TaxTMI 
TaxTMI 
TaxTMI 
2026 (3) TMI 200
X X X X Extracts X X X X
X X X X Extracts X X X X
....from 18-04-2006 to 3112-2010 along with applicable interest, under proviso to Section 73(1) of the Finance Act, 1994 (Act), as well as the demand of service tax of Rs 48,90,117/- for the period from 01-01-2011 to 31-03-2012 along with applicable interest under Section 73(1) of the Act. The said order appropriated an amount of Rs 70,217/- paid by the Appellant towards the demand for the period from 1804-2006 to 31-12-2010. A penalty equivalent to the demand of Rs 2,38,03,876/- was imposed under section 78 of the Act along with applicable penalties under section 76 and a penalty of Rs 5,000 under section 77 (2) of the Act. By the Order in Appeal No. 151/2016 (STA-II) dated 30.08.2016, the Appellate Authority has upheld the Order in Original No.176/2015-16-ST-II dated 31.03.2016 of the Adjudicating Authority, except for setting aside the penalty imposed under section 77 of the Act. By the Order in Original dated 31.03.2016, the Adjudicating Authority had interalia, confirmed the demand of service tax of Rs.7,58,373/- along with applicable interest under section 73(1) of the Act and imposed a penalty of Rs.75,000/- under Section 76 of the Act. 3. The brief facts are that the Appella....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of Value Rules 2006, the Appellant was required to include all expenditure as consideration for the taxable service provided and taken as the value for the purpose of charging service tax. On being pointed out, the Appellant paid an amount of Rs.70,217/- and contested the remaining amount on the ground that the expenses were related to address commission and not brokers commission. The Department therefore issued a show cause notice as well as the subsequent statements of demand, proposing to levy service tax on the commission paid to the broker under business auxiliary services and the protection and indemnity fee paid to the P&I Clubs under general insurance services and also demanded service tax for the short payment by non-inclusion of all the expenses incurred while paying service tax on freight charges related to ships sailing on national waterways. After due process of law, the respective adjudicating authorities passed the orders in original confirming the demands and imposing penalties as stated above, with the Order in Original dated 31.03.2016 being upheld by the Appellate Authority as stated above. Aggrieved, the Appellant has preferred these appeals. 4. Ms. Radhika....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) 33 GSTL 97, Reynolds Petrochem Limited versus Commissioner of C. Ex & ST (2023) 68 GSTL 292. 6. As regards the demand of service tax under general insurance services with respect to the payments made to P & I Clubs. The Ld. Counsel submits that the P & I Clubs are mutual insurance associations that provide for pooling of risks, information and representation to its members. The Appellant is a member of the association. The members share the expenses necessary for mutual protection and all manner of risks and thus P & I Clubs work on the basis of mutuality. Unlike marine insurance, where the assured pays as premium to an insurance service provider for a particular time, say, a year, or a particular voyage, a P & I Club member instead pays a 'call'. This is a sum of money that is put into the club's pool, a kind of 'kitty'. If, at the end of the year, there are still funds in the pool, each member will pay a reduced call the following year. However, if the club has made a payout, club members will immediately have to pay a further call to replenish the pool. The Ld. Counsel points out that the show cause notices and statements of demand proposed to demand service tax under gener....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mand of service tax under BAS with respect to the commission paid to agents for handling vessels outside India as well as for out-charter of vessels. As regards the contested demand on address commission, the Ld. Counsel argues at the Bar that the SCN has invoked Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 to treat such expenditure as consideration and since the said Rule has been struck down as ultravires Section 66 & 67 of the Act by the Delhi High Court in the Intercontinental Consultant's case since affirmed by the Apex Court, the demand is untenable. 8. Ld. Counsel further argued that the extended period could not be invoked as there is no suppression and all the details have been taken from the Appellant's books of accounts. The Appellant was also under bona fide belief as to non-applicability of service tax with respect to the commission paid to brokers and the payments made to P&I Club since the entire activity takes place outside India. It was also contended that the issues are on questions of interpretation and therefore extended period of limitation is not invokable. Ld. Counsel also submitted that the entire issue is revenue neutral since ev....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ranted the benefit of exemption from penalty under section 80 of the act. 11. We have heard the rival submissions, carefully perused the appeal records and the citations submitted. 