TaxTMI 
TaxTMI 
2022 (7) TMI 457
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....& sells and other training expenses; and that the appellants have illegally recovered service tax from the insurance agent and the same is recoverable under Section 73A (3) of Finance Act, 1994. Three show cause notices dated 23.09.2013, 22.04.2016 & 11.04.2018 were issued to the appellants covering the period April 2008 to March 2013, April 2014 to March 2015 & April 2015 to June 2017 respectively demanding service tax of Rs. 3,53,33,07,408/-; 1,82,44,893/- and 8,73,39,908/- respectively. Show cause notices also proposed to impose penalty on that Section 76, 77 and 78 of Finance Act, 1994. All the three show cause notices were confirmed by the impugned order dated 30.08.2018. Accordingly, Appeal Nos. ST/89285/2018, ST/89288/2018 & ST/89310/2018 were filed by the appellants. Submissions on the includibility of various expenses 2. Shri Shridharan Senior Counsel along with Shri Sachin Mishra appeared on behalf of the appellant and submits as regards the alleged non inclusion of expenses that the appellants have entered in to agreements with individuals/corporate who act as the insurance by the appellants. The appellants are discharging service tax on reverse charge basis ....
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....the hands of the appellants. 2.4 Refreshable/ Renewal Training Expenses:- as per IRDA guidelines the licenses granted are valid only for 3 years; in case the agents wished to renew their licenses they need to undergo training; for this purpose the appellants engage the training institute to impart the training. 2.5 He submits that various vendors/training institutes raised the invoices in the name of the appellants and the appellants have paid for the same. The show cause notices alleged that an expense incurred by the appellants is on behalf of the agents and hence the same are includible in the taxable value in the service provided by the agents to the appellants in terms of Rule 5 & Rule 6 of the Service Tax (determination of value) Rules, 206. 2.6 He submits that in terms of IRDA Regulation 2002 insurance agents required to get trained before they are license and before their license is reissue after the expiry of 3 years. Therefore, the expenses incurred by the agents and reimbursed by the appellants this regards cannot be termed as commission for procuring insurance business. He further submits that various kinds of expenditure incurred by the appel....
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....stroked down, by the Hon'ble High Court, whole in the same to be ultra wires and unconstitutional in the case of International Consultants & Technocrats Pvt. Ltd. V/s UOI 2013- (29) S.T.R. 9 (Del.) (upheld by Supreme Court 2018- TIOL-76-SC-ST); Hon'ble Apex Court has held the same in the case of CST Vs. Bhayana Builders (P) Ltd. -2018 (10) GSTL 118 SC. He further submits that Apex Court in the case of Devi Dass Gopal Krishnan and others Vs. State of Punjab & Ors. (1967) 20 STC 430 held that the phrase 'other valuable consideration' would take color from the expression 'cash or deferred payment' and unless transfer is made for money consideration, such transfer will not be sale and is not liable to levy of tax under the provision of the Act. 6. Learned Senior Counsel also submits that the principle of noscitur a sociis is applicable with the case; clause 6 has expression like 'amount of premium charge', 'adjustment of deposit', 'any amount received' etc.; these clauses also suggest that what is liable to service tax his money consideration and nothing more. He relies on H. H. Sri. Rama Verma vs. CIT, (1991) 187 ITR 308 (SC) and Vijaipat Singhania vs. CIT, (1992) 193 ITR 274....
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....senting that service tax from the insurance commission being paid to the agents; therefore, the appellants were paying the net amount arrived at after deducting service tax and TDS; it is a method of computing the commission amount' the appellants have not violated any provision of law; Hon'ble Apex Court has gone into the issue of agreement between parties which provided for the burden of taxes to be borne by the service provider in the case of Rashtriya Ispat Nigam Ltd vs. M/s. Dewan Chand Ram saran, 2012- TIOL-37-SC-ST and held that " The provisions concerning service tax are relevant only as between the appellant as an assesse under the statute and the tax authorities. This statutory provision can be no relevance to determine the rights and liabilities between the appellant and the respondent as agreed in the contract between two of them. Thus, he submits that there is no bar under the law for deducting the amount of service tax from the commission payable to the agents. The above case was relied upon by CESTAT in the case of Bajaj Life Insurance Company and Max Life Insurance Company (both supra). 10. Learned Senior Counsel submits that a close reading of Section 73 A....
