TaxTMI 
TaxTMI 
2015 (9) TMI 1219
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....d by the re-insurers situate outside India for securing re-insurance business for them is outside the Finance Act, 1994 for the period prior to the amendment by the Finance Act, 2006? (ii) Whether in the facts and circumstances the re-insurance business procured for and remunerated by foreign re-insurers abroad is export of service and hence outside the Act being destined and consume abroad? (iii) Whether in the facts and circumstances of the case, the Tribunal is correct in upholding extended period of limitation relying upon the provisions of Section 73 of the Act as it stood prior to Act 2 of 2004, whereas the proceedings for re-assessment had been initiated and completed after the amendment of 2004?" C.M.A.No.1459 of 2009: 1. Whether the decision of the second respondent Tribunal is correct in restricting the demand of service for the normal period after 10.09.2004 on the ground that details were requested from the assessee by the Superintendent? 2. Whether the second respondent is justified in law in vacating the penalties imposed under Sections 76 and 78 of Finance Act, 1994 on the ground that the issue involved is highly interpret....
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.... a) an amount of Rs. 1,42,44,880/- (Rupees One Crore forty two lakhs forty-four thousand eight hundred and eight only), being the Service Tax payment (Service Tax of Rs. 1,40,98,127/- Plus Education Cess of Rs. 1,46,753/-) as detailed in the enclosed Annexure on the Commission received for reinsurance of Policies ceded should not be demanded under proviso to sub-section (1) of Section 73 of the said Act read with erstwhile Section 71(3) of the said Act. b) interest at the applicable rates should not be demanded on the above Service Tax and Education Cess from the due date till the actual date of payment from Suprasesh under Section 75 of the said Act; c) Penalty should not imposed on M/s.Suprasesh under Section 76 of the said Act for every day of delay of payment of Service Tax and Education Cess from the due date till the actual payment of the Service Tax and Education Cess; and d) Penalty under Section 78 of the said Act should not be imposed on Suprasesh for the contraventions and non-payment of Service Tax and Education Cess, mentioned supra." 5. In response to the said show cause notice, the assessee filed a reply inter alia contending that the c....
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....not applicable on "Export of services". Therefore, the service should be rendered and consumed outside India so as to qualify as "Export of Service". In this case, as already explained, Suprasesh rendered service to insurers in India and the same is consumed in India only. Notification No.6/99 ST dt. 09.04.99 which was in vogue upto 28.02.2006 also exempts the taxable services provided to any person in respect of which payment is received in India in convertible foreign exchange from the whole of Service Tax. As per this notification, exemption from Service Tax is available only when the payment for the service rendered is received in convertible foreign exchange. Therefore, there should be physical receipt of payment in convertible foreign exchange. The retention of brokerage amount before remitting the premium to foreign Reinsurance companies cannot be termed as payment received in convertible foreign exchange. 21. The Hon'ble Supreme Court in the case of JB Boda Case relating to Income tax relied on the relevant provisions of the Foreign Exchange Act, 1961. The decision rendered in JB Boda case is applicable only to direct tax cases and no influence can be drawn tha....
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....to penalty under Section 76 & 78 of the said Act for the contravention mentioned supra." 9. Consequently, the Adjudicating Authority proceed to demand Service Tax as follows: "a) I confirm the demand of Rs. 1,42,44,880/- (Rupees One Crore forty-two lakhs forty four thousand eight hundred and eighty only), being the Service Tax payment (Service tax of Rs. 1,40,98,127/- Plus Education Cess of Rs. 1,46,753/-) under proviso to sub section (1) of Section 73 of the said Act. b) I also demand interest at the applicable rates on the above Service Tax and Education Cess from Suprasesh under Section 75 of the said Act; c) I impose a penalty of Rs. 200/- per day on Suprasesh from the due date of payment of Service Tax and Education Cess till the actual date of payment of the above demand under Section 76 of the said Act. However, the penalty imposed under this Section shall not exceed the Service Tax and Education Cess demanded in this order. d) I also impose a penalty of Rs. 1,42,44,880/- (Rupees One Crore forty-two lakhs forty four thousand eight hundred and eighty only), on Suprasesh under Section 78 of the said Act." 10. Aggrieved by the above-sai....
