TaxTMI 
TaxTMI 
2026 (9) TMI 1504
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....milies. The appellant is registered with the Department as a provider of Banking and Financial Service. It obtains funds from public and private sector banks and further lends these funds to its customers, charging interest together with service charges and processing fees on the loans so extended, and has throughout discharged service tax on the service charges and processing fees collected. That part of its liability is not in dispute. 3. The appellant additionally facilitates insurance coverage for its borrowers (customers) from M/s. Kotak Mahindra Old Mutual Life Insurance Limited (Kotak) under a group insurance scheme. The policy is issued to the appellant, while the certificate of insurance is issued in the name of each customer as the beneficiary. Two sub-periods are relevant. From April 2009 to May 2011, the appellant collected the insurance premium from customers and remitted the entire amount, without any mark-up, to Kotak, and separately collected an administrative or service charges to cover its facilitation cost, said to be permissible under the 'Guidelines on Group Insurance' issued by the Insurance Regulatory and Development Authority vide Ref. No. 015/IRDA/Life/C....
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....ty, by Order-in-Original No. 97/2015-16-ST-II dated 29.02.2016, confirmed the demand of service tax of Rs.23,96,449/- along with appropriate interest, appropriated the sums of Rs.2,75,900/- and Rs.74,711/- already paid by the appellant towards tax and interest, and imposed penalty equal to the tax confirmed under Section 78 of the Finance Act, 1994, together with a further penalty of Rs.10,000/- under Section 77 of the Act. 8. The Adjudicating Authority held that the facilitation of insurance, although rendered with the assistance of an insurer, is a service performed in relation to the appellant's Banking and Financial Service, since the cover extended to the customer also secures the appellant's own interest in recovery of the loan advanced. On this basis, it was held that the activity constitutes a composite service which, in terms of Section 65A(2)(b) of the Finance Act, 1994, is to be classified under the service that gives it its essential character, namely Banking and Financial Service. Accordingly, the entire amount collected under the head Insurance Income was held includible in the value of that service. 9. Aggrieved, the appellant carried the matter in appeal, cont....
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....t a refund of Rs.5,44,657/- paid under protest towards tax on the premium collected up to May 2011, together with interest of Rs.6,20,848/- and penalty of Rs.1,46,164/- paid vide challans dated 07.04.2016, and submitted that the further demand of tax on premium for June 2011 to March 2012, was not lawful. 13. On the scope of Section 67 of the Finance Act, 1994, counsel contended that clause (i) of sub-section (1) confines the value of a taxable service to "the gross amount charged by the service provider for such service provided or to be provided by him", a formulation that requires a direct nexus between the consideration received and the service actually rendered. Since the only consideration flowing to the appellant is the administrative charges, on which tax already stands paid, no further liability can arise merely because a larger sum passed through the appellant's hands en route to Kotak. 14. On Rule 5(2) of the Valuation Rules, counsel urged that the ingredients of a pure agent are satisfied: the insurance premium is shown as a distinct line item in the invoice, exactly equal to the sum remitted to Kotak; the appellant recovers from the customer no more than what it ....
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....that the following issues arise for determination: (i) Whether the amount collected by the appellant towards insurance premium, and remitted in full to Kotak, forms part of the value of the appellant's taxable service under Section 67 of the Finance Act, 1994, or is excludible therefrom on the ground that the appellant acted as a pure agent within the meaning of Rule 5(2) of the Valuation Rules, for both the period April 2009 to May 2011 and the period June 2011 to March 2012; (ii) Whether invocation of the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994 was justified; and (iii) Whether the penalty imposed under Section 78 of the Finance Act, 1994 is sustainable, and whether the appellant is entitled to waiver under Section 80 of the Act. 20. Taking up the first issue, i.e., whether the sum collected by the appellant towards insurance premium can be brought within the value of its taxable service, we find that Section 67(1)(i) of the Finance Act, 1994 measures the value of a taxable service, where the consideration is in money, as "the gross amount charged by the service provider for such service provided or to....
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.... reiterated in Uniworth Textiles Ltd. v. Commissioner of Central Excise, 2013 (288) ELT 161 (SC), that mere non-payment of tax is not equivalent to wilful suppression, and that the qualifying word "wilful" must be given full effect. Thus a bona fide, even if ultimately incorrect, understanding of one's tax liability does not attract the extended period. This position was affirmed again in C.C., C.E. & S.T., Bangalore v. Northern Operating Systems Pvt. Ltd., 2022 (61) GSTL 129 (SC), where a demand raised on an interpretational question was held not to sustain invocation of the extended period in the absence of any positive act of suppression. 23. The present dispute is squarely interpretational, turning on the application of the Valuation Rules and Section 67 of the Finance Act, 1994 to an unusual bancassurance-style arrangement; neither order below records any finding of concealment or misstatement by the appellant, as distinct from a difference of view on the correct tax treatment of the premium component. Thus, the SCN does not evidence any positive act of deliberate or wilful suppression of facts with intent to evade payment of duty that is attributed to the appellant. The in....