2025 (5) TMI 1918 - AT - Service Tax

Levy of service tax - Business Auxiliary Service - Referral Charges received by the appellants from the corporate agents - amounts deducted by the appellants from the payments due to their down line members on account of Processing Fee Cheque Processing Charges Cheque Re-issue Charges BC Transfer Fee etc - Commercial Training and Coaching Centre Service in imparting Certified Business Training to their down line members - invocation of extended period of limitation - penalties. Whether the Referral Charges received by the appellants from the corporate agents are liable to service tax under Business Auxiliary Service ? - HELD THAT - The applicable service Tax on the Commission paid is discharged by the said Insurance Companies. There is no separate service rendered by the appellants to their clients i.e. the sub-agents which could be taxable under Business Auxiliary Services ; it is found that non-registration of the appellants as insurance agent does not alter the nature of the services rendered by the appellants to sub-agents. It can be understood from the scheme of the things that the appellants and the sub-agents are rendering the same service to the insurance companies and are sharing the commission paid by the insurance companies to the sub-agents. There is no such bar under the service tax law prohibiting such joint rendering of the service - the issue is answered in favour of the appellants. Whether the amounts deducted by the appellants from the payments due to their down line members on account of Processing Fee Cheque Processing Charges Cheque Re-issue Charges BC Transfer Fee etc would be taxable under Business Auxiliary Service ? - HELD THAT - If the consideration is flowing from the customers of the appellant to the customers by no stretch of imagination the same can be considered as remuneration in the hand of the appellants received from either the corporate agents or the insurance companies. There is no service alleged to have been provided by the appellants to their customers in this regard so as to treat the same as remuneration. Moreover the appellants are not supporting any business of their customers and purchasing of insurance policy cannot not termed as a business of the customers. Therefore the relation of service provider service recipient and the consideration is not established in respect of this activity. These have to be considered as incidental expenses recovered or income generated in the course of business of the appellant and therefore cannot be held to the exigible to service tax. Therefore no case has been established against the appellants on this account. Whether appellants rendered Commercial Training and Coaching Centre Service in imparting Certified Business Training to their down line members were covered under or not? - HELD THAT - Almost all big business entities and corporates do conduct such training to their employees in order to make them competent in the respective fields. This cannot be equated to Commercial Training and Coaching Centre Services . Revenue does not bring about any evidence as to the trainees who have undertaken the CBT are capable of being employed elsewhere. In the absence of the same it has to be understood that training is an in-house training intended to train their own personal. It is the appellants who are the ultimate beneficiaries are consumers of the benefit. Therefore the CBT given by the appellants cannot be a commercial coaching of the training. Revenue appears to be under a fallacy that every income should be as result of a service and every income is for a certain service. This argument is not acceptable. At the same time we find that the argument of the appellant that even if the said activity is treated as service they will be covered under small scale limit is not acceptable. The limit for exemption is to be seen in the totality of the consideration received by the appellants in respect of all the services put together and not each service wise as rightly observed by the adjudicating authority. Whether the extended period is invokable in the facts and circumstances of the case? - HELD THAT - There is merit in the argument of the appellants on limitation as the issues are about the interpretation of the provisions of Law and no positive evidence to allege suppression misstatement etc. with intent to evade payment of duty has been adduced it is opined that the appellants succeed on limitation too. Whether penalties under Section 76 78 77 imposable on the appellant and his partner? - HELD THAT - When the demand of duty is not sustainable there is no question of interest and penalties. Conclusion - i) The appellants are not liable to pay Service Tax on any of the issues raised in the impugned Show Cause Notice and confirmed in the impugned order. ii) The appellants are not liable to pay Service tax on the amounts received under various heads such as referral charges received from Corporate sub-agents; income on account of Processing Fee Cheque Processing charges Cheque Reissue charges BC Transfer fee from their down line members and the income on account of CBT Certified Business Training charges received from their down line members. iii) There is merit in the argument of the appellants on limitation as the issues are about the interpretation of the provisions of Law and no positive evidence to allege suppression misstatement etc. with intent to evade payment of duty has been adduced it is opined that the appellants succeed on limitation too. iv) When the demand of duty is not sustainable there is no question of interest and penalties. Appeal allowed.

