2022 (7) TMI 457 - AT - Service Tax

Insurance Agents' Service Tax Discharge Upheld by Tribunal, Recovery Deemed Contractual

M/s SBI Life Insurance Co. Ltd. Versus Principal Commissioner of Central Goods and Service Tax-Mumbai

M/s SBI Life Insurance Co. Ltd. Versus Principal Commissioner of Central Goods and Service Tax-Mumbai - 2022 (66) G. S. T. L. 453 (Tri. - Mumbai) Issues Involved:1. Liability of the appellants to pay service tax on amounts representing service tax and TDS deducted from commissions payable to insurance agents.2. Liability of the appellants to pay service tax on various expenses incurred in training, business promotion, pre-recruitment, etc.Detailed Analysis:1. Liability to Pay Service Tax on Amounts Representing Service Tax and TDS Deducted from Commissions:Findings:- The appellants engaged insurance agents and paid service tax on a reverse charge basis on commissions paid to these agents.- The appellants deducted service tax and TDS from the commission payable to the agents.- The Revenue sought to recover these deducted amounts under Section 73A(2) and Section 73A(3) of the Finance Act, 1994, alleging unauthorized collection of service tax from the agents.Legal Provisions:- Section 68(2) of the Finance Act, 1994, and Rule 2(1)(d) of the Service Tax Rules, 1994, designate the appellants as liable to pay service tax on behalf of the agents.- Section 73A(2) mandates that any amount collected as service tax, which is not required to be collected, must be paid to the credit of the Central Government.Judgment:- The Tribunal found that the appellants correctly discharged service tax on the commission paid to the agents and that recovery of service tax from the agents was a contractual arrangement.- The provisions of Section 73A apply only when service tax is collected but not paid to the government, which was not the case here.- The Tribunal referred to the Supreme Court's decision in Rashtriya Ispat Nigam Ltd. and previous Tribunal decisions in similar cases (e.g., HDFC Standard Life Insurance Co., Bajaj Alliance Life Insurance Co., Max Life Insurance Company Ltd., and Edelweiss Tokio Life Insurance Company Ltd.) to conclude that such tax recovered is not again taxable.- The demand of Rs. 344,39,75,575 was set aside, and the question of interest and penalty did not arise.2. Liability to Pay Service Tax on Various Expenses Incurred:Submissions:- The appellants argued that expenses incurred for training, business promotion, and pre-recruitment are normal business expenditures and not related to the consideration paid to insurance agents.- Rule 5 and 6 of the Service Tax (Determination of Value) Rules, 2006, were deemed not applicable as the appellants were service recipients and not service providers.- The appellants cited previous Tribunal decisions (e.g., Bajaj Alliance Life Insurance Co., Max Life Insurance Company Ltd., and Edelweiss Tokio Life Insurance Company Ltd.) and the Supreme Court's decision in Intercontinental Consultants & Technocrats Pvt. Ltd., which struck down Rule 5 as ultra vires.Judgment:- The Tribunal agreed that these expenses are business-related and not part of the commission paid to insurance agents.- The Supreme Court in Bhayana Builders clarified that only the gross amount charged for services provided is taxable, not additional business expenses.- The Tribunal held that the expenses incurred by the appellants for training and business promotion are not includable in the taxable value of services provided by the agents.- For the period post-14.05.2015, the explanation to Section 67 includes reimbursable expenses incurred by the service provider and charged to the service recipient. However, in this case, the expenses were incurred by the appellants, not the agents.- The demands based on these expenses were set aside, and the penalties were deemed unsustainable.Conclusion:- The impugned order was set aside, and the appeals were allowed with consequential relief as per law.