KVB's infrastructure support to insurance companies classified as Business Support Services under section 65(104c), not agency services

CESTAT Chennai held that KVB's collection of reimbursement charges from insurance companies for providing infrastructure support (tables, chairs, network, electricity, telephone) to insurance personnel constitutes Business Support Services under section 65(104c) of FA 1994, not agency services. The tribunal distinguished these activities from independent insurance policy sales, finding they merely provided business support rather than creating legal relations between principals and third parties. Interest under section 75 was upheld as automatic upon belated duty payment. Penalty under section 78 was dropped due to lack of suppression with intent to evade duty, while section 77 penalty was maintained. Extended limitation period was rejected, restricting demand to normal period.

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Issues Involved:
1. Classification of services provided by the appellant.
2. Liability to pay service tax on reimbursed expenses.
3. Applicability of interest and penalties.

Summary:

1. Classification of Services Provided by the Appellant:
The appellant, M/s Karur Vysya Bank Limited (KVB), provided infrastructure support to insurance companies, which the department classified as 'Business Support Services' u/s 65(104c) of the Finance Act, 1994. The appellant argued that these services were part of their role as corporate agents, falling under 'Insurance Auxiliary Service' u/s 65(55) of FA 1994, and thus not liable for service tax. However, the Tribunal found that the appellant's activities, such as providing office facilities and conducting marketing initiatives, were distinct from selling insurance policies and did not establish a principal-agent relationship. Therefore, these activities were correctly classified as 'Business Support Services'.

2. Liability to Pay Service Tax on Reimbursed Expenses:
The appellant claimed that reimbursed expenses from insurance companies should not be taxed, referencing the Supreme Court judgment in Union of India vs Intercontinental Consultants and Technocrats Private Limited. The Tribunal rejected this argument, stating that the payments received were for contractual obligations and constituted the gross value of taxable services. The Tribunal emphasized that merely labeling an amount as reimbursement does not exempt it from service tax unless it is clear that the expenses were incurred on behalf of the insurance companies outside the agreement.

3. Applicability of Interest and Penalties:
The Tribunal upheld the demand for interest u/s 75 of FA 1994, as interest is payable automatically on belated duty payments. However, penalties u/s 78 were set aside due to the absence of suppression of information with intent to evade duty, as the matter was already known to the department from an earlier show cause notice. The penalty u/s 76 was also set aside for uniformity, following the lower authority's decision in a related case. The penalty u/s 77 was upheld, and the demand for duty was restricted to the normal period.

Conclusion:
The Tribunal upheld the classification of services as 'Business Support Services' and the demand for service tax on reimbursed expenses. Interest on delayed payments was confirmed, but penalties were modified. The appeals were disposed of accordingly, with the appellant eligible for consequential relief as per law.

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