By TIOL News Service

NEW DELHI, JUNE 11, 2015: THE appellants were providing Short Message Peer to Peer (SMPP) service to various clients but were not paying service tax thereon. The SMPP service inter alia involves sending SMS to customers of their clients on a bulk basis. The said service was provided to a large number of clients and described in their invoices as "charges for short messaging enabling software on per SMS basis and peer to peer and person to person basis".

The adjudicating authority held that service being provided clearly fell under the category of provision of service on behalf of clients and therefore was liable to tax under Business Auxiliary Service (BAS) defined under Section 65(19) of the Finance Act, 1994. The adjudicating authority has also held that the appellants had suppressed the facts and therefore invoking the extended period also imposed penalty along with mandatory penalty under Section 78 of the Act.

The Tribunal observed,

Telecom Service?: As regards contention of the appellants that they were providing telecommunication service which is recognised as a separate service under section 65 (109a) ibid, they not being a telegraph authority were not liable to pay service tax and as they were covered under Telecommunication Service, they cannot be covered under BAS, it is pertinent to point out the inherent contradictions in this contention in-as-much-as the telecommunication service defined under Section 65(109a) requires that the services, inter alia, is rendered by a person, who has been granted a licence under the first proviso to sub-section (1) of Section 4 of Indian Telegraph Act, 1985 and the appellants not having been granted such a licence are not covered thereunder. Consequently, the appellants' contention that as they are covered under Telecommunication Service, they cannot be covered under BAS is totally invalid [even if the contention that being covered under Telecommunication Service would necessarily mean they were not covered under any other taxable service earlier is presumed (without admitting) to be valid].

Courier?:- As regards the contention of the appellants that they were only acting as a courier for delivery of their clients' messages to their customers/subscribers and therefore they were not rendering any service to the subscribers of the clients, one has to carefully scrutinise the nature of service which was rendered by the appellants. It is evident that SMPP service does not merely involve transmitting SMS; it supports a full featured set of two way messaging functions described above. The service rendered by the appellants cannot be described to be merely involving only delivery of SMSs.

BAS - On behalf of: The appellants also argued that they were not providing service on behalf of their clients In the present case, there is hardly any doubt that the appellants were providing service to their client's subscribers on behalf of their clients for which they were paid by their clients. If the services provided by them to their clients' subscribers were not on behalf of their clients, they (i.e., the appellants) had no reason to provide service to their clients' subscribers and there would be no reason for their clients to pay the appellants for the said service. Indeed, to whom the data/SMSs should be sent, at what time they should be sent, the priority to be attached to them etc. are all decided by the clients and the appellants are merely acting on behalf of the clients. There is an agreement between the appellants and their clients, like an agreement dated 28.08.2006. Under the agreement, the appellants have to give their client a direct SMPP connection through their network. The appellants then have to deliver the SMSs received from the clients to the latter's subscribers for which they get a fee from the clients. The clients also promise not to send any data which consider as objectionable. The terms of the agreement make it clear that the SMS which is being sent to the client's subscriber is only on behalf of the client and the appellants cannot send any material on their own. Thus it is amply clear that the service has been rendered by the appellants on behalf of the clients and is therefore clearly covered under the scope of BAS as the appellants have rendered service in relation to provision of service on behalf of the clients.

Cum tax: Indeed, Section 67(2) of Finance Act, 1994 allows cum-tax benefit only if the gross amount charged for the service is inclusive of service tax payable. In the light of the admitted fact that the price charged by the appellants did not include any service tax, the cum tax benefit cannot be extended to them.

Suppression: ?The Show Cause Notice does not give any clue as to on what basis Revenue expected the appellants to give description of exempted services in the ST-3 Returns when there is no such legal requirement mentioned either in the Show Cause Notice or in the impugned order. Something positive other than mere inaction or failure on the assessee's part or conscious withholding of information when assessee knew otherwise is required for invoking extended period. Further, with regard to the demand pertaining to July, 2004 to March, 2006 for which the Show Cause Notice was issued on 04.04.2009, when there had been other Show Causes Notices issued for subsequent period on 24.10.2007 and 18.09.2008 the allegation of suppression becomes even more untenable. The Supreme Court in the case Nizam Sugar Factory Vs. CCE, held that while issuing second and third Show Cause Notices involving same/similar facts, suppression/wilful mis-statement could not be alleged.

Held:

(i) The impugned service is liable to service tax under Business Auxiliary Service (defined in Section 65(19) of Finance Act, 1994).

(ii) The extended period is not invokable in the present case and hence the demand beyond normal period of one year and the penalty under Section 78 ibid would not be sustainable.

(II) The appeals are allowed and remand the cases to the primary adjudicating authority to re-compute the impugned demand and the corresponding penalties under Sections 76 and 77.

(See 2015-TIOL-1098-CESTAT-DEL)