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2019 (6) TMI 104
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.... Service Tax Penalty 1 ST/88681/2016 OIO No.PUN-EXCUS-003-COM-010-14- 15, dt.30.05.2014, passed by CST, Pune-III. Rs. 156,82,08,538/- u/S 73A with interest u/S 74B. Rs. 10,000/- u/S 77(2) 2 ST/85443/2016 OIO No.PUN-SVTAX- 000-COM-30-31-32- 15-16, dt.27.11.2015, passed by P.CST, Pune. and Corrigendum dt.18.1.16 Rs. 2,04,55,253/- u/S 73(1) with interest u/S 75; Rs. 37,64,584/-u/S 73(1) with interest u/S 75; Rs. 3,02,421/- u/S 73(1) with interest u/S 75 appropriating interest Rs. 12,31,309/- paid against above. Rs. 1,14,27.766/- u/S 78(1); Rs. 65,47,25/- under 1st proviso to Section 78(1); Penalty shall stand reduced to Rs. 44,93,753/- if duty demand with interest is paid within 30 days. 3 ST/85829/2016 -do- -do- -do- 4 ST/86236/2016 OIO No.PUN-SVTAX- 000-COM-068-15- 16, dt.01.03.2016, passed by CST, Pune Rs. 16,60,31,650/- u/S 73A with interest u/S 73B Rs. 10,000/- u/S 77(2). 5 ST/90151/2014 OIO No.84/ST-II/ RS/2014, dt.17.09.2014, passed by CST-II, Mumbai Rs. 14,51,18,675/- u/S 73(2) with interest u/S 75; Rs. 47,83,73,026/- u/S 73(2) with interest u/S 73B. @ Rs. 200/- per day u/S 76; Rs. ....
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....charge mechanism basis, in terms of Rule 2(1)(d)(iii) of Service Tax Rules, 1994, the Appellants have discharged Service Tax on the commission amount paid to the insurance agents. Subsequently, in the light of the agreement entered into between the Appellants and the insurance agents, the Appellants recovered the amount equivalent to the Service Tax paid on the commission charges from the agents. Alleging that since the Appellant has recovered the Service Tax from the insurance agents, even though the Service Tax was required to be paid by the Appellant, therefore, such collection is without authority of law and accordingly required to be deposited as per Section 73A(2) of Finance Act, 1994, consequently, demands have been raised against each of the Appellant with interest and proposal for penalty invoking extended period of limitation. It is also alleged that the Appellants had collected and incurred pre-training expenses from the prospective insurance agents and also provided post licence training to the insurance agents, the expenditure incurred on account of the said trainings have been considered as an additional consideration and proposed to be included in computing the gross....
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....e to Service Tax under the Finance Act, 1994". In support of his contention, the learned Advocate referred to the judgment of this Tribunal in the case of Prabhu Dayal Kanojiya Vs CCE Jaipur - 2014- TIOL-1279-CESTAT-DEL, Josh P. John &Ors. Vs CST, Bangalore - 2014-TIOL-1753-CESTAT-BANG. Therefore, in the present case, as the Service Tax was leviable under the Finance Act, 1994 on insurance auxiliary service provided by the insurance agent, subsection (2) of Section 73A of Finance Act, 1994 cannot be made applicable to the present case. 7. He has further submitted that Section 73A of Finance Act, 1994, is pari materia to Section 11D of Central Excise Act, 1944. Section 11D (1) of the Central Excise Act, 1944, corresponds to Section 73A (1) of Finance Act, 1994. Further Section 11D(1A) of the Central Excise Act, which was inserted w.e.f. 10.05.2008 corresponds to both the situations (exempt or Nil rate) covered under Section 73A (1) and (2) of the Finance Act, 1994. Therefore, the judicial interpretation of Section 11D of Central Excise Act, 1944 is squarely applicable to Section 73A of Finance, Act, 1994. Further he has submitted that accordingly the law laid down by Hon'ble Supr....
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....ct, 1994. 9. On the issue of inclusion of pre-recruitment training expenses, in the value of commission paid, the learned Advocate has submitted that the said expenses relates to the phase, when an individual is not qualified or appointed as an insurance agent, accordingly, such individual was not in a position to render taxable service of "insurance auxiliary service". It is also possible that several of those who undertake the training do not qualify as an insurance agent; also, those who qualify may not choose to be an agent or remains an agent of the Appellant. The commission paid by the Appellant to all insurance agents is same irrespective of where they have received pre-recruitment training or entered as a trading agent. The commission required to be paid to the agents as per insurance scheme is approved by the regulatory authority i.e. IRDA. Further he has submitted that Rs. 1,000/- collected from each individual towards pre-training under a separate arrangement whereas under the said agreement the Appellant is a service provider and individual is the service recipient. The Appellant, after introduction of negative list from 1.7.2012 paid service tax on the said amount o....
