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Commissioner of Service Tax, Mumbai Versus M/s. Jaybharat Automobiles Ltd. and vice-versa

2015 (8) TMI 503 - CESTAT MUMBAI

Business Auxiliary service - services provided to bank as direct sales agents (DSA) by authorized car dealers - agreements to arrange loans - Quantum of commission - Imposition of penalty - Invocation of extended period of limitation - Suppression of facts - Held that:- Appellant were paying service tax on the commission received from other DSAs such as Kotak Mahindra Pvt. Ltd. and ICICI Bank - cross-examination of bank official is not necessary for such a simple factual matter. The bank has cle .....

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, we hold that the amount of commission paid by the bank for promotion of their financial products by the appellant to customers is subject to payment of Service Tax.

Even if some part of the commission was given by the bank to the customers directly on behalf of the appellant, the fact remains that the bank has shown full amount of commission as paid to the appellant. Board Circular 87/05/2006-ST dt. 6.11.2006 supports this view while stating that if part of the dealer's commission .....

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the banking and other financial services provided by the banks. The banks were, therefore, their clients being recipient of such services from the respondents. It has come in evidence that the respondents were required to obtain loan applications from their customers who desired to avail loans from the banks. The respondents had undertaken to process those applications and after scrutiny forward them to the bank. Admittedly, for such services, they were paid commission by the bank, which was ref .....

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uch as Kotak and ICICI. The Vice President of the appellant admitted that in the case of HDFC Bank they had raised debit notes for Service Tax but the bank did not pay them the tax. This is no excuse for not paying tax to the Government. Therefore extended time period is invokable because, the appellant knowingly did not pay the tax. Further, for not declaring the total commission received by them and the suppression of this fact also, the extended period of limitation would apply.

T .....

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vice category of Business Auxiliary Service when it is a normal market practice to offer discounts/institutions to the dealers. The issue is settled in the case of Sai Service Station (2013 (10) TMI 1155 - CESTAT MUMBAI)

As regards the issue of tax on pre delivery inspections; there is no difference whether the services are provided by one dealer or another and therefore service tax cannot be levied in respect of inter dealer claims.

Appeal of M/s. Jaybharat Automobiles Ltd .....

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ellant : Shri R G Sheth, Adv. For the Respondent : Shri M S Reddy, Deputy Commissioner (AR) ORDER Per: P S Pruthi: M/s. Jaybharat Automobiles Ltd. in Appeal No. ST/100/2010 and Revenue in Appeal NO. 55/2010 have filed appeals against the order No. 12/KLG TH-II/2009 dated 27.10.2009 passed by the Commissioner of Central Excise Thane. For convenience M/s Jaybharat Automobiles Ltd. are hereinafter referred as appellant. 2. The appellant are an authorized dealer and service station of M/s. Hyundai M .....

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n received from banks/financial institutions for promotion/marketing of auto loans given by banks to car purchasers. ii) commission income under the heading incentives received from M/s. HMIL on account of sale of vehicles, vehicle parts produced by or belonging M/s HMIL iii) reference insurance commission received from New India Assurance Co Ltd for promotion/marketing of services provided by the insurance company. iv) pre delivery inspection charges received from M/s. HMIL on account of sale o .....

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l demand of ₹ 1.03 crores raised for the period July 03 to March 06, the impugned order confirmed the demand of ₹ 35,59,053/- out of which the appellant paid an amount of ₹ 21,20,314/- before the issue of show cause notice. The appellant were also ordered to pay interest under section 75 of the Finance Act 1994 and penalties were imposed under sections 76, 77 and 78. 3. Heard both sides. 4. On the first issue regarding marketing of auto loans, the contention of the Ld Counsel i .....

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can only be made on the actual amount of commission received by them under Rule 6 (1) of the Valuation Rules and not on the basis of details submitted by the banks. Further that the entire amount of commission was levied to service tax notwithstanding the fact that part of the amount was sub-vented. The appellant relied on the case of Jaika Motors Ltd. vs. Commr. ST/170/2007-Mum in which it was held that when mere space is provided to banks in the premises of the dealer, it cannot be said that B .....

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es of the same and such promotion cannot be regarded as service rendered to HMIL. He relied on the Tribunal's decision in the case of Pillay and Sons 2009 (14) S.T.R. 844 in which it was held that service tax cannot be levied on amounts which have been subjected to the levy of sales tax. He added that the incentives received by them on the sale are related to the sale only. He relied on the department's order in original dated 22.06.2009 in the case of M/s SAI Service Station Pune. 4.2 O .....

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he pre delivery inspection charges received from HMIL, the allegation is that such services are covered under sub clause (iii) of section 65 (19) of BAS under the subhead customer care service provided on behalf of the client. The contention of the appellant is that no charge is recovered from the customers for the free services. The Commissioner partly allowed their claim and confirmed the demand only to the extent of amount of service charges received by way of 'interdealer claim income .....

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covered under BAS, it will get classified under the sub heading (vi) of BAS which covers 'provision of service on behalf of the client' which came into effect from 10 September 2004. He agreed that Board Circular dated 16 November 2006 clarified that such activities would come under BAS from 01.07.2003 as held by Tribunal decisions such as City Motors And Financial Services versus CCE, Gurgaon (2012(25) STR 449 (Tri-Del); South City Motors Ltd versus Commissioner ST Delhi (2012 (25) STR .....

