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Suprasesh General Insurance Services & Brokers Pvt. Ltd. Versus The Commissioner of Service Tax, Custom, Excise And Service Tax Appellate Tribunal

2015 (9) TMI 1219 - MADRAS HIGH COURT

Insurance as well as reinsurance broker – international insurance - service providers situated abroad - import of services and / or export of services - reinsurance brokerage was not included in the taxable value of ‘insurance auxiliary service’ rendered to insurers/reinsurers for the disputed period. - reverse charge - effective date of levy.

Held that:- Net premium payable by the New India Assurance Co. Ltd. to the reinsurer in London is ₹ 2,101,200/-. After extending the bene .....

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is illustrative of series of transactions which had taken place over the period in dispute in the show cause notice. In effect, in respect of remitting the entire amount to the re-insurer and getting the brokerage separately, the assessee, in this case, in relation to the trade practice prevalent in the trade internationally and following the practice and procedure that is followed by the re-insurance brokers with the reinsurance companies, the assessee had retained that portion of the commissi .....

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assessee.

Insofar as Notification Nos.6/99 dated 09.04.1999 and the rescinding Notification No.2/03 dated 01.03.2003 and the subsequent Notification No.21/03 dated 20.11.2003 are concerned, though relied upon by the assessee at the first instance in the light of J.B.Boda's case, we feel that may not be really necessary to resolve the issue raised in the present case, as all these Notifications granted exemption from payment of service tax to any person, in respect of which payment is .....

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a duty on the assesee as to how the money collected in relation to the re-insurance contract should be dealt with by the broker. The terms contained in Regulation 23 speaks for itself that the role of the assessee as an insurance broker is not merely receiving and transmitting the amount as has been propounded by the Adjudicating Authority and the Tribunal. There is much more to be done by the Insurance broker even as per the IRDA (Insurance Brokers) Regulations, of which much emphasis has been .....

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03. On the issue of non-receipt of the commission or brokerage in convertible foreign exchange, the Adjudicating Authority as well as the Tribunal have time and again misdirected themselves to hold that since the New India Assurance Co. Ltd. have paid the premium amount, it cannot be treated as receipt of amount in convertible foreign exchange and for this, Mr.M.Santhanaraman, learned Standing Counsel appearing for the Department submitted that there is no specific agreement as in the case of J. .....

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1, 13/02 dated 01.08.2002 and 2/03 dated 01.03.2003 would not apply to export of service, the question of receiving the payment in convertible foreign exchange does not arise. Even the Export of Service Rules, 2005 does not put an embargo in relation to taxable service as specified in Rule 3(3)(i), (ii) and (iii) of the Export of Service Rules. - Decided in favour of assessee. - C. M. A. Nos. 1058 and 1459 of 2009 - Dated:- 28-7-2015 - R. Sudhakar And K. B. K. Vasuki, JJ. For the Appellant : C.M .....

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sion, admitted the above appeals on the following substantial questions of law: "C.M.A.No.1058 of 2009: (i) Whether in the facts and circumstances of the case, the services of the appellant re-insurance broker remunerated by the re-insurers situate outside India for securing re-insurance business for them is outside the Finance Act, 1994 for the period prior to the amendment by the Finance Act, 2006? (ii) Whether in the facts and circumstances the re-insurance business procured for and remu .....

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cond respondent Tribunal is correct in restricting the demand of service for the normal period after 10.09.2004 on the ground that details were requested from the assessee by the Superintendent? 2. Whether the second respondent is justified in law in vacating the penalties imposed under Sections 76 and 78 of Finance Act, 1994 on the ground that the issue involved is highly interpretative in nature?" 2. We have heard Mr.C.Natarajan, learned Senior Counsel, appearing for the assessee and Mr.M .....

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tralized registration at Chennai. It is stated that the assessee is remitting service tax for the "Insurance Auxiliary Services" under Section 65(55) of the Finance Act, 1994 in respect of broking done for the insurance (direct broking) to primary insurers and also in respect of Inward Reinsurance Business, where the Indian Insurance Companies have been acting as Reinsurers having regard to the charge under Section 65(105)(zl) read with the definition of "insurer" under Secti .....

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mission/brokerage received by the assessee, on account of re-assurance ceded to other Insurance Companies, was liable to Service Tax under "Insurance Auxiliary Service" vide Section 65(46) of the Finance Act, 1994. The Show Cause Notice also proceeded on the basis that since there was suppression, the proviso to sub-section (1) to Section 73 of the Service Tax Act was proposed to be invoked. The Department proposed to demand service tax with interest and penalty in the following manner .....

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on Cess of ₹ 1,46,753/-) as detailed in the enclosed Annexure on the Commission received for reinsurance of Policies ceded should not be demanded under proviso to sub-section (1) of Section 73 of the said Act read with erstwhile Section 71(3) of the said Act. b) interest at the applicable rates should not be demanded on the above Service Tax and Education Cess from the due date till the actual date of payment from Suprasesh under Section 75 of the said Act; c) Penalty should not imposed on .....