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....ubmitted that in view of the ratio laid down at Para 16 the transaction value cannot be ignored and any amount cannot be included in the same. He has further submitted that the expenses incurred during the course of providing services are in the nature of hiring conference hall, printing of training materials, arranging for lodging and boarding of the agents, hiring of instructor, arranging food at the training venue, travelling expenses of the agents from various locations to central location where training is conducted etc are incurred for the benefit of the agents. These expenses are directly borne by the Appellant and never reimbursed to the agent. Hence, provision of Rule 5 (1) of Service Tax (Determination of Value) Rules cannot be applicable. It is his contention that the value of service required to be determined as per Sec.67 of Finance Act, 1994. Further, he has submitted that the Appellant have already paid service tax under reverse charge mechanism and availed credit of the same. Therefore, the excess amount if included in the value of commission, the same would be available to the Appellant as credit which is a revenue neutral situation. Consequently, invoking of exten....
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....vices by the agent to the Appellant. Since the expenditures are incurred to improve the ability of insurance agents to sell the Appellant's product in the market and the Appellants are themselves beneficiary of the said expenditure, hence such expenditure cannot be included in the value of service received. 13. He has further submitted that it is well settled principle that just because the third party derives benefit out of a particular service it does not mean that the original party who contracted to receive the service will be denied this benefit. In support, he has referred to the decision of the House of Lords in the English case of Customs & Excise Commissioners Vs Redrow Group Plc. (1999 ALL ER 1). A similar view has been expressed by Hon'ble Supreme Court in the case of CIT Vs Chandulal Keshavlal & Co. (1960) 38 ITR 601 (SC). 14. The learned Advocate further contended that Rule 5 and Rule 6 of the Valuation Rules are not applicable to the present case. It is his contention that Section 67 of Finance Act, 1994 prescribes for gross amount charged by the service provider for providing taxable service which shall be the value on which the service tax is required to be pa....
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....f Devi Dass Gopal Krishnan & Others Vs State of Punjab - (1967) 20 STC 430. 17. Further, he has submitted that 'any other sum' should refer to only monitory consideration and cannot extend to any other benefit. In support, he has referred to the decision of Hon'ble Supreme Court in the case of H.H. Sri Rama Verma Vs CIT - (1991) 187 ITR 308 (SC). 18. Rebutting the appeal filed by Revenue that the corrigendum issued by the Commissioner subsequent to the issue of OIO is not within his jurisdiction, the learned Advocate referred to Section 74 of Finance Act, 1994 and submitted that the issue of corrigendum is well within the jurisdiction of the Commissioner. In support, he has referred to the judgment of Hon'ble Supreme Court in the case of Assistant Commissioner of Income Tax Rajkot Vs Saurashtra Kutch Stock Exchange Ltd - 2010 (18) STR (SC). 19. The learned Advocates appearing for other Appellants more or less subscribed to the aforesaid submissions advanced by the learned Advocates Shri Rohan Shah and Shri S.S. Gupta. 20. Per contra, the Special Counsel Shri K.M. Mondal for the Revenue, has submitted that Section 73A was inserted in Chapter 5 of Finance Act, 1994 w.e.f.....
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....credit of Central Government. Thus, the insurance company which has collected service tax from the insurance agents, must deposit the same with the Central Government. Otherwise, sub-section (2) of Section 73A of Finance Act, 1994 will be rendered purposeless and nugatory. It is his argument that the present proceedings are concerned only with provision of sub-section (2) and not with provisions of sub-section (1) of Section 73A of Finance Act, 1994. 22. Referring to the judgment of this Tribunal in HDFC Standard Life Insurance Co. Ltd's case, the learned Counsel submitted that the Tribunal in the said case, has not recorded any specific finding regarding the scope and ambit on sub-section (2) of Section 73A of Finance Act, 1994. The judgment totally based on the interpretation of sub-section (1) of Section 73A. The decision is therefore subsilentio in respect of the issue involved. In support, he has referred to the judgment of this Tribunal in the case of Oil & Natural Gas Corporation Ltd Vs CC Raigad - 2010 (262) ELT 1078 (T). 23. Further, he has submitted that excess collection of service tax over and above the service tax due which is covered by Section 73A(1) of Finance....