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LT 319. According to the appellant, the present case is fit for invoking the provisions of section 80 for waiving the penalty. The Ld. Counsel also argued that the larger Bench in the case of Pagariya Auto Centre (2014 (33) STR 506 (TLB) held that 'no uniform principal emerges as would guide determination of whether a particular transaction involving an interface between an automobile dealer and bank or financial institution would per se amount to BAS'. 4.5 The Ld counsel challenges the .....

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of the concerned official of HDFC bank whose statement was recorded was not granted. The learned counsel submitted that although the respondents were directed to produce records pertaining to HDFC showing the gross commission given to the appellant and its treatment in the banks account, the respondent has not been able to produce any further record in spite of opportunity given by this Bench. 5. Ld. A.R. appearing for Revenue states that the Vice President of the appellant confirmed in his sta .....

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that although the appellant paid service tax on the commission after subvention, the subvention amount is a part of the commission due to the DSA, but which has been passed on to the customer by the bank as an incentive of subsidy in the interest. The service tax is payable on the entire amount of commission charged from the banks irrespective of the fact that the part of the amount was subvented. He relied on Board Circular No. 87/05/2006-ST dt. 6.11.2006 and the case of Chambal Motors Pvt. Lt .....

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1.7.2003. On the issue of limitation he stated that the appellant did not pay the service tax although they had mentioned the service tax amount on the debit notes raised on HDFC, which was confirmed by Shri Gaurang Shah, Vice President of the appellant. The commission received from New India Assurance Company Ltd. was also not declared. Further, the value of taxable service was not shown correctly as the subvention amount was not indicated in the S.T. 3 Returns. Only a comparison of S.T. 3 Retu .....

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- Service Tax Appeal No. 103 of 2010 only decided that the identification of the transaction and its appropriate classification would depend on analysis of relevant Larger Bench. On the issue of penalty he relied on the case of BCCI reported in - Appeal Nos.ST/32 & 300/12-Mum later affirmed by the Mumbai Hon'ble High Court holding that penalties under Sections 76 & 78 are imposable simultaneously. 5.2 As regards the appeal of Revenue he stated that the incentive received under vario .....

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arefully gone through the facts of the case and submissions made by both sides. 6.1 It is an undisputed fact that the appellant were paying service tax on the commission received from other DSAs such as Kotak Mahindra Pvt. Ltd. and ICICI Bank. That they were marketing the financial products of the financial institutions is clear from one such agreement executed by them shown to us which contains clauses as below: ".......... KMPL hereby appoints the Direct Marketing Associate as its marketi .....

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chemes of KMPL in order to be in a position to explain and highlight the beneficial aspects of the financial products and schemes to its customers. ..............The Direct Marketing Associate shall collect all pre-disbursement documents and post-disbursement documents and post-disbursement documents from its customers to whom KMPL has either provided finance or agreed to provide finance and submit the same to KMPL without any undue delay.................. Therefore the service provided by the a .....

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(ii) promotion or marketing of service provided by the client; or (iii) any customer care service provided on behalf of the client; or ………. Post 10.09.04 (19) "business auxiliary service" means any service in relation to, - (i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or (ii) promotion or marketing of service provided by the client; or (iii) any customer care service provided on behalf of the client; or (iv) procur .....

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relation to business or commerce and includes evaluation of prospective customers, tele-marketing, processing of purchase orders and fulfillment of services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions operational assistance for marketing, formulation of customer care service and pricing policies infrastructural support service and other transactional proceeds." The .....

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ice to the customers. Undoubtedly, this activity falls under BAS clause (ii) i.e. promotion or marketing of service provided by the client. The matter stands decided in the cases of Roshan Motors (supra) and Bridgestone Financial Services (Supra). And quite apparently neither does the activity fall under the coverage of Business Support Service. Therefore, the contention of the appellant is not accepted. On the basis of nature of activities undertaken by the appellant, we reject the contention t .....

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S. 6.2 The question that remains to be examined is the quantum of commission actually received by the appellant from HDFC. The appellant disputes the amount indicated by HDFC in their letters to the department. The appellant insist that the amount received by them was less. The Ld. Counsel argued that they should have been allowed to cross examine officials of the bank. We are of the view that cross-examination of bank official is not necessary for such a simple factual matter. The bank has clea .....

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we hold that the amount of commission paid by the bank for promotion of their financial products by the appellant to customers is subject to payment of Service Tax. The amount of commission declared by the appellant in their Service Tax Returns was less than the amount of commission declared by HDFC to the department. Even if some part of the commission was given by the bank to the customers directly on behalf of the appellant, the fact remains that the bank has shown full amount of commission .....

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f agreements on record including the franchisee agreement in the third appeal, it is clear that the assessees were, under an agreement with the bank had undertaken to provide service in relation to promotion or marketing of the 'Banking and Financial Services' provided by the banks. The banks were providing services under the category 'Banking and Other financial services' falling in clause (12) of Section 65. In relation to those services, the respondent- assessees were providin .....

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aid commission by the bank, which was reflected in their account. Once consideration accrued to them, as against the services provided by them to the bank, by way of commission, it was hardly of any consequence how a portion of that commission, which as per the particulars provided by the Bank was given as "pay out" to assessees in respect of which even the TDS was deducted, was spent by them. If they chose to give some amount from that gross commission amount to their customers either .....

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iod is invokable because, the appellant knowingly did not pay the tax. Further, for not declaring the total commission received by them and the suppression of this fact also, the extended period of limitation would apply. The reliance on various judgements by the Ld Counsel regarding extended time period does not help the appellant's case because, as we have mentioned above, the appellant was paying service tax for providing similar services to other banks. And the appellant were aware of th .....

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