Summary

The core legal questions considered by the Tribunal in this case are as follows:

(i) Whether the referral charges received by the appellants from corporate agents are liable to service tax under the category of 'Business Auxiliary Service'?

(ii) Whether the amounts deducted by the appellants from payments due to their down line members, such as processing fee, cheque processing charges, cheque re-issue charges, and BC transfer fee, are taxable under 'Business Auxiliary Service'?

(iii) Whether the appellants rendered 'Commercial Training and Coaching Centre Service' by imparting Certified Business Training (CBT) to their down line members, thereby attracting service tax?

(iv) Whether the extended period for demand of service tax is invokable in the facts and circumstances of the case?

(v) Whether penalties under Sections 76, 77, and 78 of the Finance Act, 1994, are imposable on the appellants and Shri Kulwant Singh?

Issue-wise Detailed Analysis:

(i) Liability of Referral Charges to Service Tax under Business Auxiliary Service

The appellants contended that they were engaged in generating potential insurance customers and referring them to corporate agents, who then passed them to insurance companies. The appellants received a portion of the commission paid by insurance companies to corporate agents and argued that they were essentially marketing on behalf of insurance companies, not the corporate agents. They claimed that service tax liability on insurance auxiliary services is on the insurance companies, as clarified by Board Circular No. B.11/1/2002-TRU dated 1-8-2002, and that the referral income was a commission paid by corporate agents who had already paid service tax on the gross commission received. Further, they argued that imposing service tax on their commission would amount to double taxation.

The Department argued that the appellants were not registered insurance agents and thus their services did not fall under 'Insurance Auxiliary Services' as defined under Section 65(55) of the Finance Act, 1994 and the Insurance Act, 1938. The services were provided to corporate agents, not policyholders or insurers, and therefore, the appellants were liable to pay service tax under 'Business Auxiliary Services' as defined under Section 65(19) of the Finance Act, 1994. The Department relied on precedents such as TVS Motor Co. Ltd and Pagariya Auto Centre to support their position.

The Tribunal examined the definitions and found that the appellants were neither registered insurance agents nor providing services directly to policyholders or insurers, thus not covered under 'Insurance Auxiliary Services'. The Tribunal analyzed the clauses of 'Business Auxiliary Services' and found that the appellants' activities did not fall under clauses (ii), (iv), (vi), or (vii) of the definition. The appellants and the corporate agents were jointly rendering the same service to insurance companies and sharing commission, on which service tax was already paid by insurance companies. The Tribunal relied on the precedent of Popular Vehicles & Services Ltd, which held that once service tax is paid by insurance companies on commission, no further liability arises under Business Auxiliary Services for intermediaries sharing that commission.

Accordingly, the Tribunal concluded that the referral charges received by the appellants from corporate agents are not liable to service tax under Business Auxiliary Service.

(ii) Taxability of Processing Fee, Cheque Processing Charges, Cheque Re-issue Charges, and BC Transfer Fee

The Department contended that these charges, deducted from payments to down line members, represented consideration for services provided by the appellants and were taxable under Business Auxiliary Services.

The appellants submitted that these charges were merely deductions from payments due to their workers/down line members and did not represent consideration for any service provided by the appellants to the payers. They argued that no service relationship existed in this regard and these amounts were incidental expenses or income generated in the course of business.

The Tribunal agreed with the appellants, finding the Department's logic to be far-fetched. The Tribunal held that since the consideration was deducted from the down line members themselves, and no service was rendered by the appellants to these members in respect of these charges, the relationship of service provider and recipient was not established. The charges were incidental business expenses and not subject to service tax.

