CESTAT-Mumbai : Where assessee-trust received certain amount as supervision charges and claimed that it was for administration of trust and to make remunerations of staff members, since no specific activity had been identified by revenue for which supervision charges had been received, said charges could not be brought to tax under category of ‘Business auxiliary service’

CESTAT, Mumbai Bench

Shri Dnyaneshwar Trust Vs. Commissioner of Central Excise, Aurangabad

Period 2006-07 to 2009-10

Section 65(19)

Ramesh Nair, Judicial Member And Raju, Technical Member

Order No. A/89357/2017/STB

Appeal No. ST/87878/2013

August  31, 2017

ORDER

Raju, Technical Member – The appellant, M/s. Shri Dnyaneshwar Trust are public charitable trust. They are in appeal against confirmation of demand of service tax on supervision charges collected from sugar factory under head of Business Auxiliary Service. Demand has been confirmed by the lower authority.

2. Written submissions were submitted on behalf of the appellants. In the written submission it has been stated that amount received as supervision charges is for administration of the trust and to make remunerations of staff members and there is no provision of any service. It has been argued that extended period of limitation cannot be invoked as Revenue was well aware that appellant was receiving supervision charges since June, 2008. To support this claim they have cited audit report No.15/ST/2007 communicated to the appellant by a letter dated 3-6-2008. It has been argued that show cause notice issued on 12-4-2012 is clearly time barred. They further argued that show cause notice dated 5-7-2011 was issued to the appellant for the period 2006-07 to 2009-10 on certain activities. The said show cause notice has been set aside by Tribunal vide order No.A/652/201/CSTB/C-I dated 3-10-2012.

3. On the other hand, Revenue argued that the earlier order was in respect of activity of harvesting sugar cane and its transportation to sugar factory from the fields of farmers. In the said order benefit has been granted in light of Notification No.13/2003-ST dated 20-6-2003, which exempts Business Auxiliary Services provided in relation to sale of agriculture produce. He pointed out that this amount is not in respect of sale and purchase of agriculture produce, which is exempts under Notification No.13/2003-ST.

4. We have gone through rivals submissions.

5. Perusal of show cause notice indicates that exact activity conducted for which supervision charges are collected has not been identified. Paras 2 and 3 and 4.1 of the show cause notice are relevant in this regard which read as under:

2. On scrutiny of the balance sheets maintained by the Service Provider, it is noticed the they are providing services only to Ws Shri Dnyaneshwar SSK Ltd. Dnyaneshwarnagar, Bhenda S.K., Tat. Newasa, Dist. Ahmednagar. The noticee is engaged in providing manpower & transport of goods services to the service recipient, for sugarcane harvesting and transportation thereof from the farmers’ fields to the sugar factory. They are paying service tax on labour work like harvesting and cane loading and unloading, sugar house hamali, staking/unstaking of gunny bags, loading and unloading of gunny bags in trucks etc. However, they are not paying service tax on the amount received under head Supervision charges. This amount is nothing bat consideration for providing services as mentioned above and is covered under Business Auxiliary Services under Section 65(19) of Finance Act, 1994.

The supervision charges for this work, are apart from the direct charges received for providing labour and transportation. The noticee also received commission at a pre-determined rate. As per the legal provisions of Section 65(19) of the Finance Act, 1994 any service rendered as a commission agent for providing services such as promotion or marketing or sale of goods or services of the client or any incidental or auxiliary business support, falls under the category of “Business Auxiliary Service” and such commission received is liable for payment of service tax.

3. The legal provisions defining the nature and scope of taxable service, namely “Business Auxiliary Service” have been provided under Section 65(19) of Chapter V of the Finance Act 1994, it has defined the world ‘Business Auxiliary Service’ to mean as follows: “business auxiliary service” means any service in relation to, —

(i) ……….

(ii) ………

(iii) ……..

(iv) ………

(v) ……….

(vi) ………

(vii) ……..