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....se of Delhi Transport Corporation Vs. Commissioner of Service Tax 2015 (38) STR 289 (SC), the learned Special Counsel has submitted that in the said case the honourable court has held that in terms of statutory provision it is the appellant. Discharge the liability was revenue on account of service tax. Further, distinguishing the judgment in Rashtriya Ispat Nigam Ltd's case, the learned Special Counsel has submitted that the judgment is not an authority on the subject to say that the agreement between the parties would take precedent over the statutory provisions. 27. On the issue of inclusion of training expenses in the value of taxable service, the learned Special Counsel has submitted that in view of Board's Circular dt.10.04.2006 wherein it is clarified that the value for the purpose of charging service tax is the gross amount received as a consideration for provision of service. All the expenses or cost incurred by the service provider in providing the taxable service form an integral part of the taxable value and hence are includible in the value. 28. On the issue of time bar, the learned Special Counsel has submitted that no time limit has been prescribed under Sectio....
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....lue for the purpose of service tax. In support, he has referred to the judgment in the case of Jecobs Engineering India Pvt. Ltd Vs CST Ahmedabad - 20178 -TIOL-2914-CESTAT-AHM, Sri Bhagavathy Traders Vs CCE Cochin - 2011 (24) STR 290 (Tri-LB), BEE Am Industries Pvt. Ltd Vs CST - 2017-4-GSTL-185-Tri-Del. Further, referring to the Board's Circular No.B-1/4/2006-TRU, dt.19.04.2006, on the issue of reimbursable expenditure, it is clarified that all the expenses or cost incurred by the service provider in the course of providing taxable service forms an integral part of the taxable value and are includible in the value. It is not relevant that various expenses or costs are separately indicated in the invoice or bills issued by the service provider to his client. 30. Heard both sides at length and perused the records. 31. The common issues involved in these appeals for determination are:- (i) Whether service tax paid by the Appellant in accordance with Rule 2(1)(d)(iii) of Service Tax Rules, 1994 as recipient of 'Insurance Auxiliary service' and then recovered from the service providers i.e. 'insurance agents' is required to be deposited as per Section 73A(2) of Finance Ac....
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.... any excisable goods under this Act or the rules made thereunder from the buyer of such goods in any manner as representing duty of excise, shall forthwith pay the amount so collected to the credit of the Central Government. (2) Where any amount is required to be paid to the credit of the Central Government under sub-section (1) and which has not been so paid, the Central Excise Officer may serve, on the person liable to pay such amount, a notice requiring him to show cause why the said amount, as specified in the notice, should not be paid by him to the credit of the Central Government. (3) The Central Excise Officer shall, after considering the representation, if any, made by the person on whom the notice is served under sub-section (2), determine the amount due from such person (not being in excess of the amount specified in the notice) and thereupon such person shall pay the amount so determined. (4) The amount paid to the credit of the Central Government under [subsection (1) or sub-section (3), shall be adjusted against the duty of excise payable by the person on finalisation of assessment or any other proceeding for determination of the duty of exc....
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.... the Central Government. (4) The Central Excise Officer shall, after considering the representation, if any, made by the person on whom the notice is served under sub-section (3), determine the amount due from such person, not being in excess of the amount specified in the notice, and thereupon such person shall pay the amount so determined. (5) The amount paid to the credit of the Central Government under subsection (1) or sub-section (2) or sub-section (4), shall be adjusted against the service tax payable by the person on finalisation of assessment or any other proceeding for determination of service tax relating to the taxable service referred to in sub-section (1). (6) Where any surplus amount is left after the adjustment under subsection (5), such amount shall either be credited to the Consumer Welfare Fund referred to in section 12C of the Central Excise Act, 1944 (1 of 1944) or, as the case may be, refunded to the person who has borne the incidence of such amount, in accordance with the provisions of section 11B of the said Act and such person may make an application under that section in such cases within six months from the date of the public no....
