of communication of order of the [Central Excise
Officer] determining such service tax, the amount of
penalty liable to be paid by such person under this section
shall be twenty five per cent of the service tax so
determined :

Provided further that the benefit of reduced penalty under
the first proviso shall be available only if the amount of
penalty so determined has also been paid within the period
of thirty days referred to in that proviso :

Provided also that where the service tax determined to be
payable is reduced or increased by the Commissioner
(Appeals), the Appellate Tribunal or, as the case may be,
the Court, then for the purposes of this section, the service
tax as reduced or increased, as the case may be, shall be
taken into account :

Provided also that in case where the service tax
determined to be payable is increased by the
Commissioner (Appeals), the Appellate Tribunal or, as the
case may be, the court, then, the benefit of reduced
penalty under the first proviso shall be available, if the
amount of service tax so increased, the interest payable
thereon and twenty five per cent of the consequential
increase of penalty have also been paid within thirty days
of communication of the order by which such increase in
service tax takes effect.‖

A perusal of the provisions would show that
Section 76

provides for penalty for failure to pay service tax. In such
a case, in addition to the tax and interest on that tax
Service Tax Appeal No.979 of 2009

amount to be calculated in accordance with the provision
of
Section 75
, penalty is also leviable on the defaulter
which shall not be less than ` 200 for every day during
which such failure continues or at the rate of two per cent
of such tax per month whichever is higher. There is,
however, a cap on this penalty stipulated in the proviso to
this Section which states that penalty payable is not to
exceed the service tax payable.

14. On the other hand, as per
Section 78
, penalty can be
imposed for suppressing the value of taxable service. This
provision applies where the service tax has not been levied
or paid or where it has been short-levied or short-paid or
where the service tax has been erroneously refunded by
reasons of circumstances stipulated therein which are
fraud or collusion or wilful mis-statement or suppression of
facts or contravention of any of the provisions of this
Chapter or of the rules made thereunder. Such fraud,
collusion etc. has to be with intent to evade payment of
service tax. Thus, provision of
Section 78
are attracted
when not only a case of fraud, collusion etc. is made out
but it is also established that the defaulter did not pay or
short-paid or got refund of the tax paid with intent to
evade the payment of service tax. In such a case, the
person who is liable to pay such service tax or is
erroneously refunded the tax can be levied the penalty
which shall not be less than the amount of service tax
evaded/refunded subject to maximum of the twice the said
amount of the non-levy/non-payment/short-levied/ short-

payment/erroneous refund. However, in case the service
tax as determined under
Section 72(2)
of the Act is paid
along with the interest payable under
Section 75
, within 30
days from the date of communication of the order, this
penalty is to be reduced to 25% of the service tax so
determined.
Service Tax Appeal No.979 of 2009

15. By their very nature,
Sections 76
and
of the Act
operate in two different fields.
In the case of
Assistant
Commissioner of Central Excise v. Krishna Poduval
-
(2005) 199 CTR 58 = 2006 (1) S.T.R. 185 (Ker.) the
Kerala High Court has categorically held that instances of
imposition of penalty under
Section 76
and
of the Act
are distinct and separate under two provisions and even if
the offences are committed in the course of same
transactions or arise out of the same Act, penalty would be
imposable both under
Section 76
and
of the Act. We are
in agreement with the aforesaid rule.

16. No doubt,
Section 78
of the Act has been amended by
the
Finance Act, 2008
and the amendment provides that in
case where penalty for suppressing the value of taxable
service under
Section 78
is imposed, the penalty for failure
to pay service tax under
Section 76
shall not apply. With
this amendment the legal position now is that
simultaneous penalties under both
Section 76
and
of
the Act would not be levied. However, since this
amendment has come into force w.e.f. 16th May, 2008, it
cannot have retrospective operation in the absence of any
specific stipulation to this effect. Going by the nature of
the amendment, it also cannot be said that this
amendment is only clarificatory in nature. We may
mention that Punjab and Haryana High Court in its decision
dated 12th July, 2010 in STA 13/2010, entitled
Commissioner of Central Excise v. M/s. Pannu Property
Dealers, Ludhiana [2011 (24) S.T.R. 173 (P & H)] has
taken the view that even if the scope of two sections of the
Act may be different, the fact that penalty has been levied
under
Section 78
could be taken into account for levying or
not levying penalty under
Section 76
of the Act. However,
that was a case where the appellate authority had
exercised its discretion not to levy the penalty under