12. The issues that arise for our determination are: a) Whether the demand of service tax confirmed on the commission paid to the brokers for their activities of canvassing voyage for ships under Business Auxiliary Services is sustainable. b) Whether the demand of service tax on the payments made by the appellant to P & I clubs under General Insurance Services is correct. c) Whether the contested demand, premised on the allegation that the appellant had adopted the net amount instead of the gross amount and had eschewed adding the expenditure incurred, and sought to be demanded by invoking Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006, to the extend it is contested by the appellant stating it to be address commission, is tenable. d) Whether the appellant's contention that extended period of limitation could not have been invoked in the given facts and circumstances is correct. 13. The demand of service tax on the commission paid to the brok....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mission pertains to services which are completely provided outside India, it cannot be considered as services provided from outside India and received in India for the purpose of service tax under reverse charge mechanism. The above stand of the assessee appears to be not correct. In as much as the assessee have availed the services of foreign agents to promote their business and have paid commission towards this end. As the above service is falling under category (iii) of Rule 3 of Taxation of Services (provided from outside India and Received in India) Rules, 2006, it appears that the assessee are liable to pay service tax as a receiver of service under Section 66A of the Service Tax Act, 1994. Consequently the assessee are liable to pay service tax of Rs.1,08,54,261/- as detailed in the Annexure I enclosed." 16. We find that the Ld. Adjudicating Authority also, despite recording the contentions raised on behalf of the appellant during personal hearing, namely, that the Department has not classified under which service their activity falls under Rule 3(iii) of Taxation of Service Rules and that in the absence of specific category of service, the demand of service tax is not ju....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urchase of such goods or services; (b) excisable goods" has the meaning assigned to it in clause (d) of section 2 of the Central Excise Act, 1944(1 of 1944); (c) "manufacture" has the meaning assigned to it in clause (f) of section 2 of the Central Excise Act, 1944(1 of 1944)" 18. Further, Section 65(105) (zzb) provided that the taxable service means any service provided or to be provided to a client by any person in relation to business auxiliary service. 19. Furthermore, Rule 3 of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, is as under: "3. Taxable services provided from outside India and received in India. - Subject to section 66A of the Act, the taxable services provided from outside India and received in India shall, in relation to taxable services, - (i) specified in sub-clauses (d), (p), (q), (v), (zzq), (zzza), (zzzb), (zzzc), (zzzh) and (zzzr) of clause (105) of section 65 of the Act, be such services as are provided or to be provided in relation to an immovable property situated in India; (ii) specified in sub-clauses (a), (f), (h), (i), (j), (l), (m), (n), (o), (s), (t), (u),....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d CCE v H.M.M. Ltd, 1995 (76) ELT 497 (SC) refer in this regard. Such non remediable defects vitiate the notice as well as the consequent proceedings. We also find that the reliance placed by the Appellant on the decisions in Balaji Enterprises versus C. Ex, & ST (2020) 33 GSTL 97, and Reynolds Petrochem Limited versus Commissioner of C. Ex & ST (2023) 68 GSTL 292 apposite in this regard. We notice that the Principal Bench of this Tribunal, at New Delhi, in the decision in Balaji Enterprises versus C. Ex, & ST (2020) 33 GSTL 97, after noticing the earlier decisions of this Tribunal in Commissioner of Customs & Central Excise, Goa v. Swapnil Asnodkar [2018 (10) G..S.T.L. 479 (Tri. - Mumbai)] and United Telecoms Ltd. v. Commissioner of Service Tax, Hyderabad [2011 (22) S.T.R. 571 (Tri. - Bang.), observed in para 24 as under: "24. The aforesaid two decisions of the Tribunal clearly hold that it is imperative for the Department to specify which specific service contained in the seven clauses of Section 65(19) of the Act is being provided and in the absence of any specific service pointed out in show cause notice, the demand cannot be confirmed as the noticee will not be aware ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... reduced call the following year. However, if the club has made a payout, club members will immediately have to pay a further call to replenish the pool. 26. It is seen that the show cause notice does acknowledge that Protection and Indemnity insurance commonly known as P & I, is a form of marine insurance provided by a P & I Club which is a mutual insurance association that provides cover for its members mainly ship-owners, ship-operators and demise charterers. It also states that while marine insurers provide cover for known quantifiable risks mainly Hull & Machinery insurance for shipowners, P & I clubs provide insurance cover for broader indeterminate risks, such as third party liabilities. The notice then proposes to demand service tax under general insurance services with respect to the payments made in foreign currency to P & I Clubs situated outside India to cover third party liabilities. The impugned order dated 29-03-2013 has upheld the demand on the ground that there is no dispute on the fact that the P & I Clubs are insurers who provide marine insurance cover in respect of third party liabilities. Therefore P & I Clubs are covered under the term 'Insurer' and the ser....
