By TIOL News Service

MUMBAI, AUG 22, 2014: THE appellant is engaged in providing services to M/s Maharashtra Knowledge Corporation Ltd. (MKCL) in relation to -

a) Promotion or marketing of services provided by MKCL;

b) Services incidental or auxiliary to the activity of promotion or marketing such as evaluation or development of prospective customer or vendor, public relation services, management or supervision on service activity;

c) Sale of services of MKCL.

MKCL is providing Information Technology Literacy Course MS-CIT to make learner IT literate. These courses comprise of:-

++ Reading and understanding a highly illustrated book

++  E-learning based self-learning sessions

++ MKCL's E-learning revolution for All (ERA)

++ Providing hands-on practice sessions

++ Learning facilitation by certified professionals

++ Academic interactions, assessment and collaboration.

After investigation, a show cause notice was issued to the applicants demanding ST for services provided by them to MKCL under the category of Business Auxiliary Service.

While granting Stay, the CESTAT had observed -

"3. We have gone through the services rendered by the applicant to MKCL and the activity of MKCL. Prima facie the activity of MKCL is not in the nature of business. Therefore, the service rendered by the applicants prima facie does not fall under Business Auxiliary Service."

We reported the Stay order two years back as 2012-TIOL-1088-CESTAT-MUM.

Along with the demands involved in the aforesaid stay order, another demand had also joined the bandwagon by the time the appeals were heard, recently.

The total service tax demand thus involved was Rs.32,20,600/- for the period April 2005 to March 2012 along with penalties &interest.

The appellant after explaining the activities conducted by them submitted that the same are incidental or ancillary to the promotion of IT education in Maharashtra and, therefore, is exempt under Notification 14/2004-ST dated 10/09/2004 which provides exemption of 'business auxiliary services' in so far it relates to:-

(a) Procurement of goods or services, which are inputs for the client;

(b) Production of goods on behalf of the client;

(c) Provision of services on behalf of the client; or

(d) A service incidental or auxiliary to any activity specified in (a) to (c) above.

It is the contention of the appellant that the activity undertaken by them falls within clause (c) viz. provision of service on behalf of the client or alternatively it would fall under clause (d) viz. a service incidental or auxiliary to any activity specified in (a) to (c).

The Revenue representative submitted that the activity undertaken is promotion of business of MKCL which is also evident from the contracts entered into and, therefore, the appellant is not eligible for the benefit of Notification 14/2004-ST as rightly held by the lower authorities.

The Bench observed:

++ Activities undertaken by the appellant would certainly come within clause (d) of the exemption Notification 14/2004-ST which is “a service incidental or auxiliary to any activity specified in clauses (a) to (c)” and clause (c) deals with provision of service on behalf of client.

++ It is a settled position in law, as explained in the case of Mangalore Chemicals and Fertilisers Ltd. 2002-TIOL-234-SC-CX that there are two stages of interpreting an exemption Notification. In the first stage, whether the appellant falls within the exemption clause, strict interpretation is required to be made. Once the appellant falls within the scope of exemption, a liberal construction has to be adopted.

++ As the activity undertaken by the appellant is incidental or ancillary to the provision of service by the client, the appellant falls within the exemption; therefore a liberal interpretation has to be given and the various activities undertaken by the appellant would become eligible for the benefit of the exemption.

Holding that there is no merit in the orders of the lower authorities, the same were set aside and the appeals were allowed.

(See 2014-TIOL-1564-CESTAT-MUM)