Section 76
of the Act, when the larger penalty had already
been imposed under
Section 78
of the Act. In this
Service Tax Appeal No.979 of 2009

scenario, the appeal of the Revenue against the said view
taken by the appellate authority was dismissed holding
that ―appellate authority was within its jurisdiction not to
levy the penalty under
Section 76
of the Act having regard
to the fact that penalty equal to service tax had already
been imposed under
Section 78
of the Act. This thinking
was also in consonance with the amendment now
incorporated though the said amendment may not have
been applicable at the relevant time. Moreover, the
amount involved is ` 51,026/- only.‖ The Court, thus,
chose not to interfere with the aforesaid discretion of the
Tribunal.

17. However, in the instant case, the appellate authority,
including the Tribunal, has chosen to impose the penalty
under both the Sections. Since the penalty under both the
Sections is imposable as rightly held by Kerala High Court
in
Krishna Poduval
(supra), the appellant cannot contend
that once penalty is imposed under
Section 78
, there
should not have been any penalty under
Section 76
of the
Finance Act.

18. We, thus, answer question no. 3 against the assessee
and in favour of the Revenue holding that the aforesaid
amendment to
Section 78
by
Finance Act, 2008
shall
operate prospectively.

19. Coming to questions Nos. 1 & 2, the case of the
appellant is that having regard to the provisions of
Section
, there was no reason to impose the penalty under

Section 76
and
of the Finance Act.
Section 80
is
couched in the following language :-

―80. Penalty not to be imposed in certain cases :

Notwithstanding anything contained in the provisions of

Section 76
{
Section 77
or
Section 78
}, no penalty shall be
imposable on the assessee for any failure referred to in the
said provisions if the assessee proves that there was
reasonable cause for the said failure.‖
Service Tax Appeal No.979 of 2009

20. The facts narrated above, clearly disclose, and there
is no dispute about the same, that there was failure on the
part of the appellant to pay full service tax. It was argued
by the learned counsel for the appellant that this provision
has no application as tax was paid though short-paid.

Section 76
applies only when no tax is paid at all as it
deals with ―failure to pay service tax‖ and not when tax is
paid but short-paid. However, the defence of the appellant
is that this failure was due to reasonable cause and,
therefore,
Section 80
becomes applicable. A bare reading
of this provision would show that the onus is upon the
appellant to prove ―reasonable cause‖ for this failure. The
moot question is as to whether the appellant has been able
to discharge this onus? Before we advert to this issue, it is
necessary to understand the meaning which is to be
assigned to expression ―reasonable cause‖. It would mean,
in common parlance a cause or ground which was not
unreasonable. To put it otherwise, in the context of this
case the appellant has to show that there was sufficient
and proper reasons which occasioned the appellant to
make short deposits of service tax than required under the
provisions of the Act. If the appellant can show that the
manner in which he was making the deposits of the service
tax was bona fide i.e., in good faith, it would amount to
‗reasonable cause'. Bona fide implies in the absence of
fraud or unfair dealing. The equivalent of this phrase is
―honestly‖. The correct province of this phrase is,
therefore, to qualify things or actions that have relation to
the mind or motive of the individual. Chambers 20th
Century Dictionary defines bona fide to mean ‗in good faith
: genuine'. The word ‗genuine' means ‗natural : not
spurious; real; pure; sincere'. In Law Dictionary Mozley
and Whitley define bona fide to mean ‗good faith, without
fraud or deceit'. Thus the term bona fide or genuinely
refers to a state of mind.‖
Service Tax Appeal No.979 of 2009

