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Compiled by CA Pankaj Sethi

Is it Fair- To cover all incidental services under Business Auxiliary Services

The category of Business Auxiliary Service tends to cover everything under the sun. Right from promotion and marketing to customer care, processing of goods to provision of services on behalf of others, this category is taken by all and department in particular as mother of all services. However over a period of time new services are introduced from time to time with or without change in earlier category, resulting in interpretational issues and litigation.

 

1.Definition

 

Business auxiliary Service is defined u/s 65(19) as any service in relation to,-

(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or

(ii) promotion or marketing of service provided by the client; or

(iii) any customer care service provided on behalf of the client; or

(iv) procurement of goods or services, which are inputs for the client; or

 (v) production or processing of goods for, or on behalf of, the client or

(vi) provision of service on behalf of the client; or

(vii) a service incidental or auxiliary to any activity specified in sub-clauses   (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision,

and includes services as a commission agent, but does not include any activity that amounts to" manufacture" with in the meaning of clause (f) of section 2 of the Central Excise Act, 1944.

 

2.Emerging Issues

 

Clause (vii) of the definition covers “a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, ………..or supervision.”

This clause was introduced since inception of BAS category in 1st June 2003 and has continued and widened with additions and changes made in BAS category practically in every year.

Department has tried to cover incidental services referred in clause (vii) even if they are provided independently of the services provided in cl. (i) to (vi).  To name a few, if a service provider is providing only collection or recovery services still it was made liable under BAS category. Similar issue arose for levying tax on evaluation of prospective customers.

 

2.1Recovery Services

 

  • Introduced w.e.f. 1st May 2006, taxable service under category of “recovery services” u/s 65(105)(zzzl)  means, any service provided or to be provided to a banking company or a financial institution including a non-banking financial company or any other body corporate or a firm, by any person, in relation to recovery of any sums due to such banking company or financial institution, including a non-banking financial company, or any other body corporate or a firm, in any manner.

  • Since the definition under BAS covered “collection and recovery of cheques” demands were raised by covering recovery agents under the said category w.e.f. 1st June 2003 irrespective of the fact that recovery services were subsequently made liable only w.e.f. 1st May 2006.

  • Hon’ble Tribunal’s decision in the case of Federal Bank Limited vs. CCE, [2008] 14 STT 231 (BANG. - CESTAT) is relevant here. It held that unless the basic activity falls under main category, the incidental activity will not be covered under service tax.

“As per the definition of ‘Business auxiliary service’, the activity has to be that of promotion or marketing or sale of goods produced or provided by or belonging to the client. The other categories akin to the same activity are defined under sub-clause (i) to sub-clause (vi) of section 65(19).

Reference has been made to those services which are incidental or auxiliary to any of the activities specified in sub-clause (vii). The basic activity should be that of promotion or marketing or sale of goods produced and in that connection if the activity of billing, issue of collection or recovery of cheques, payments, maintenance of accounts and remittances, etc., is done, it comes within the main category of ‘Business auxiliary services’. “[Para 6]

  • Further, the new category (recovery services) is introduced at a later stage without modifying earlier category (BAS), hence recovery services should be made taxable only w.e.f. 1st May 2006.

  • Similar view is taken in the case of Board of Control for Cricket in India v. CST [2007] 9 STT 399 (CESTAT - Mumbai) that once a new entry is introduced with effect from the date without disturbing already existing entries, it has to be held that the new entry was not covered by the previous entry.

As such, we find that a subsequent entry having been enacted covering the activity without any change of the existing entry, has to be interpreted as if the earlier existing entry did not cover the subsequently created entry. If the subsequent entry was covered by the earlier entry, there was no reason or scope to create the present entry especially when the rate of tax in respect of both the entries remains unchanged. Certainly, creation of new entries was not by way of bifurcation of the earlier entry inasmuch as the earlier entry relating to advertisement remains unchanged without any change in the tax rate. As such, the introduction of new tariff entry do(es)(sic) imply that the coverage in the new tariff for the purposes of tax was an area not covered by the earlier entry. It was so held in case of Glaxo Smithkline Pharmaceuticals Ltd. v. CCE 2005 188 ELT 171/1 STT 37 (Trib. - Mumbai) as also in case of ZEE Telefilms Ltd. (supra). If it is held that the activity of sponsorship and sale of space were covered under the earlier heading of advertising agency, the same would lead to the redundancy of new legislation and would defeat the legislative intent.”(Para 15) (emphasis supplied).

 

2.2 Evaluation of Prospective Customer

 

  • Evaluation of prospective customer is covered u/s 65(19)(vii) defining BAS as “evaluation or development of prospective customer or vendor”

  • However the category of security agency u/s 65(94), covered evaluation and verification services under its ambit as any person (earlier commercial concern) engaged in the business of rendering  services relating to the security of any property, whether movable or immovable, or of any  person, in any manner and includes the services of investigation detection or verification, of any fact or activity, whether of a personal nature or otherwise, including the services of providing security personnel.

  • Even though the activity of verification is covered under the service tax category “security service” from a much earlier date (16thOct 1998), similar activity was covered under BAS at a later date without an change in the earlier category.

  • This clearly implies that activity of verification is covered in BAS category only if same is in relation to the main clauses (i) to (vi) and if carried independently will be covered under security agency services.

 

3.Conclusion

 

Though the ambit of business category service is very wide, due care needs to be taken to identify and draw its boundaries to avoid overlapping with other services.

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