Service Tax to be paid on the income received under business ancillary services

The CESTAT, Ahmedabad has ruled that financial hardship is not a valid reason for failing to pay service tax on income received from Business Ancillary Services (BAS). The assessee in this case had received commission income but deliberately failed to disclose it in their monthly returns, despite being aware of the service tax liability. The tribunal upheld the demand for service tax and penalties, dismissing the appeal.

The CESTAT, Ahmedabad in the case of M/s.Natural Petrochemicals Private Limited vs. C.C.E & S.T, Rajkot [Final Order No. A/12059/2023 dated September 18, 2023] has ruled that the assessee was aware of the chargeability of service tax upon the commission received under the head of Business Ancillary Services ("BAS") and had deliberately never disclosed the same in the monthly returns, thus the financial hardship faced by the assessee is no ground for non-payment of Service Tax, hence dismissed the appeal.  

Facts

M/s. Natural Petrochemicals Private Limited ("the Appellant") is engaged in providing services of the Goods Transport Agency ("GTA") and BAS. 

Upon Investigation, the Commissioner of Central Excise and Service Tax("the Respondent") found that the Appellant had received a commission income from M/s Gopal Enterprise and M/s Galaxy Enterprise amounting to Rs. 78,08,192/- and Rs. 5,30,085/- respectively. Thereby, the Appellant was inquired about the chargeability of Service Tax on the said commission received under the head of BAS. 

The Respondent issued a Show Cause Notice ("the SCN") demanding service tax for the income received from the Appellant. The Commissioners (Appeal) vide order OIA-RJT-EXCUS-000-APP-164-14-15 dated August 28, 2014("the Impugned Order"), confirmed the demand along with the penalty under Section 78 of the Finance Act, 1994 ("the Finance Act").

Aggrieved by the Impugned Order, the Appellant filed the appeal before CESTAT, Ahmedabad. 

The Appellant contended that they had furnished all the details related to the transactions in their financial statement showing no intention of the Appellant for evading service tax. Appellant further contended that due to financial hardship, the Appellant was unable to pay service tax. Further, the Appellant contended that BAS was taxable from July 01, 2003, but got exempted till July 09, 2004 vide Notification No. 13/2003-ST dated June 20, 2003.

The Respondentcontended that the Appellant never disclosed that income under monthly returns and never had an intention to do so. The Respondent further contended that if according to the Appellant the said income was exempted, still the Appellant is required to declare the same in their monthly returns.  

Issue

Whether the Appellant is liable to pay service tax on the commission received under BAS?

Held

The CESTAT, Ahmedabad in Final Order No. A/12059/2023held as under:

• Observed that, the Appellant should have disclosed the income received under the category of BAS in the monthly returns even if the same is believed to be exempted under the Act.
• Further observed that, the Appellant was aware of their liability to pay service tax, and deliberately chosen not to pay service tax, owing to financial difficulties. 
• Held that, due to financial hardships, the Appellant cannot escape from the liability to pay service tax on the commission received in the form of income under the category of BAS and hence, dismissed the appeal.

Relevant Section

Section 78 of the Finance Act

"78. (1) Where any service tax has not been levied or paid, or has been shortlevied or short-paid, or erroneously refunded, by reason of 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 with the intent to evade payment of service tax, the person who has been served notice under the proviso to sub-section (1) of section 73 shall, in addition to the service tax and interest specified in the notice, be also liable to pay a penalty which shall be equal to hundred per cent. of the amount of such service tax:"