4.36 With regards to the penalty imposed under
Section 78
we
find that once the extended period of limitation has been invoked
the penalty under this section is mandatory. In case of
Rajasthan Spinning & Weaving Mills Ltd [2009 (238) ELT 3
(SC)], Hon‟ble Supreme Court has held as follows:

―16. The other provision with which we are concerned in
this case is Section 11AC relating to penalty. It is as
follows :

[11AC. Penalty for short-levy or non-levy of duty in certain
cases.- where any duty of excise has not been levied or
paid or has been short-levied or short-paid or erroneously
refunded by reasons of fraud, collusion or any wilful mis-
statement or suppression of facts, or contravention of any
of the provisions of this Act or of the rules made
thereunder with intent to evade payment of duty, the
person who is liable to pay duty as determined under sub-
section (2) of section 11A, shall also be liable to pay a
penalty equal to the duty so determined :

[Provided that where such duty as determined under sub-
section (2) of section 11A, and the interest payable
thereon under section 11AB, is paid within thirty days from
the date of communication of the order of the Central
Excise Officer determining such duty, the amount of
penalty liable to be paid by such person under this section
shall be twenty-five per cent of the duty so determined :

Provided further that the benefit of reduced penalty under
the first proviso shall be available if the amount of penalty
so determined has also been paid within the period of
thirty days referred to in that proviso :

Provided also that where the duty determined to be
payable is reduced or increased by the Commissioner
(Appeals), the Appellate Tribunal or, as the case may be,
the court, then, for the purpose of this section, the duty as
Service Tax Appeal No.979 of 2009

reduced or increased, as the case may be, shall be taken
into account :

Provided also that in case where the duty determined to be
payable is increased by the Commissioner (Appeals), the
Appellate Tribunal or, as the case may be, the court, then,
the benefit of reduced penalty under the first proviso shall
be available, if the amount of duty so increased, the
interest payable thereon and twenty-five per cent of the
consequential increase of penalty have also been paid
within thirty days of the communication of the order by
which such increase in the duty takes effect -

Explanation. - For the removal of doubts, it is hereby
declared that -

(1) the provisions of this section shall also apply to
cases in which the order determining the duty under sub-

section (2) of section 11A relates to notices issued prior to
the date on which the
Finance Act, 2000
receives the
assent of the President;

(1) any amount paid to the credit of the Central
Government prior to the date of communication of the
order referred to in the first proviso or the fourth proviso
shall be adjusted against the total amount due from such
person.]

17. The main body of Section 11AC lays down the
conditions and circumstances that would attract penalty
and the various provisos enumerate the conditions, subject
to which and the extent to which the penalty may be
reduced.

18. One cannot fail to notice that both the proviso to sub-

section 1
of Section 11A and Section 11AC use the same
expressions : ―....by reasons of fraud, collusion or any
wilful mis-statement or suppression of facts, or
contravention of any of the provisions of this Act or of the
rules made thereunder with intent to evade payment of
Service Tax Appeal No.979 of 2009

duty,...‖. In other words the conditions that would extend
the normal period of one year to five years would also
attract the imposition of penalty. It, therefore, follows that
if the notice under Section 11A(1) states that the escaped
duty was the result of any conscious and deliberate wrong
doing and in the order passed under Section 11A(2) there
is a legally tenable finding to that effect then the provision
of Section 11AC would also get attracted. The converse of
this, equally true, is that in the absence of such an
allegation in the notice the period for which the escaped
duty may be reclaimed would be confined to one year and
in the absence of such a finding in the order passed under
Section 11A(2) there would be no application of the
penalty provision in
Section 11AC
of the Act. On behalf of
the assessees it was also submitted that Sections 11A and
11AC not only operate in different fields but the two
provisions are also separated by time. The penalty
provision of Section 11AC would come into play only after
an order is passed under Section 11A(2) with the finding
that the escaped duty was the result of deception by the
assessee by adopting a means as indicated in Section
11AC.