(iii) Taxability of Certified Business Training (CBT) Charges under Commercial Training and Coaching Centre Service

The Department argued that the appellants provided training to their down line members for a consideration, which fell under the definition of 'Commercial Training and Coaching Centre Service' under Section 65(26) and (27) of the Finance Act, 1994, and thus service tax was payable. The Department also rejected the appellants' claim of Small Scale Industry (SSI) exemption, stating that the exemption limit must be considered on aggregate turnover of all taxable services, not service-wise.

The appellants contended that the training was in-house, educational in nature, intended to develop skills of their own employees/down line members, with no profit motive. They argued that such training did not amount to commercial coaching or training and relied on the Larger Bench decision in Great Lakes Institute of Management Ltd to distinguish their case.

The Tribunal found that the training was indeed in-house, aimed at improving the skills of their own personnel, and not open to the public for a consideration. It held that such training cannot be equated to 'Commercial Training and Coaching Centre Service'. The Tribunal rejected the Department's argument that every receipt must be for a service, emphasizing that the appellants were the ultimate beneficiaries of the training. However, the Tribunal agreed with the Department that the SSI exemption could not be applied service-wise but had to be considered on aggregate turnover.

(iv) Invokability of Extended Period for Demand of Service Tax

The Department invoked the extended period of limitation under proviso to Section 73(1) of the Finance Act, 1994, arguing that the taxable services were not disclosed and the appellants had suppressed facts. The appellants countered that all relevant documents and income were disclosed in their Balance Sheets, which are public documents, and that the demand was based on interpretation of law rather than suppression or misstatement.

The Tribunal observed that the demand was based on interpretation of law and no positive evidence of suppression or misstatement was brought on record. It held that invocation of the extended period was not justified in these circumstances, relying on precedents which establish that extended period cannot be invoked where the demand is based on statutory records and balance sheets without suppression.

(v) Imposability of Penalties under Sections 76, 77, and 78

Since the Tribunal found that the appellants were not liable to pay service tax on the amounts in question, and that there was no suppression or willful attempt to evade tax, it concluded that penalties under Sections 76 (penalty for failure to pay service tax), 77 (penalty for failure to comply with provisions of the Act), and 78 (penalty for suppression of facts) were not imposable on the appellants or Shri Kulwant Singh.

Significant Holdings:

"Any services could be termed as 'insurance auxiliary services' only if the same are provided or are to be provided to a policy holder or any person or insurer, including re-insurer, by an actuary or intermediary or insurance intermediary or insurance agent in relation to insurance auxiliary services; the appellants were not registered with any insurance company in the capacity of actuary or intermediary or as agent; they were not providing any services to either the policy holders or insurer or reinsurer as defined in the above said definition of insurance auxiliary services; therefore, the services provided by them are not covered under the ambit of Insurance Auxiliary Services."

"The appellants and the sub-agents are together performing the same service and are sharing the commission paid by the Insurance Companies. The applicable service tax on the commission paid is discharged by the said Insurance Companies. There is no separate service rendered by the appellants to their clients, i.e. the sub-agents which could be taxable under 'Business Auxiliary Services'."

"Charges recovered from the customers of the appellants such as processing fee, cheque processing charges, cheque re-issue charges, BC transfer fee, which are deducted from payments to down line members, cannot be considered as remuneration received by the appellants from either the corporate agents or the insurance companies. No service relationship is established and these are incidental expenses or income generated in the course of business."

"Training imparted by the appellants to their down line members is in-house training aimed at improving their own personnel's skills and cannot be equated to 'Commercial Training and Coaching Centre Service' which is ordinarily open to the public for consideration."

"Extended period for demand of service tax cannot be invoked where the demand is based on interpretation of law and statutory records, and no positive evidence of suppression, misstatement or intent to evade tax is adduced."

"When the demand of duty is not sustainable on merits, there is no question of interest and penalties."

The Tribunal allowed the appeals, holding that the appellants were not liable to pay service tax on referral charges, processing fees, cheque-related charges, BC transfer fees, or CBT charges, and that the extended period and penalties were not justified in the facts of the case.