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e was received from the re-insurer abroad for the services rendered in the course of the business, which would fall within the definition of "export of service" and therefore, the liability of service tax does not arise. 6. The reply given by the assessee was repelled by the Adjudicating Authority holding that the nature of services rendered by the assessee in the present case are identified as re-insurer rendering consultancy and risk management services for re-insurance negotiation w .....

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be termed as payment received in convertible foreign exchange. 7. The Adjudicating Authority further held that the decision of the Supreme Court in the case of JB Boda & Company Private Ltd. v. CBDT reported in AIR 1997 SC 1543 relied on by the assessee did not apply to the facts of the present case as it relates to Section 80-O of the Income Tax Act and it would not have any application insofar as the provisions of the Service Tax Act. He further held that the retention of brokerage amount .....

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vices for reinsurance negotiation with reinsurer on behalf of insurance co. The only service rendered to reinsurer is remittance of premiums for reinsurance for which he retains his commission. So the service is rendered and consumed in India and it is not exported. Board also clarified in Circular No.56/5/2003 dt.25.04.03 that Service Tax is destination based consumption tax and is not applicable on "Export of services". Therefore, the service should be rendered and consumed outside I .....

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payment for the service rendered is received in convertible foreign exchange. Therefore, there should be physical receipt of payment in convertible foreign exchange. The retention of brokerage amount before remitting the premium to foreign Reinsurance companies cannot be termed as payment received in convertible foreign exchange. 21. The Hon'ble Supreme Court in the case of JB Boda Case relating to Income tax relied on the relevant provisions of the Foreign Exchange Act, 1961. The decision .....

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, 1973, for the time being in force, (as mentioned in Section 80-O of the Income-tax Act, 1961). Here, the relevant Act to be applied is Foreign Exchange Management Act, 1999 (FEMA) and Circulars issued by RBI. The Reserve Bank of India issued a Notification No.9/2000 RB dt.03.05.2000 [para 4(2)] provides a person shall be deemed to have repatriated the realized foreign exchange to India when he receives in India payment in rupees from the account of a bank or an exchange house situated in any c .....

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are not entitled for any exemptions under Notification No.6/99-ST dt.09.04.99 upto 28.02.03, Notification No.21/2003-ST dt.20.11.03 and also under Export of Service Rules, 2005, notified vide Notification No.9/2005-ST dt.03.03.2005 with effect from 15.03.05." 8. The Adjudicating Authority also upheld the allegation of the Department with regard to suppression holding as follows: "23. Since Suprasesh have suppressed the receipt of commission earned under the capacity as Reinsurance Bro .....

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iable to penalty under Section 76 & 78 of the said Act for the contravention mentioned supra." 9. Consequently, the Adjudicating Authority proceed to demand Service Tax as follows: "a) I confirm the demand of ₹ 1,42,44,880/- (Rupees One Crore forty-two lakhs forty four thousand eight hundred and eighty only), being the Service Tax payment (Service tax of ₹ 1,40,98,127/- Plus Education Cess of ₹ 1,46,753/-) under proviso to sub section (1) of Section 73 of the said .....

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penalty of ₹ 1,42,44,880/- (Rupees One Crore forty-two lakhs forty four thousand eight hundred and eighty only), on Suprasesh under Section 78 of the said Act." 10. Aggrieved by the above-said order of the Adjudicating Authority, the assessee pursued the matter before the Tribunal. The Tribunal, after analysing the provisions and after hearing the submissions of both sides came to the conclusion that the impugned demand pertains to brokerage received by the assessee from overseas re- .....

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assessee was admittedly a re-insurance broker. The Tribunal further came to the conclusion that in the present case, the assessee was acting as an intermediary between the Indian Insurance company and an overseas reinsurer and receiving commission from the overseas re-insurer. Referring to Regulation No.4 of IRDA (Insurance Brokers) Regulations 2002, the Tribunal held that the brokerage was the remuneration received by the assessee for arranging reinsurance with the foreign company for the Indi .....

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e decision of the Supreme Court in the case of JB Boda (supra), held that there was no case of "Export of Service" and therefore, the assessee was not entitled to the benefit of Export of Service Rules, 2005 nor Notification Nos.2/99 dated 28.2.1999, 6/99 dated 09.04.1999 and 21/2003 dated 20.11.2003 did not enure to the benefit of the assessee.. The Tribunal further held that to enable the assessee to get the benefit of the Notifications, there must be physical receipt of remuneration .....

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uppression of facts 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 i .....

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rom 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." It appears from the above letter that the show-cause notice was issued and the same was adjudicated upon without gathering all the relevant facts for the period of dispute. In this scenario, the allegation of suppression of facts is not sustainable against the assessee. C .....

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ants to include reinsurance brokerage in the taxable value for the period from 16-7-2001 to 9-9-2004 is not in dispute and the same was enough to invoke the proviso to Section 73(1) of the Finance Act, 2006 as this provision stood prior to 10-9-2004. In the result, the tax liability of the appellants should be restricted to the normal period and beyond up to 10-9-2004 only. The learned Commissioner should requantify the demand accordingly. 15. We have however found a good case for vacating the p .....