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....tification to rely upon the decision of JB Boda's case (supra) to contend that they should be deemed to have received 'reinsurance brokerage' in convertible foreign exchange. 14. Insofar as suppression is concerned, the Tribunal took a different view holding as follows: "14. The show-cause notice invoked the proviso to Section 73(1) of the Finance Act, 1994 on the ground of suppression of facts etc. for recovery of service tax from the appellants for the period 16-7-2001 to 30-6-2005. It is not in dispute that the reinsurance brokerage received by the appellants was not included in the taxable value of "insurance auxiliary service" rendered by them to insurers (including reinsurers) for the purpose of payment of tax for the above period. According to the appellants, they did not suppress material facts before the Department. We think, in this context, it is relevant to consider the Superintendent's letter dated 3-6-2008 addressed to the appellants, which reads thus :- "We request you to furnish the following particulars immediately :- 1.Copies of reinsurance contract/Agreement entered into by you with Indian/Foreign Insurance Companies.....
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.... as well as the Revenue are before this Court. Date in which the relevant provisions came into effect Revenant Finance Act Taxable service of 'Insurance Auxiliary Service' Definition of 'Insurance Auxiliary service' Definition of 'intermediary or Insurance intermediary' 16.07.2001 Insurance Auxiliary service introduced by Finance Act 2001 came into effect vide Notification No.4/2001 - S.T. dated 09.07.2001 Section 65 (72) (zl)"to a policy holder or insurer by an actuary or intermediary or insurance intermediary or insurance agent in relation to insurance auxiliary services". Section 65 (31) "Insurance Auxiliary service" means any service provided by an actuary, an intermediary or insurance intermediary or an insurance agent in relation to general insurance business and includes risk assessment, claim settlement, survey and loss assessment." Section 65(32)"Intermediary or insurance intermediary" has the meaning assigned to it in sub-clause (f) of clause (1) of section 2 of the Insurance Regulatory and Development Auth....
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....ssment, claim settlement, survey and loss assessment" Section 65(56) "Intermediary or Insurance intermediary", has the meaning assigned to it in clause (f) of sub-section (1) of section 2 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999)" 17. A plain reading of the above provisions makes it clear that by and large there appears to be no major difference between the definition of taxable service relating to Insurance auxiliary service and other definitions, namely, intermediary or insurance intermediary. It is not in dispute that the assessee, who is an insurance intermediary, is performing insurance ancilliary service, which is a taxable service under the provisions mentioned above. 18. In this case, the period in dispute is as follows: 16.07.2001 to 31.3.2002; 2002-2003; 2003-2004 upto 13.5.2003; 2003-2004 (from 14.5.2003 to 31.3.2004); 2004-2005 (from 01.04.2004 to 09.09.2004); 2004-05 (from 10.09.2004 to 31.3.2005) and 2005-06. 19. The core issue involved in this case is what is the nature of service performed by the assessee. Initially the assessee placing reliance on the decision of the Sup....
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....e service specified in sub-section (72) of section 65' shall be substituted. 2. This notification shall come into force on the 16th day of July, 2001. [Notification No. 9/2001-Service Tax, dated 16-7-2001]" Service Tax - Exemption when payment for services is received in India in convertible foreign exchange - Amendment to Notification No. 6/99-Service Tax In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby makes the following amendment in the notification of the Government of India, in the Ministry of Finance (Department of Revenue), No. 6/99-Service Tax, dated the 9th April, 1999, except as respects things done or omitted to be done before such amendment, namely :- In the said notification, for the words, brackets and figures 'taxable service specified in sub-section (72) of section 65', the words, brackets and figures 'taxable service specified in clause (90) of section 65' shall be substituted. 2. This notification shall come into force on the 16th day of August, 2002. ....