19. From the aforesaid discussion it is clear that penalty
under Section 11AC, as the word suggests, is punishment
for an act of deliberate deception by the assessee with the
intent to evade duty by adopting any of the means
mentioned in the section.

20. At this stage, we need to examine the recent decision
of this Court in Dharamendra Textile (supra). In almost
every case relating to penalty, the decision is referred to
on behalf of the Revenue as if it laid down that in every
case of non-payment or short payment of duty the penalty
clause would automatically get attracted and the authority
had no discretion in the matter. One of us (Aftab Alam, J.)
was a party to the decision in Dharamendra Textile and we
Service Tax Appeal No.979 of 2009

see no reason to understand or read that decision in that
manner. In Dharamendra Textile the court framed the
issues before it, in paragraph 2 of the decision, as follows :

―2. A Division Bench of this Court has referred the
controversy involved in these appeals to a larger Bench
doubting the correctness of the view expressed in
Dilip N.
Shroff v. Joint Commissioner of Income Tax, Mumbai &
Anr.
[2007 (8) SCALE 304]. The question which arises for
determination in all these appeals is whether
Section 11AC

of the Central Excise Act, 1944 (in short the ―Act') inserted
by
Finance Act, 1996
with the intention of imposing
mandatory penalty on persons who evaded payment of tax
should be read to contain mens rea as an essential
ingredient and whether there is a scope for levying penalty
below the prescribed minimum. Before the Division Bench,
stand of the revenue was that said section should be read
as penalty for statutory offence and the authority imposing
penalty has no discretion in the matter of imposition of
penalty and the adjudicating authority in such cases was
duty bound to impose penalty equal to the duties so
determined. The assessee on the other hand referred to

Section 271(1)(c)
of the Income Tax Act, 1961 (in short
the
IT Act
') taking the stand that
Section 11AC
of the Act
is identically worded and in a given case it was open to the
assessing officer not to impose any penalty.

The Division
Bench made reference to Rule 96ZQ and Rule 96ZO of the
Central Excise Rules, 1944 (in short the ―Rules') and a
decision of this Court in
Chairman, SEBI v. Shriram Mutual
Fund & Anr.
[2006 (5) SCC 361] and was of the view that
the basic scheme for imposition of penalty under
section
271(1)(c)
of IT Act,
Section 11AC
of the Act and Rule
96ZQ(5) of the Rules is common.

According to the Division
Bench the correct position in law was
laid down in

Chairman, SEBI
's case (supra) and not in Dilip Shroff's
case (supra). Therefore, the matter was referred to a
larger Bench.‖
Service Tax Appeal No.979 of 2009

After referring to a number of decisions on interpretation
and construction of statutory provisions, in paragraphs 26
and 27 of the decision, the court observed and held as
follows :

―26. In Union Budget of 1996-97,
Section 11AC
of the Act
was introduced. It has made the position clear that there is
no scope for any discretion. In para 136 of the Union
Budget reference has been made to the provision stating
that the levy of penalty is a mandatory penalty. In the
Notes on Clauses also the similar indication has been
given.

―27. Above being the position, the plea that the Rules
96ZQ and 96ZO have a concept of discretion inbuilt cannot
be sustained.
Dilip Shroff
's case (supra) was not correctly
decided but
Chairman, SEBI
's case (supra) has analysed
the legal position in the correct perspectives. The reference
is answered.........‖.

21. From the above, we fail to see how the decision in
Dharamendra Textile can be said to hold that Section 11AC
would apply to every case of non-payment or short
payment of duty regardless of the conditions expressly
mentioned in the section for its application.

