By TIOL News Service

MUMBAI, DEC 08, 2015: AS per an agreement, Thomas Cook appointed the appellant for carrying out restricted money change business in the hotel premises and foreign exchange was surrendered to M/s Thomas Cook and appellant used to get an amount as an incentive.

Both the lower authorities held that the activity of receiving commission from Thomas Cook would be subjected to Service tax since covered under “Business Auxiliary Services”.

Before the CESTAT, the appellant submitted that activity of the appellant is nothing but purchase and sale of foreign exchange and an amount received by them as incentive from Thomas Cook is nothing but discount and hence not taxable under business auxiliary services. It is further submitted that the law provided for discharging service tax liability on this activity from 16/05/2008 by the amendment to the definition of Banking and other financial services. Reliance is also placed on the decision in Euro RSCG Advertising - 2007-TIOL-495-CESTAT-BANG. The appellant also informed that they had already discharged the service tax liability and interest thereof. On limitation, it is submitted that they had entertained a bona-fide belief since they were not in the business of money exchange but as the same was incidental to the main activity of hospitality industry no service tax liability arises.

The AR justified the order of the lower authorities.

The Bench held that on merits the appellant did not have a case. Inasmuch as the CESTAT observed -

On perusal of the agreement entered by the appellant with Thomas Cook India Ltd. we find that this agreement is termed as an “agency agreement” and the appellants are appointed as an agent. The duties which have been cast upon the appellant are very clear that they should surrender the amounts collected in foreign exchange to M/s Thomas Cook India Ltd. and in turn Thomas Cook will pay the appellant the amount equivalent in Indian rupees on the date of transaction and appellant will also get incentive on Indian rupee transaction, as per agreement. We find that the activity as is in transaction of the appellant would be covered under the category “Business Auxiliary services”, as the appellant is acting as agent of Thomas Cook, and it is very clear from the closure of agreement that appellant has been given restricted money exchange agency by Thomas Cook India Ltd. (from the authorization they have received for engaging in money exchange).

However, on limitation, the Bench held in favour thus -

"…on holistic reading of the agreement entered into, indicates that appellant could have had a bona-fide belief that they are not liable to service tax under the category of “Business Auxiliary Services”. The service tax liability was first indicated by the officers of audit team. We find that the appellant has taken the point of limitation before the lower authorities but both the authorities did not record any finding, which leads to inference that the challenge on limitation is accepted. We also find that the appellant could not be faulted for any bona-fide belief that the amount received as incentive is taxable under the “Business Auxiliary Services”. On limitation, we hold that the entire demand raised by the show cause notice dated 17.07.2009 is hit by limitation, and the same cannot be invoked for demanding service tax liability beyond the period of limitation."

The appeals were allowed on the ground of limitation and with consequential relief.

(See 2015-TIOL-2610-CESTAT-MUM)