By TIOL News Service

MUMBAI, FEB 22, 2017: THE appellants are engaged in the work of spot billing of electricity meters for Maharashtra State Electricity Distribution Company Ltd. (MSEDCL). The activity involves collection of data on the consumption of electricity by the customers of MSEDCL by taking photographs of the meter-reading at the doorstep of customers of MSEDCL by way of digital camera and with the help of handheld programmable machine.

The said data, after collection,is processed for raising bills and handing them over to the customers.

The jurisdictional authorities raised a Service Tax demand against the appellant under the head of "Business Auxiliary service" for the period June 2006 to March 2009. SCNs for the period April 2009 to March 2010 and April 2010 to March 2011 were also issued.All the demands were confirmed along with imposition of penalties.

The CESTAT had ordered for a pre-deposit of 50% of the tax demanded. See 2012-TIOL-2084-CESTAT-MUM .

Before the CESTAT, the appellant submitted that they use handheld electronic devices for taking pictures of the meter for generation of the bills and, thereafter, the entire data is captured in the CD and handed over to MSEDCL. Inasmuch as the said service given to MSEDCL was not Business auxiliary service but Information technology service.

Appellant also relies on the decisions in Satyam Digital Photo Lab - 2011-TIOL-1519-CESTAT-DEL, BSNL - 2006-TIOL-15-SC-CT-LB and Gandhi & Gandhi Chartered Accountants - 2009-TIOL-2028-CESTAT-BANG.

The Bench distinguished the decisions relied upon by the appellant and after extracting the definition of "Business Auxiliary Service" further observed -

Merits:

+ It is clear that activity of Billing in the process of sale of goods produced or provided by or belonging to the client would be covered in the clause (vii) of the Section 65 (19) as "business auxiliary service". Clause (i) read with clause (vii) includes in its ambit the activity of billing.

+ In the instant case the activity of the appellant is clearly that of generating bills for MSEDCL and is squarely covered in the definition of "business auxiliary service" clause (vii) as billing. The claim of the appellant that they are engaged in providing information technology service is based on the fact that they are using a handheld device and taking pictures of the meter and generating bills using a programmable device. As can be seen from the above activity, the prime purpose of the activity is to generate bills and it is only incidental that electronic programmable devices are used for this purpose. The use of this device cannot change the nature of the services.

+ The service would have been taxable, even if they had not used these devices and simply gone to MSEDCL's customers' residence and taken the reading of the bill and prepare the bill by hand and handed over to the customers with a copy to MSEDCL. The service would have still qualified to be a business auxiliary service of the activity of billing. The use of handheld device does not change the nature of the service. The contract with MSEDCL also describes the service in its subject as "order for spot-billing with the help of handheld programmable machine under Municipal Corporation area, Kolhapur". It can be seen that the service received is that of billing and the use of the device is incidental.

+ It is apparent that the service provided by the appellant falls under the category of business auxiliary service and not information technology service or business support service.

Limitation:

+ Statement of one of the partners was recorded on 23.11.2007 whereas SCN by DGCEI has been issued on 30.11.2009. Recording of a statement during the investigation cannot be considered as disclosure of information. The appellants were engaged in providing the service much before the recording of statement and they had not voluntarily come forward to pay service tax on the service or to disclose the full details to the Revenue. Moreover, there is no evidence that they had sought any clarification from the Revenue or obtain legal opinion as regards their liability to service tax. In view of the above, the extended period has rightly been invoked.

Benefit of Notification 12/2003-ST:

+ For the purpose of availing the exemption, the appellants were required to produce evidence of sale of material to their clients. Simply by consuming the material they do not become eligible to Notification 12/2003. To avail the notification they have to prove that they had sold the goods during the provision of service to the client and produce necessary evidence like payment of VAT to establish the same.

Whether Pure Agent u/r 5(2) of ST Valuation Rules, 2006:

+ It has been argued that the appellants are only agents and are not required to pay service tax on the part of the value of the material used in rendering the service. This is a misplaced argument insofar as the appellants are service providers to MSED CL and service tax is payable on the value recovered by the appellants from the service receiver. The claim of deduction, if any, has to be supported by Notification 12/2003-ST or the Service Tax (Determination of Value of Taxable Service) Rules, 2006. The appellants do not qualify for any such deduction.

The appeals were dismissed.

(See 2017-TIOL-545-CESTAT-MUM)