22. There is another very strong reason for holding that
Dharamendra Textile could not have interpreted Section
11AC in the manner as suggested because
in that case

that was not even the stand of the revenue. In paragraph
5 of the decision the court noted the submission made on
behalf of the revenue as follows :

―5. Mr. Chandrashekharan, Additional Solicitor General
submitted that in Rules 96ZQ and 96ZO there is no
reference to any mens rea as in section 11AC where mens
rea is prescribed statutorily. This is clear from the
extended period of limitation permissible under
Section
11A
of the Act. It is in essence submitted that the penalty
is for statutory offence. It is pointed out that the proviso to
Service Tax Appeal No.979 of 2009

Section 11A deals with the time for initiation of action.
Section 11AC is only a mechanism for computation and the
quantum of penalty. It is stated that the consequences of
fraud etc. relate to the extended period of limitation and
the onus is on the revenue to establish that the extended
period of limitation is applicable. Once that hurdle is
crossed by the revenue, the assessee is exposed to
penalty and the quantum of penalty is fixed. It is pointed
out that even if in some statues mens rea is specifically
provided for, so is the limit or imposition of penalty, that is
the maximum fixed or the quantum has to be between two
limits fixed. In the cases at hand, there is no variable and,
therefore, no discretion. It is pointed out that prior to
insertion of Section 11AC, Rule 173Q was in vogue in
which no mens rea was provided for. It only stated ―which
he knows or has reason to believe‖. The said clause
referred to wilful action. According to learned counsel what
was inferentially provided in some respects in Rule 173Q,
now stands explicitly provided in Section 11AC. Where the
outer limit of penalty is fixed and the statute provides that
it should not exceed a particular limit, that itself indicates
scope for discretion but that is not the case here.‖

23. The decision in Dharamendra Textile must, therefore,
be understood to mean that though the application of
Section 11AC would depend upon the existence or
otherwise of the conditions expressly stated in the section,
once the section is applicable in a case the concerned
authority would have no discretion in quantifying the
amount and penalty must be imposed equal to the duty
determined under sub-section (2) of Section 11A. That is
what Dharamendra Textile decides.‖

Thus the penalty imposed under this section cannot be faulted
with. However the same needs to be modified to the extent of
quantum of tax evaded to be determined in the remand
proceedings.
Service Tax Appeal No.979 of 2009

4.38 Penalties under
section 76
and
are not for the
contumacious conduct but for the contravention of the provisions
of statute and hence cannot be faulted. In case of Gujarat
Travancore Agency [1989 (42) E.L.T. 350 (S.C.)] Hon‟ble
Supreme Court has held as follow:

"4. Learned Counsel for the assessee has addressed an
exhaustive argument before us on the question whether a
penalty imposed under
Section 271(1)(a)
of the Act
involves the element of mens rea and in support of his
submission that it does he has placed before us several
cases decided by this Court and the High Courts in order to
demonstrate that the proceedings by way of penalty under

Section 271(1)(a)
of the Act are quasi criminal in nature
and that, therefore, the element of mens rea is a
mandatory requirement before a penalty can be imposed
under Section 271(1)(a). We are relieved of the necessity
of referring to all those decisions. Indeed, many of them
were considered by the High Court and are referred to in
the judgment under appeal. It is sufficient for us to refer to
Section 271(1)(a), which provides that a penalty may be
imposed if the Income Tax Officer is satisfied that any
person has without reasonable cause failed to furnish the
return of total income, and to Section 276C which provides
that if a person wilfully fails to furnish in due time the
return of income required under
Section 139(1)
, he shall
be punishable with rigorous imprisonment for a term which
may extend to one year or with fine. It is clear that in the
former case what it intended is a civil obligation while in
the latter what is imposed is a criminal sentence. There
can be no dispute that having regard to the provisions of
Section 276C, which speaks of wilful failure on the part of
the defaulter and taking into consideration the nature of
the penalty, which is punitive, no sentence can be imposed
under that provision unless the element of mens rea is
established. In most cases of criminal liability, the
Service Tax Appeal No.979 of 2009