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....and indirect one. Income tax, Wealth tax property tax, etc. is placed in the category of direct tax, whereas customs, excise, sales tax, VAT, GST etc. are popularly called as indirect taxes. In India the tax is not levied and collected classifying as Direct and Indirect Tax unlike few other Countries. It is held by the Hon'ble Supreme Court, that service tax is an indirect tax and is a destination based consumption tax. However, for the purpose of administrative convenience, the collection of service tax could be made either from the service provider or service recipient in relation to the service which is the object of the tax. Merely because the tax is collected from the service recipient, the character of the service tax will not be altered, but it would continue to remain as service tax only. Therefore, the reasoning of the learned Commissioner that since the service tax on Insurance Auxiliary service since to be paid by the Appellant, is in the nature of direct tax, hence, not authorised to pass on the burden to the Insurance agents, is incorrect and contrary to the principles of law laid down by the Hon'ble Supreme Court. 40. The next question which needs to be addressed i....
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....xable service referred to in sub-section (1). Sub-section (6) lays down whether any service amount left after adjustment, such amount either be credited and deposited in Consumer Welfare Fund or be refunded to the person who has borne the incidence of said amount, in accordance with the provisions of Sec.11B of the said Act and such person may make an application under that section within six months from the date of public notice to be sued by the central excise officer for refund of the such surplus amount. 44. A careful reading of the said self contained provisions of Sec. 73A, and in particular Sub. Sec.(6), it can safely inferred that the Government cannot retain the amount in excess of applicable service tax collected and deposited with the Govt., but after adjustment of the tax levied and payable in relation to the service either by the service provider or the service recipient, required to transfer the excess amount to the Consumer Welfare Fund or refund it to the person who borne the incidence of duty. In other words, in the event, initially the service tax has been paid by the service receiver and later it has been collected from the service provider, it cannot be const....
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....on 11D. These may be case where goods are removed/cleared without effecting their sale. In such a case, Section 11D is not attracted. It is attracted only when goods are sold. The purport of this section is in accord with Section 11B and cannot be faulted." 45. Both sides have referred to the judgment of this Tribunal in the case of Prabhu Dayal Kanojiya Vs CCE Jaipur (supra). Revenue, referring to the said judgment, has argued that in the event no service tax liability arise out of the transaction, if any, collected has to be deposited with the Government. To understand the said judgment in its proper perspective, it is necessary to read Paras 4 & 5 of the judgment before analyzing the observation of the Tribunal which reads as under:- "4. However, in para-39 of the impugned order, the Authority confirmed a demand for Rs. 4,18,665/- on the ground that this amount is the service tax component on the work executed by the appellant under work order no.MB6 PO-2817 dated 4.3.2010, involving construction of digester domes for the Delhi Jal Board. The Adjudicating Authority observed that since the relevant agreement contains a term that service tax element if payable is extra....
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....ax element, if payable, is extra, the Tribunal, analyzing the scope of Section 73A(2) of Finance Act, 1994, observed that the conditions required for directing any person to remit any amount collected as service tax, which is not required to be so collected, is a finding of fact and it is for the Revenue to establish that the person had, in fact, collected the amount, representing as service tax, even though no service tax liability arises under the transaction qua for which such collection is made. It is the observation of the Tribunal that the condition need to be satisfied for demanding the amount u/s 73A(2) that no service tax liability arises, but the amount has been collected representing as service tax. Subsequently, the Tribunal proceeded in observing that the liability to remit service tax under Section 73A(2) does not arise on the basis of mere permission in an agreement that the liability to compensate, reimburse the service tax liability of the service provider, is on the service recipient. In other words, a liability which is not accrued, cannot ultimately be translated into a liability merely because there is stipulation in the agreement that in the event, any liabili....
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....raph 9 of Laghu Udyog Bharati (supra), service tax is an indirect tax, and it is possible that it may be passed on. Therefore, an assessee can certainly enter into a contract to shift its liability of service tax. Though the appellant became the assessee due to amendment of 2000, his position is exactly the same as in respect of Sales Tax, where the seller is the assessee, and is liable to pay Sales Tax to the tax authorities, but it is open to the seller, under his contract with the buyer, to recover the Sales Tax from the buyer, and to pass on the tax burden to him. Therefore, though there is no difficulty in accepting that after the amendment of 2000 the liability to pay the service tax is on the appellant as the assessee, the liability arose out of the services rendered by the respondent to the appellant, and that too prior to this amendment when the liability was on the service provider. The provisions concerning service tax are relevant only as between the appellant as an assessee under the statute and the tax authorities. This statutory provision can be of no relevance to determine the rights and liabilities between the appellant and the respondent as agreed in the contract ....
