TaxTMI 
TaxTMI 
2008 (11) TMI 82
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....f Service Tax, Chennai-II Division, addressed to the appellants, wherein certain particulars were called for and certain queries were made in relation to the above order of the Commissioner. This application will also be disposed of along with the appeal. 3. The appellant-company hereinafter referred to as 'the assessee', is an insurance broker as well, as reinsurance broker, for which they have a composite licence obtained under the Insurance Regulatory and Development Authority (Insurance Brokers) Regulations, 2002 issued by the Insurance Regulatory and Development Authority established under section 3(1) of the Insurance Regulatory and Development Authority Act, 1999. The assessee is also registered with the Department in respect of 'insurance auxiliary service' defined under section 65(55) of the Finance Act, 1994. They were paying service tax under this head in respect of brokerage received from primary insurers in India during the aforesaid period. The impugned demand pertains to brokerage received by the assessee from overseas reinsurers as a percentage of the reinsurance premium paid to the reinsurers by the primary insurers during the said period. 4.Where a primary i....
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....ote of the assessee on the Indian insurance company, a Debit Note of the overseas reinsurers on the assessee and the cheque issued by the Indian insurance company to the assessee. 6. According to the assessee, their service tax liability as an "insurance intermediary" defined under section 65(56) of the Finance Act, 1994 was limited to the commission received by them from Indian insurance companies in relation to general insurance business in India from 16-7-2001. Prior to 1-5-2006, they had no liability to pay service tax as an insurance intermediary between Indian insurance companies and overseas reinsurers. Such liability was introduced only with effect from 1-5-2006 with the amendments brought to clauses (58) and (105)(zl) of section 65 of the Finance Act, 1994 by the Finance Act, 2006. Further, according to the assessee, the service rendered by them to the overseas reinsurers was in the nature of 'export of service' and therefore service tax was not leviable thereon. In this connection, the assessee has relied on CBEC's Circular No. 56/15/2003-ST, dated 25-4-2003. The assessee has also contended that, in terms of the decision of the Apex Court in J.B. Boda & Co. (P.) Ltd. v....
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....t, 1994. Such service was not taxable prior to the said date as the amendment had no retrospective effect. (ii) Prior to 1-5-2006, the recipient of insurance auxiliary service rendered by an insurance broker should be a person carrying on general insurance business in India. As the service in question was received by companies engaged in general insurance business outside India, it was not taxable under section 65(105)(zl) of the Finance Act, 1994. (iii) As no remuneration was found to have been received by the assessee from the Indian insurer, any service rendered by the assessee to the insurer in India was gratuitous and hence not chargeable to service tax under section 66 read with section 67 of the Finance Act, 1994. As the assessee earned remuneration only from the foreign reinsurers for procuring reinsurance business for the Indian insurer, the service rendered by them was in the nature of export of service, which was not taxable as per the view taken by CBEC in circular dated 25-4-2003 and as per rule 3(3)(ii)(i) of the Export of Service Rules, 2005. (iv) The status of reinsurance broker as service provider to a foreign insurer was examined by the Apex Court in J.B.....
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.... brokerage. Deduction made from a reinsurance premium by the reinsurance broker as commission for business placed. (Insurance) Reinsurance business. Business of insurance by another insurer of all or a part previously assured by the direct-writing company. [Section 6(2)(a), Life Insurance Corporation Act (31 of 1956)]." We have also consulted Insurance Institute of India's book on Reinsurance. From these authorities, it appears that, whereas insurance is a contract between the insurer and the insured, reinsurance is a separate contract between the insurer (the reinsured) and the reinsurer. These contracts are independent of each other. 'Reinsurance' [4th Edition] authored by Robert Carter, Leslie Lucas and Nigel Ralph also says that a reinsurance contract constitutes a separate contract of insurance between 'the reinsurer' and 'the reinsured' and that it is not an assignment of all or any part of the rights and liabilities already existing under a contract of direct insurance. An original insurer arranges reinsurance with a reinsurer who accepts part of the risk of loss. An insurer may do this either directly or through an intermediary-insurance broker. The intermediary wh....
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....ng commission for the same from the latter. [Insurance Institute of India's book on Reinsurance defines "broker" as 'an intermediary who negotiates contracts of reinsurance on behalf of the reinsured, while receiving Commission for placement and other services from the reinsurer.'] This is precisely what happened in the present case. In one instance of reinsurance, as already noted, an amount of Rs. 21,01,200 out of original premium of Rs. 25.50 lakhs was ceded by the Indian insurer (the reinsured) to the overseas reinsurer under the contract of reinsurance brokered by the assessee. The overseas reinsurer allowed 20 per cent discount to the Indian insurer on the ceded premium amount of Rs. 21,01,200, which amounted to Rs. 4,20,240, 50 per cent of which was passed on to the Indian insurer (the reinsured) as ceding commission and the remaining half was retained by the reinsurance broker (assessee) as reinsurance brokerage or commission. This brokerage was the remuneration received by the assessee for arranging reinsurance with the foreign company for the Indian insurance company vide regulation 4 [function of a reinsurance broker] of the IRDA (Insurance Brokers) Regulations, 2002 rea....
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....xchange for taxable services rendered is repatriated from, or sent outside, India.' For the benefit of the above Notification, ld. counsel argued that the payments of ORC received by the appellants from Malaysian Airlines should be deemed to be receipts in convertible foreign exchange in terms of the Apex Court's decision in J.B. Boda & Co. (P.) Ltd.'s case (supra). The question considered by the Apex Court in the said case was whether the reinsurance brokerage determined in foreign exchange and retained by the assessee would amount to income received in convertible foreign exchange in India for purposes of section 80-O of the Income-tax Act. Explanation (i) to section 80-O of the Income-tax Act defined the term 'convertible foreign exchange' as meaning 'foreign exchange which is for the time being treated by the Reserve Bank of India as convertible foreign exchange for purposes of the law for the time being in force for regulating payments and dealings in foreign exchange'. After noting that the assessee had made remittance in US dollars all the reinsurance premium abroad after deducting their brokerage (expressed in foreign exchange) after obtaining permission from RBI, the Ap....
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....nt in relation to general insurance business or life insurance business and includes risk assessment, claim settlement, survey and loss assessment." Section 65(58) "(58) 'insurer' means any person carrying on the general insurance business or life insurance business." Section 65(105) "(105) 'Taxable service' means any service provided or to be provided, - ** ** ** &nb....
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....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. 2. The list of insurance companies for which your company act/acted as reinsurer as stated in para 20 of Order-in-Original No. 2/2007, dated 31-1-2007 and the details of reinsurance done by your company from July 2001. 3. Whether your commission payment was only from Insurance Companies or also from the reinsurer, was the payment received only in India, was it in Indian Rupee, whether the payment was through your Bankers....