intention of the Legislature is that the penalty should serve
as a deterrent. The creation of an offence by Statute
proceeds on the assumption that society suffers injury by
and the act or omission of the defaulter and that a
deterrent must be imposed to discourage the repetition of
the offence. In the case of a proceeding under Section
271(1)(a), however, it seems that the intention of the
legislature is to emphasise the fact of loss of Revenue and
to provide a remedy for such loss, although no doubt an
element of coercion is present in the penalty. In this
connection the terms in which the penalty falls to be
measured is significant. Unless there is something in the
language of the statute indicating the need to establish the
element of mens rea it is generally sufficient to prove that
a default in complying with the statute has occurred. In
our opinion, there is nothing in Section 271(1)(a) which
requires that mens rea must be proved before penalty can
be levied under that provision. We are supported by the
statement in Corpus Juris Secundum Volume 85, page
580, Paragraph 1023 :

―A penalty imposed for a tax delinquency is a civil
obligation, remedial and coercive in its nature, and is far
different from the penalty for a crime or a fine or forfeiture
provided as punishment for the violation of criminal or
penal laws.‖

5. Accordingly, we hold that the element of mens rea was
not required to be proved in the proceedings taken by the
Income Tax Officer under
Section 271(1)(a)
of the
Income-tax Act against the assessee for the assessment
years 1965-66 and 1966-67.‖

4.39 Hon‟ble Delhi High Court has in the case of N & N Chopra
Consultants Pvt. Ltd [2019 (24) G.S.T.L. 550 (Del.)] has upheld
the penalties imposed simultaneously under
Section 76
and
Service Tax Appeal No.979 of 2009

Section 78
, for the period prior to amendments made in
Section
in 2008, observing as follows:

―4. The facts of this case, in the opinion of this court,
notes that the assessee was aware about its service tax
liability; despite this knowledge, it filed its returns claiming
that no liabilities were attracted. When it smelt
investigation and adverse orders, it apparently approached
the service tax authorities and deposited the amounts
which they were admittedly liable to pay. Such being the
case of foreknowledge, in the opinion of the court, itself is
an important factor that ought to have been and was taken
into account by the lower revenue authorities. Hence,
foreknowledge lead to the imposition of recovery of dues
assessed as well as imposition of the penalty under Section

78. The court is of the opinion that the invocation of

Section 78
cannot be faulted with having regard to the
facts of this case. Depositing the amount due, by the
appellant, before issuance of show cause notice per se
does not absolve the appellant of its responsibility to file
the returns, since the option of imposing other penalty
under
Section 76
was exercised. Being a matter of
discretion, its judicious exercise, is all that is in question.

Having regard to the fact of concurrent findings, we are of
the opinion that the exercise of such discretion reserving
imposition of
Section 76
in the circumstances, does not call
for interference.

5. The appellant's contention with respect to
retrospective effect of the amendment of
Section 78

(which makes the imposition of penalties under
Section 76

and
mutually exclusively) are unsubstantial as this
court in M/s.
Bajaj Travels Limited v. Commissioner of
Service Tax, (CEAC
6/2009, decided on 3-8-2011), 2012
(25) S.T.R. 417 held that the amendments are prospective
in nature and cannot come to the aid of an assessee for
past period.‖
Service Tax Appeal No.979 of 2009

4.40 Thus we do not find any reason to interfere with the
penalties imposed under
Section 76
and
of Finance Act, 1994.

INTEREST

4.41 Issue in respect of interest is settled by the Bombay High
Court in case of Padmashree V V Patil SSK [2007 (215) ELT 23
(Bom)] wherein it has been held:-