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....he insurance agents. The prerecruitment training expenses are nothing but training and examination fee provided by the Appellant to the individuals so as to qualify to work as insurance agent as per IRDA norms. In some cases, viz. Kotak Mahindra Old Mutual Life Insurance Ltd, the Appellant had collected Rs. 1,000/- as pre-training expenditure charges from the individuals, whether subsequently after receiving the training, the trainees took up the profession as an insurance agent and served the Appellant or otherwise. It is the contention of the learned Advocate Shri Rohan Shah for the said Appellant is that out of the total candidates provided with pre-recruitment training approximately 40% later, rendered service to the Appellant as Insurance Agents. It is his contention that the amount of Rs. 1,000/- collected from the individuals cannot, in any manner, be considered to be a part of the value of commission as per Section 67 of Finance Act, 1994 read with Service Tax Valuation Rules before the candidates quality to become Agent. Further, he has submitted that it is a service rendered by the Appellant to the insurance agents and hence after introduction of negative regime w.e.f. 1.....
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....er as may be prescribed. Explanation. - For the purposes of this section, - (a) "consideration" includes any amount that is payable for the taxable services provided or to be provided; (b) "money" includes any currency, cheque, promissory note, letter of credit, draft, pay order, travellers cheque, money order, postal remittance and other similar instruments but does not include currency that is held for its numismatic value; (c) "gross amount charged" includes payment by cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and book adjustment, and any amount credited or debited, as the case may be, to any account, whether called "Suspense account" or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise. Service Tax (Determination of Value) Rules, 2006 RULE 5. Inclusion in or exclusion from value of certain expenditure or costs. - (1) Where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or cost....
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.... is charged by the service provider to the service recipient, it does not enter into the equation for determining the value on which service tax is payable. b. The amount charged should be for "for such service provided" : Section 67 clearly indicates that the gross amount charged by the service provider has to be for the service provided. Therefore, it is not any amount charged which can become the basis of value on which service tax becomes payable but the amount charged has to be necessarily a consideration for the service provided which is taxable under the Act. By using the words "for such service provided" the Act has provided for a nexus between the amount charged and the service provided. Therefore, any amount charged which has no nexus with the taxable service and is not a consideration for the service provided does not become part of the value which is taxable under Section 67. The cost of free supply goods provided by the service recipient to the service provider is neither an amount "charged" by the service provider nor can it be regarded as a consideration for the service provided by the service provider. In fact, it has no nexus whatsoever with the taxable se....
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....ved in 'any form' and 'any amount credited or debited, as the case may be...' is to be included for the purposes of arriving at gross amount charges and is leviable to pay service tax. On that basis, it was sought to argue that the value of goods/materials supplied free is a form of payment and, therefore, should be added. We fail to understand the logic behind the aforesaid argument. A plain reading of Explanation (c) which makes the 'gross amount charges' inclusive of certain other payments would make it clear that the purpose is to include other modes of payments, in whatever form received; be it through cheque, credit card, deduction from account etc. It is in that hue, the provisions mentions that any form of payment by issue of credit notes or debit notes and book adjustment is also to be included. Therefore, the words 'in any form of payment' are by means of issue of credit notes or debit notes and book adjustment. With the supply of free goods/materials by the service recipient, no case is made out that any credit notes or debit notes were issued or any book adjustments were made. Likewise, the words, 'any amount credited or debited, as the case may be', to any account whet....
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....dinate legislation to be enacted in the said manner, as done by Rule 5. As noted above, prior to April 19, 2006, i.e., in the absence of any such Rule, the valuation was to be done as per the provisions of Section 67 of the Act. 22. Section 66 of the Act is the charging Section which reads as under: "there shall be levy of tax (hereinafter referred to as the service tax) @ 12% of the value of taxable services referred to in sub-clauses of Section 65 and collected in such manner as may be prescribed." 23. Obviously, this Section refers to service tax, i.e., in respect of those services which are taxable and specifically referred to in various sub-clauses of Section 65. Further, it also specifically mentions that the service tax will be @ 12% of the 'value of taxable services'. Thus, service tax is reference to the value of service. As a necessary corollary, it is the value of the services which are actually rendered, the value whereof is to be ascertained for the purpose of calculating the service tax payable thereupon. 24. In this hue, the expression 'such' occurring in Section 67 of the Act assumes importance. In other words, valuation of taxabl....