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....port of services would continue to remain tax free even after withdrawal of Notification No. 6/99, dated 9-4-99. Further it is clarified that service consumed/provided in India in the manufacture of goods which are ultimately exported, no credit of service tax paid can be availed or reimbursed at present as inter-sectoral tax credit between services and goods are not allowed. 4. Another question raised is about the taxability of secondary services which are used by the primary service provider for the export of services, Since the secondary services ultimately gets consumed/merged with the services that are being exported no service tax would be leviable on such secondary services. However in case where the secondary service gets consumed in part or toto for providing service in India, the service tax would be leviable on the secondary service provider. For this purpose both primary and secondary service providers would maintain the records deemed fit by them to identify the secondary services with services that are being exported. 5. A further question raised is relating to payments receivable in foreign exchange for the services performed prior to March, 1, 2003....
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....ontentions were raised. 24. The first and foremost contention is that the Adjudicating Authority as well as the Tribunal must construe the nature of services rendered by the assessee. According to the assessee, he performs the duties of a re-insurance broker as defined under Regulation No.4 of the IRDA (Insurance Brokers) Regulations 2002. The definition of re-insurance broker and insurance broker defined under Section 2 of the Insurance Regulatory and Development Authority (Insurance Brokers) Regulations, 2002 read as follows: "2. Definition (1) unless the context otherwise requires - (i) "insurance broker" means a person for the time-being licensed by the Authority under regulation 11, who for a remuneration arranges insurance contracts with insurance companies and/or reinsurance companies on behalf of his clients. Explanation: The term "insurance broker" wherever it appears in these regulations shall be deemed to mean a direct broker, a reinsurance broker or a composite broker, as the case may be, unless expressly stated to the contrary. (m) "reinsurance broker" means an insurance broker who, for a remuneration, arranges reinsurance for dir....
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....- 2 percent of risk premium with a ceiling of rupees 50,000/- per scheme. (C) on reinsurance business - (i) as per market practices prevalent from time to time. Explanation: For purposes of the procurement of business, an insurer shall not pay an agency commission, allow a special discount, and pay a remuneration to brokers for the same insurance contract. (2) The settlement of accounts by insurers in respect of remuneration of brokers shall be done on a monthly basis and it must be ensured that there is no cross settlement of outstanding balances. 23. Segregation of insurance money (1) The provisions of section 64VB of the Act shall continue to determine the question of assumption of risk by an insurer. (2) In the case of reinsurance contracts, it may be agreed between the parties specifically or as part of international market practices that the licensed reinsurance broker or composite broker can collect the premium and remit to the reinsurer and/or collect the claims due from the reinsurer to be passed on to the insured. In these circumstances the money collected by the licensed insurance broker shall be dealt with i....
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....ance cover through the re-insurer. The assessee, a reinsurance broker, defined under the provisions of the Service Tax Act and the IRDA (Insurance Brokers) Regulations 2002, took up the task of assessing the nature of business with the New India Assurance Co. Ltd. and in order to render advise on the basis of available re-insurance market and consultancy in risk management on re-insurance service and to provide service in the form of negotiation with the New India Assurance Co. Ltd. with the re-insurer, in the present case, a foreign company, entered into a series of negotiation with the New India Assurance Co. Ltd. 27. The documents, which have been referred to in the original proceedings may be relevant to understand the nature of transaction. The first of the mail is dated 9th November, 2005 from the assessee company Mumbai to the Chennai Branch with regard to the subject Marine Cargo enquiry from New India a/c LRDE- Government of India, quoting the rate of premium as required by New India Assurance Co. Ltd. for the total value of the goods at Rs. 362.70 cores, of which New India Assurance Co. Ltd. wanted to retain Rs. 60 crores under own cover. Thereafter, for and on behalf ....