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....training, business promotion expenses, pre-recruitment etc. 14. Coming to the first issue as to whether the appellants are liable to pay service tax on the amounts, representing service tax and TDS, deducted by them from the commission payable to their agents. The appellants have engaged the services of various agents for procuring life insurance business; the agents or require to pay service tax under Section 65 (105) (zy) of the Finance Act, 1994 on the insurance auxiliary services; however, the appellants are paying such service tax on the basis of reverse charge mechanism. While paying the commission due to the agents the appellant have deducted the service tax paid by them and TDS amount from the commission; it is this amount representing the service tax recovered from the appellants, is sought to be recovered as service tax by the Revenue under provision of Section 73 (2) and Section 73 (3) of the Finance Act, 1994. It is alleged in the SCN that while paying the Commission to the Insurance Agents. Department is of the view that as per provisions of Section 68(2) of the Act read with Rule 2(1)(d)(ii) and Rule 2(1)(d)(i)(A) of the ST Rules read with Notification No. 36....
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....) of the Service Tax Rules, 1994, with effect from 01.07.2012, reads as "person liable for paying service tax", (i) In respect of the taxable services notified under sub-section (2) of section 68 of the Act, means, (A) In relation to service provided or agreed to be provided by an insurance agent to any person carrying on the insurance business, the recipient of the service. (iv). Section 73A of the Act, reads as Service tax collected from any person to be deposited with Central Government. (1) Any person who is liable to pay service tax under the provisions of this Chapter or the rules made there under, and has collected any amount in excess of the service tax assessed or determined and paid on any taxable service under the provisions of this Chapter or the rules made there under from the recipient of taxable service in any manner as representing service tax, shall forthwith pay the amount so collected to the credit of the Central Government. (2) Where any person who has collected any amount, which is not required to be collected, from any other person, in any manner as representing service tax, such person shall forth....
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....fore, 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 between two of them. There was nothing in law to prevent the appellant from entering into an agreement with the respondent handling contractor that the burden of any tax arising out of obligations of the respondent under the contract would be borne by the respondent. 17. Moreover, we find that as submitted by the Senior Counsel for the appellants, the issue is no longer Res Integra. This Tribunal has gone in to the case, with identical facts, in respect of HDFC Standard Life Insurance Co 2017 (49) S.T.R. 301 (Tri. - Mumbai), and held relying on Rashtriya Ispat....
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....tion we find that it is not the case of the department that the amounts in question are not paid to the insurance agents of the appellants (the service providers) to be viewed as a consideration liable to be taxed, at the hands of the service providers, for the services rendered, notwithstanding the fact that in the instant case the appellants have discharged the duty on reverse charge mechanism. On this count also, such amounts recovered by the appellants, who are service recipients, cannot be taxed in the scheme of service Tax. Therefore, we hold that on both these counts the demand on amount of service tax recovered by the appellants from their agents cannot be sustained. Thus, the demand of Rs 344, 39, 75,575 is liable to be set aside. As the demand itself is held not sustainable, the question of Interest and penalty does not arise at all. 19. Coming to the various expenses incurred by the appellant for training of the insurance agents and business promotion expenses, the appellants have submitted that these are business related expenses and have no connection with the consideration paid/payable to the insurance agents by the appellants for the services availed; Rule 5....
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....to the service recipient, it does not enter into Bajaj Allianz & Ors-38867114 etc resd-30.5 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 t....
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....on of taxable service is with any associated enterprise.]" 15. It was argued that payment received 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....
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....e receiver has made the payments to the assessees. As per these Rules, these reimbursable expenses also form part of 'gross amount charged'. Therefore, the core issue is as to whether Section 67 of the Act permits the subordinate 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 r....
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....of the value of taxable service for charging service tax. In other words, prior to 14.05.2015, such expenditure or cost incurred by the assessee in providing taxable service cannot be included in the value of service. Thus in the value commission paid by the Appellant to insurance agents such expenses cannot be included. In other words, pre and post training expenses, incurred by the Appellant cannot form part of the value of commission paid to the insurance agents. 20. We find that CESTAT in the case of Max Life Insurance Co (Supra) followed the above judgment and held that 17. Further, reliance is placed on Bajaj Allianz Life Insurance Co. Ltd. v. Commissioner of C.E. & S.T., Pune-III, Final Order No. A/86013-86023/2019 wherein Hon'ble CESTAT held that expenses incurred in pre-recruitment training and post license training of insurance agents by the Appellants cannot form part of the gross taxable value of commission paid to the Insurance Agents in determining the service tax liability. 21. It was also held in Edelweiss Tokio Life Insurance Company Ltd (Supra) that 9. As far as the first issue is concerned, the expenses incurred by the insu....