X X X X Extracts X X X X
X X X X Extracts X X X X
....& I clubs are 'insurers', noted the claim of the International Group of Protection & Indemnity Clubs itself, namely, that " Each Group Club is an independent, non-profit making mutual insurance association, providing cover for its shipowner and charterer members against third party liabilities relating to the use and operation of ships. Each club is controlled by its members through a board of directors, or committee, elected from the membership." It was therefore incumbent upon the authorities below to have examined whether or not there did exist a service provider and service receiver relationship between the P & I club and its members given the conceded position that their relationship inter se is based on mutuality without any profit motive. Therefore, to our mind, the adjudicating authorities as well as the appellate authority have erred in proceeding to determine the taxability of the service rendered without examining whether or not the relationship between the P & I club and its members premised on mutuality would have a bearing on the exigibility of the services provided to service tax, particularly when the services are conceded as being rendered to its members. 28. We....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arwal laid great emphasis on the judgments in DALCO Engineering Private Limited v. Satish Prabhakar Padhye and Ors. Etc. (2010) 4 SCC 378 (in particular paragraphs 10, 14 and 32 thereof) and CIT, Kanpur and Anr. v. Canara Bank (2018) 9 SCC 322 (in particular paragraphs 12 and 17 therein), to the effect that a company incorporated under the Companies Act cannot be said to be "established" by that Act. What is missed, however, is the fact that a Company incorporated under the Companies Act or a cooperative society registered as a cooperative society under a State Act can certainly be said to be "constituted" under any law for the time being in force. In R.C. Mitter & Sons, Calcutta v. CIT, West Bengal, Calcutta (1959) Supp. 2 SCR 641, this Court had occasion to construe what is meant by "constituted" under an instrument of partnership, which words occurred in Section 26A of the Income Tax Act, 1922. The Court held: "The word "constituted" does not necessarily mean "created" or "set up", though it may mean that also. It also includes the idea of clothing the agreement in a legal form. In the Oxford English Dictionary, Vol. II, at pp. 875 & 876, the word "constitute" is said t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ny association of persons or body of individuals whether incorporated or not. 76. What has been stated in the present judgment so far as sales tax is concerned applies on all fours to service tax; as, if the doctrine of agency, trust and mutuality is to be applied qua members' clubs, there has to be an activity carried out by one person for another for consideration. We have seen how in the judgment relating to sales tax, the fact is that in members' clubs there is no sale by one person to another for consideration, as one cannot sell something to oneself. This would apply on all fours when we are to construe the definition of "service" under Section 65B(44) as well. 77. However, Explanation 3 has now been incorporated, under sub-clause (a) of which unincorporated associations or body of persons and their members are statutorily to be treated as distinct persons. 78. The explanation to Section 65, which was inserted by the Finance Act of 2006, reads as follows: "Explanation: For the purposes of this section, taxable service includes any taxable service provided or to be provided by any unincorporated association or body of persons to a member the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....any or a registered cooperative society. Thus, Explanation 3(a) to Section 65B(44) does not apply to members' clubs which are incorporated. 83. The expression "unincorporated associations" would include persons who join together in some common purpose or common action - see ICT, Bombay North, Kutch and Saurashtra, Ahmedabad v. Indira Balkrishna (1960) 3 SCR 513 at page 519-520. The expression "as the case may be" would refer to different groups of individuals either bunched together in the form of an association also, or otherwise as a group of persons who come together with some common object in mind. Whichever way it is looked at, what is important is that the expression "body of persons" cannot possibly include within it bodies corporate. 84. We are therefore of the view that the Jharkhand High Court and the Gujarat High Court are correct in their view of the law in following Young Men's Indian Association (supra). We are also of the view that from 2005 onwards, the Finance Act of 1994 does not purport to levy service tax on members' clubs in the incorporated form. 85. The appeals of the Revenue are, therefore dismissed. Writ Petition (Civil) No.321 of....
X X X X Extracts X X X X
X X X X Extracts X X X X
...."any body established or constituted by or under any law for the time being in force". 33. It cannot be that mutuality, premised on the principle that no one can make a profit out of themselves and thus the members' clubs which are incorporated and the members are considered the same, is any different when it comes to the relationship of such a statutory body established by or under any law for the time being in force, and its members when indisputably the members of such P & I club merely share the expenses required for their mutual protection. This too would fortify our view that in the case such as that of the Appellant, it only stands to reason that the aforesaid decision of the Apex Court in Calcutta Club would squarely apply. We are therefore of the considered view that the phrase 'body of persons' does not apply to any body established by or under any law in force so as to attract the application of Explanation 3(a) of Section 65B(44) in the like manner as it has been held in State of West Bengal v. Calcutta Club Ltd, 2019 INSC 1111: 2019 (29) G.S.T.L. 545 (S.C.) that the said Explanation 3(a) does not apply to members' clubs which are incorporated. 34. In any event, a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ultants and Technocrats Pvt Ltd, 2018 (10) GSTL 401 (SC), is reproduced below: "21. Undoubtedly, Rule 5 of the Rules, 2006 brings within its sweep the expenses which are incurred while rendering the service and are reimbursed, that is, for which the service 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 subclauses 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, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 37. As regards the last issue of whether the invoking of extended period of limitation in the facts and circumstances of this case is tenable, the impugned order finds that the appellant had not provided details of the services received from abroad in its returns which is indicative of wilful suppression of facts with intent to evade payment of duty and that but for the visit of audit it would not have been known. The Appellant on the other hand has contended that all the details have been taken from the Appellant's books of accounts. The Appellant was also under bona fide belief as to non-applicability of service tax with respect to the commission paid to brokers and the payments made to P&I Club since the entire activity takes place outside India. Further, the issue is a question of interpretation and therefore extended period of limitation is not invokable. It was also contended that the entire issue is revenue neutral since even if there is a service tax liability, the service tax paid would be available for the Appellant to be taken as Cenvat credit and hence the Appellant cannot be said to be achieving any benefit by suppressing any facts. 38. We find that the show ca....