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....k at 0.075% premium less 10% RI commission on certain terms. This was subsequently confirmed by the assessee on 18th November, 2005 stating as follows: "Further to our communication dated 15.11.2005 providing you Terms on Proportional basis, we are now forwarding herewith our complete quote slip Ref.No.SUPRA/MS/2411/2005/QTN/537 dated 18.11.2005. We ar pleased to advise that the RI Commission has been increased to 10% and trust this will enable you to stay competitive Trust this meets with your requirement and we request you to kindly confirm your FAC RI Order in order to proceed to bind 100% support." 30. The above discussions were confirmed by the New India Assurance Co. Ltd. vide letter dated 12th December, 2005,stating as follows: "Re: Reinsurance of risk - LRDE (Bangalore) marine transit risk We confirm our discussions on the reinsurance quote for the above proposal. The risk has now been accepted by our Bangalore office. We are placing the risk with you @ 0.075% premium less 10% RI commission giving us the net rate of acceptance. The policy details will be sent to you immediately on receipt from our Bangalore office." ....
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....B2L. Beneficiary: HEALTH LAMBERT GROUP (CLIENT MONEY) A/c No.01007564 IBAN: GB89NWBK60214001007564 In this connection, we are enclosing herewith the following documents: 1. Copy of letter dt.12.12.2005 from M/s.The New India Assurance Co. Ltd., Mumbai 2. Copy of the above mentioned Debit Note. Kindly acknowledge and send us your confirmation for having effected above remittance." 34. The New India Assurance Co. Ltd. , on the basis of the debit note dated 16th January, 2006, issued a cheque dated 14.2.2006 for a sum of Rs. 18,91,080/-. 35. A careful reading of the above-said documents reveals that the net premium payable by the New India Assurance Co. Ltd. to the reinsurer in London is Rs. 2,101,200/-. After extending the benefit of 10% commission, the net premium due to Heath Lambert Limited comes to Rs. 18,91,080/-. Under the terms of contract, for providing the service as re-insurance broker, which fact is not disputed, a sum of Rs. 16,18,960/- alone is remitted to M/s.Heath Lambert Group as client money as set out by the assessee in the letter to the Chief Manager, Bank of India, Overseas Branch, Chennai dated ....
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....ase. It received commission at 3 to 6% relating to maritime and other insurance. The appellant in that case arranged for re-insurance of a portion of the risk with various reinsurance companies either directly or through foreign brokers. In return, the appellant company received a percentage of premium received by the foreign company as its share of brokerage. In that case, the Oil and Natural Gas Commission insured all their offshore oil and gas exploration and production operations with the United India Insurance Company, Madras. In respect of this insurance risk, the appellant contacted Sedgwick Offshore Resources Ltd., London, who are brokers in London for placement of reinsurance business. The appellant therein furnished all the details about the risk involved, the premium payable, the period of coverage and the portion of the risk which is sought to be reinsured. The said London brokers contacted various underwriters and after getting confirmation about the portion of the risk the foreign reinsurers were prepared to undertake, informed the appellant about such reinsurance coverage. Thereafter, the Indian ceding company handed over the total premium to be paid by it to the for....
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....r information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided or agreed to be made available or provided to such Government or enterprise by the assessee, or in consideration of technical services rendered or agreed to be rendered outside India to such Government or enterprise by the assessee, under an agreement approved in this enterprise by agreement approved behalf by the Chief Commissioner or the Director-General and such income is received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India, or having been converted into convertible foreign exchange outside India, is brought into India, by or on behalf of the assessee in accordance with any law for the time being in force for regulating payments and dealings in foreign exchange, there shall be allowed, in accordance with and subject to the provisions of this section, a deduction of an amount equal to fifty per cent. of the income so received in, or brought into, India, in computing the total income of the assessee: Provided that the application for the approval of the agreement referred to in this sect....
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....ia in foreign exchange terms and the retention of the fee due to the appellant - J.B.Boda is in dollars for the services rendered. According to the Supreme Court, the retention of the amount by J.B.Boda would be a receipt of income in convertible foreign exchange to avoid unnecessary two-way traffic, i.e., to avoid formal remittance to the foreign insurers first and thereafter to receive the commission from the foreign reinsurer, as it may be an empty formality and a meaningless ritual. It is to be noted that in J.B.Boda's case, the amount was received by the appellant re-insurance broker in Indian rupees and thereafter by approaching the Reserve Bank of India necessary permission was sought for to convert the same into US dollars. In the present case, the amount is received by the assessee in Indian Rupees and through the banking channels, the premium less the commission/brokerage is sent in foreign exchange to the re-insurer abroad. 44. In answer to the issue raised before the Supreme Court in J.B.Boda's case, taking note of the nature of transaction, the Supreme Court clearly held that the view of the respondent/Department therein that in respect of re-insurance servi....