4.1 The Statement of Shri Appasaheb Bhaurao Kharad, Finance Manager of M/s Shri Dnyaneshwar SSK P.O. Bhenda, Newasa, Dist. Ahmednagar (service recipient) was recorded under the provisions of Section 14 of the CE Act 1944, read with Section 83 of the Finance Act 1994, on 29-3-2012 wherein he interalia, stated that in the Financial year from 2007-08 to 2010-11 they have paid Rs. 10,30,35,562/-to M/s Dnyaneshwar Trust P.O. Bhenda as Supervision Charges detailed as under:—

Sr. No. Financial Year Supervision Charges
1. 2007-08 Rs.1,54,41,802/-
2. 2008-09 Rs.3,04,28,587/-
3. 2009-10 Rs.2,51,51,123/-
4. 2010-11 Rs.3,20,14,050/-
5. Total Rs.10,30,35,562/-

He stated further that the amount is paid to meet expenditure incurred by them, to make payment of their Staff which has been utilized for the administration of the trust and they are providing them(DSSK) various services and to the best of his knowledge the trust have not paid any service tax on the same. He further stated that, the amount paid to the trust cannot be said as prize because it is Ex-Gracia benefit given by the Sakhar Karkhana. Further, he added that the said “Sanugrah Anudann” is not commission or prize and therefore, he is of the opinion that the same will not attract any service tax.

It is seen that no specific activity has been identified by the Revenue for which consideration of supervision charges has been received. In absence of exact nature of activity done for which supervision charges has been collected, it is not possible to classify the said services under any of the category of taxable services. Order-in-Original in para 10.1, 10.2 and 10.3 observed as under:

10.1 The service provider is providing the services of cane harvesting and its transportation from the fields of farmers to sugar factory for which they are already registered with the department under the category of “Manpower Recruitment Agency Services”. The service provider had received certain amount under the head of “Supervision Charges’ from sugar factory during the period 2006-07 to 2010- 11. However they did not discharge Service Tax liability on the amount of “Supervision Charges”, which is alleged to be covered under the category of “Business Auxiliary Service”. The contention of the service provider in their defense is that the `supervision charges’ are in the nature of remuneration to make expenditure incurred by their trust for making payment to their staff, therefore this amount does not qualify to be termed as value of taxable service under the head of “Business Auxiliary Services”.

10.2 1 find that it is not in dispute in this case that the Supervision Charges received by the service provider is in relation to operations like cane harvesting & cane transportation from the fields of farmers to the sugar factory. It is proposed in SCN to collect Service tax on ‘Supervision Charges’ under the head “Business Auxiliary Services”, which is defined as under:

Section 65(19) Business Auxiliary Service means any service in relation to:—

———————-

———————-

10.3 I find that this definition not only covers the services specified thereunder but also the services which are related to the specified services. The said definition interalia covers any service in relation to procurement of inputs for the clients and also the services incidental or auxiliary to the services mentioned under the above definition, In the instant case sugar factory is the manufacturer of Sugar and Molasses and the Sugarcane is their principal input. The service provider has undertaken the activities of harvesting and transportation of Sugarcane from the fields of farmers to the said sugar factory by deploying contractors and these activities are obviously related to supply of the principal input to the sugar factory and the amount, received in the form of Supervision Charges, is also related with these services. Further, the management of activities like harvesting of sugarcane and its transportation are the activities incidental and auxiliary to procurement of inputs of the sugar factory. Thus, I find from these facts that the ‘Supervision Charges’ received by the service provider are related with the aforesaid activities chargeable to Service Tax under the category of Business Auxiliary Service. The service provider is therefore, required to discharge service tax liability on the Supervision Charges amount of supervision charges. Assessee, in their defense, has contended that the amount received as Supervision Charges is for administrative expenses of the trust, to meet the remuneration of their staff members. I find that there is no provision under the Finance Act, 1994 exempting service tax on any amount received by an organization for meeting their administrative expenses. Thus, this contention of the service provider is not sustainable and they are required to pay service tax on Supervision Charges.

It is seen that no grounds have been made by the Revenue to classify the said service under head of Business Auxiliary Service. Just because charges are paid to a agency for supervision, demand under Business Auxiliary Service cannot be made. It is incumbent upon Revenue to show that said services are classifiable under Business Auxiliary Service. For that, purpose has to exactly analyze for which supervision charges are paid. Since Revenue has failed to do so, demand of service tax cannot survive, consequently appeal is allowed.

[Citation : 2017-Taxcaselaw-96-CESTAT-Mumbai-GST]