―12. Learned Counsel Shri Kolte has also
placed reliance
upon
the tail piece of Explanation (2) to sub-section (2B)
reading ―but for this sub-section‖. According to him, ―but‖
is a conjunction used to indicate the intention of those who
use it to limit or restrain the sense or effect of something,
which had before been said. He has obtained this meaning
from Law Lexicon by P. Ramnatha Aiyar. In order to
examine the submission by learned Counsel as to whether
this terminal part of Explanation (2) gives the explanation
so much strength as to mean that the party, which has
utilised the facility of sub-section (2B) of payment of short
duty as ascertained by the assessee himself, is not liable
to pay the interest as u/s. 11AB, we have tried to search
for the meaning of phrase ―but for‖. As per Concise Oxford
Dictionary, 11th Edition, ―but for‖ means ―except for‖, ―if it
were not for‖. In view of these meanings obtained from
the Law Lexicon and the Oxford Dictionary attached to the
word ―but‖ and to the phrase ―but for‖, the Advocate
pleaded that it should be interpreted that had sub-section
(2B) not been in existence or rather the facility to pay the
short duty was not available, the party would have been
required to pay interest u/s. 11AB and if the facility is
available, on compliance of the same, the party would not
be liable to pay interest.

Taking into consideration that the tail piece relied upon by
learned Counsel is included in the Explanation to particular
sub-section (2B), we are unable to accept the
interpretation as tried to be attributed by the learned
Service Tax Appeal No.979 of 2009

Counsel for one simple reason that an explanation ought to
be therefore the purpose of explaining the main provision,
it cannot nullify the effect of main provision. If Explanation
(2) interprets as attempted by learned Counsel due to the
phrase with which it ends ―but for this sub-section‖, the
explanation will have to be ignored being in conflict with
sub-section (2B), which it explains. However, the meaning
of this clause ―but for this sub-section‖ can be enlightened
when we refer to Section 11AB (1), we have reproduced
two portions of this provision (in parts) in the earlier part
of this judgment and for the sake of convenience, now we
are quoting entire sub-section (1) of Section 11AB, which
reads :

―11AB. Interest on delayed payment of duty-(1) where any
duty of excise has not been levied or paid or has been
short levied or short paid or erroneously refunded, the
person, who is liable to pay duty as determined under sub-
section (2), or has paid the duty under sub-section (2B) of
Section 11A, shall in addition to duty be liable to pay
interest at such rate, not below 10% ....from the first date
of the month succeeding the month in which the duty
ought to have been paid under this Act or from the date of
such erroneous refund as the case may be, but for the
provisions contained in sub-section (2) or sub-section (2B)
of Section 11A, till the date of payment of such duty.‖

Thus, why the clause ―but for‖ is used, is evident from the
tail piece of Section 11AB(1). Ordinarily, the interest is
payable till payment of short duty as adjudicated, but in
view of sub-section (2B), which gives liberty to the party
to pay the short duty even before determination or without
determination by the officer of Central Excise, the interest
would stop to run to the extent of amount deposited by
self ascertainment and on the date such amount is so
deposited.
Service Tax Appeal No.979 of 2009

If the tail piece of Explanation (2) was to be so strong as
to nullify the effect of sub-section (2B), Section 11AB
would not have incorporated within it the clause ―or has
paid the duty under sub-section (2B)‖. Reading Section
11AB together with Section 11A (2B) and Explanation (2),
we are unable to accede to the interpretation tried to be
attributed by Advocate Shri A.P. Kolte to Explanation in
question.

13. For all these reasons discussed, we are unable to agree
with the proposition that interest u/s. 11AB is also not
chargeable in case the short duty or unpaid duty is
deposited with the Government before issuance of show
cause notice.‖

Summary of our findings

4.42 Commissioner has in the impugned order recorded the
findings as follows:

―1. Under the facts and circumstances narrated above,
the Notice must succeed. Impugned Services provided by
the Noticee during the relevant period are BAS to evade
Service Tax the Noticee had willfully suppressed material
facts and evidences during relevant period from the
jurisdictional Central Excise Authorities. The Noticee has
also contravened various provisions of FA'1994 and Service
Tax Rules. There is willful suppression and contravention of
Service Tax law by not informing the Department about
the nature of Services and related facts therein. The intent
of evasion of service tax is evident from conduct of the
noticee. The Noticee did not obtain registration and did not
file returns as per the statutory provisions of FA1994 and
STR-1994