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.... No.6/99 dated 9.4.99. In effect, if the destination based consumption tax is relatable to export of service, all these notifications will have no effect. This clarification gets the stamp of approval by the Supreme Court in the decision reported in 2007 (7) SCC 527 (All India Federation of Tax Practitioners V. Union of India), wherein in paragraph 25, the Supreme Court held as follows: "25. On the basis of the above discussion, it is clear that service tax is VAT which in turn is both a general tax as well as destination based consumption tax leviable on services provided within the country." 48. A reading of the said circular issued by the Government of India which is binding on the Department makes it clear that the applicability of service tax will be only in relation to services provided within the country and not in relation to export of service. As a matter of fact, the substantial portion of the demand in the show cause notice and the adjudication order falls outside the purview of the Export of Service Rules. On and from 15.3.2005, Export of Service Rules comes into operation. The period between 15th March, 2005 to 31st March, 2006, the Rules may apply and in t....
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.... received by the service provider in convertible foreign exchange; (ii) such taxable services which are provided and used, other than in or in relation to commerce or industry, if the recipient of the taxable service is located outside India at the time when such services are received. Explanation. - For the purposes of this rule "India" includes the designated areas in the Continental Shelf and Exclusive Economic Zone of India as declared by the notifications of the Government of India in the Ministry of External Affairs Nos. S.O. 429(E), dated the 18th July, 1986 and S.O. 643(E), dated the 19th September 1996." 51. There is some difficulty in identifying the particular clause because there are two 3(ii) . The proviso to Rule 3(3) does not get attracted to the present case, as the recipient of the taxable service is not located in India. According to the proviso, the recipient of such taxable services does not have commercial or industrial establishment or office relating thereto in India. In the present case, the re-insurance broker has rendered service outside India and does not fall within Rule 3(3) and that fact is not disputed. Therefore, for this period ....
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.... As an intermediary, the reinsurance broker seeks suitable reinsurers, on behalf and in the interest of primary insurers and their reinsurance requirements. He advises the primary insurer on adequate risk coverage, negotiates and finalises the placement of reinsurance contracts and handles administrative issues related to the reinsurance contract. In collaboration with the reinsured, the broker prepares all the details of the reinsurance submission (general information on the market and the reinsured, portfolio profile, exposure data, statistics, terms and conditions) and identifies the reinsurance market with the best conditions, from both an economic and solvency standpoint. The broker usually approaches a reinsurer, who is recognised as a well-known leader suitable for the type of business to be placed, and negotiates the final terms, which are summarised on the reinsurance slip. After the terms and conditions have been finalised with the leader, the broker places the entire business by approaching other reinsurers. The placement of treaties with high capacities or premium volumes, or large special facultative risks of a complex nature, is cometimes shared by and betwee....
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.... is no different from the definition contained in Swiss Re's non-life reinsurance manual. The assessee in this case has been conducting affairs of insurance and reinsurance for and on behalf of New India Assurance Co. Ltd. in terms of Rule 4 (c) (d) (e) (f) (g) and (h) of the IRDA (Insurance Brokers) Regulations, which are as follows: "4. Functions of a re-insurance broker - the functions of a re-insurance broker shall include any one or more of the following: (a) .... (c) rendering advice based on technical data on the reinsurance covers available in the international insurance and the reinsurance markets; (d) maintaining a database of available reinsurance markets, including solvency ratings of individual reinsurers; (e) rendering consultancy and risk management services for reinsurance; (f) selecting and recommending a reinsurer or a group of reinsurers; (g) negotiating with a reinsurer on the client's behalf; (h) assisting in case of commutation reinsurance contracts placed with them;" It is seen that there is also a further role on the part of the assessee, which has been indicated in Regu....