2. In the facts and circumstances of his case and in
view of above foregoing discussions and analysis hold that
during the relevant period the Noticee had provided BAS of
taxable value Rs.9,18,01,58,795 inclusive of service tax
Service Tax Appeal No.979 of 2009

but the service tax payable thereon has not been paid. The
liability of Service Tax is to be calculated hereunder in the
light of various decisions of the Cour/Tribunal given in
GOl
Vs. MRF Ltd.
1995(97)ELT 433(SC) and K.R.Choksey and
Company vs Commissioner of Central Excise, Mumbai-I
1996 (88) ELT S66. The value of taxable service shall be
calculated as under:

Assessable value = (Cum duty price - Permissible deductions)/ (1+
R/100).

Here in the instant case, the formula will be as under:

Assessable Value = Gross amount inclusive of Service Tax/ (1+R/100)

Sl. Period Assessable Value (In Rs....) ServiceTax (ln Rs....) Ed. Cess (ln Rs...)
No
As per SCN Revised As per SCN Revised As per Revised
SCN

1 01.07.03 3234886034 2995264846 258790883 239621188 Nil 0
to (@ 8%)
09.09.04
2 10.09.04 4729661669 4291889010 472966169 429188900 9459323 8583778
to (@10%) (@2%)
17.04.06

3 18.04.06 1215611072 1083046215 145873329 2917466 1 2599311
to (@ 12%) 129965546 (@2%)
31.07.06
9180158775 8370200071 877630381 798775634 12376789 11183089

The Notice has therefore, rightly sought to demand and
recover Service Tax which would be amounting to Rs.

809958723.00 (Service Tax Rs. 798775634.00 + Ed. Cess
Rs. 11183089,00) as calculated above on the Services
rendered by them during relevant period under
Sec.73
of
the FA'1994

3. I also hold that the Notice has rightly invoked the
provision of
Section 73
of finance Act, 1994 that they had
wilfully suppressed material information and evidences
from jurisdictional Central Excise Authorities with intent to
evade Service Tax during the relevant period

4. The Noticee was liable to pay the demanded and
determined amount of Service Tax during the relevant
Service Tax Appeal No.979 of 2009

period. They would also liable to pay interest at the
appropriate rate in terms of
Section 75
of Finance Act,
5. The Noticee was liable to discharge their service tax
lilability within stipulated time which they failed to do so
and therefore they have rendered themselves liable for
penalty under
Section 76
ibid.

6. This leads to issue of imposition of penalty upon
Noticee under
Section 78
of FA'1944. As has been brought
out, the act of willful suppression of the material facts and
evidences from jurisdictional Central Excise authorities, for
evading the demanded and determined Service Tax. There
was no explicable reasons on the part of the Noticee to
suppress the information, which they were statutory
required to make under the law. These acts show
contumacious conduct on the part of the Noticee. The
penal consequences, accordingly, must visit them

7. The discussions and findings, supra, consequently
also answer all arguments advanced by the Noticee before
me in this case.‖

4.43 We concur with the above findings except for the finding
recorded in the impugned order with regards to the disallowance
of reimbursable expenses, as observed by us in para 4.25 above.
For the purpose of determination of reimbursable expenses and
allowing the deduction on the account of such expenses matter
needs to be remanded back to the original authority.

5.1 Appeal is partly allowed to the extent indicated in para
above. Commissioner should recompute the demand and
penalties imposable on the appellant after allowing the appellant
to produce their claim to reimbursable expenses and allowing the
same if admissible.

5.2 Needless to say as the matter is sufficiently old in the
remand proceedings Commissioner should finalize the issue with
Service Tax Appeal No.979 of 2009

regards to determination of duties and penalties as per para 5.1
within a period of three months from the date of receipt of this
order.

(Pronounced in open court on-29 January, 2024)

Sd/-

(P.K. CHOUDHARY)
MEMBER (JUDICIAL)

Sd/-

(SANJIV SRIVASTAVA)
MEMBER (TECHNICAL)
akp