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rought to the relevant provisions of Section 65 of the Finance Act, 1994 by the Finance Act, 2006." 15. Aggrieved by the order of the Tribunal, both the assessee as well as the Revenue are before this Court. Date in which the relevant provisions came into effect Revenant Finance Act Taxable service of 'Insurance Auxiliary Service' Definition of 'Insurance Auxiliary service' Definition of 'intermediary or Insurance intermediary' 16.07.2001 Insurance Auxiliary service .....

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isk assessment, claim settlement, survey and loss assessment." Section 65(32)"Intermediary or insurance intermediary" has the meaning assigned to it in sub-clause (f) of clause (1) of section 2 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999) ." 16.08.2002 Insurance Auxiliary service amended by Finance Act 2002 came into effect Notification No.8/2002- ST.dated 1.8.2002 Section 65(90) (zl)"to a policy holder or insurer by an actuary or intermed .....

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ry' has the meaning assigned to it in sub-clause (f) of Clause 91) of Section 2 of the Insurance Regulatory and Development Authority Act, 1999 (41 of 1999) 14.05.2003 Insurance Auxiliary Service amended by Finance ac 2003 Section 65(105)(zl) "to a policy holder or insurer, by an actuary, or intermediary or insurance intermediary, or insurance agent in relation to insurance auxiliary services concerning general insurance business." Section 65(55) "Insurance Auxiliary Service&# .....

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e amended by Finance Act 2006 Section 65(105) (zl) "to a policy holder or any person or insurer, including reinsurer, by an actuary, or intermediary or insurance intermediary or insurance agent, in relation to insurance auxiliary services concerning general insurance business". Section 65(55) "Insurance Auxiliary Service"means, any service provided by an actuary, an intermediary or insurance intermediary or an insurance agent in relation to general insurance business or life .....

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surance auxiliary service and other definitions, namely, intermediary or insurance intermediary. It is not in dispute that the assessee, who is an insurance intermediary, is performing insurance ancilliary service, which is a taxable service under the provisions mentioned above. 18. In this case, the period in dispute is as follows: 16.07.2001 to 31.3.2002; 2002-2003; 2003-2004 upto 13.5.2003; 2003-2004 (from 14.5.2003 to 31.3.2004); 2004-2005 (from 01.04.2004 to 09.09.2004); 2004-05 (from 10.09 .....

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tification Nos.2/99 dated 28.2.1999 as amended by Notification No.6/99 dated 9th April, 1999, 9/01 dated 16th July, 2001 , 13/2002 dated 1st August, 2002 and 2/2003 dated 1st March, 2003. 20. The relevant notifications are set out hereunder for better appreciation: "Service Tax - Exemption when payment for taxable services is received in India in convertible foreign exchange - Notification No. 2/99-S.T. superseded In exercise of the powers conferred by section 93 of the Finance Act, 1994 (3 .....

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e service tax leviable thereon under section 66 of the said Act : Provided that nothing contained in this notification shall apply when the payment received in India in convertible foreign exchange for taxable services rendered is repatriated from or sent outside India. [Notification No. 6/99-S.T., dated 9-4-1999] Service tax - Payment received in India in convertible foreign exchange - Amendment to Notification No. 6/99-S.T. In exercise of the powers conferred by Section 93 of the Finance Act, .....

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section 65', the words, bracket and figures 'taxable service specified in sub-section (72) of section 65' shall be substituted. 2. This notification shall come into force on the 16th day of July, 2001. [Notification No. 9/2001-Service Tax, dated 16-7-2001]" Service Tax - Exemption when payment for services is received in India in convertible foreign exchange - Amendment to Notification No. 6/99-Service Tax In exercise of the powers conferred by section 93 of the Finance Act, 199 .....

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ction 65', the words, brackets and figures 'taxable service specified in clause (90) of section 65' shall be substituted. 2. This notification shall come into force on the 16th day of August, 2002. [Notification No. 13/2002-S.T., dated 1-8-2002] Service tax - Receipt of payment in foreign exchange - Notification No. 6/99-S.T. rescinded In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary .....

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ular No.56/5/2003 clarifying the issue that the Service Tax is destination-based consumption tax and it is not applicable on export of services. For better clarity the said circular reads as follows: Service tax on export of services - Clarifications Circular No. 56/5/2003-S.T., dated 25-4-2003 F. No. 254/1/2003-CX-4 Government of India Ministry of Finance (Department of Revenue) Central Board of Excise & Customs, New Delhi Subject : Non levy of service tax on export of services - Regarding. .....

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in India, irrespective of whether the payment thereof is received in foreign exchange or not. 2. In this regard various representations have been received by the Board raising apprehension that because of the withdrawal of the Notification No. 6/99, export of service would be affected as it would be costlier in the international markets. 3. The Board has examined the issue. In this connection I am directed to clarify that the Service Tax is destination based consumption tax and it is not applic .....

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the primary service provider for the export of services, Since the secondary services ultimately gets consumed/merged with the services that are being exported no service tax would be leviable on such secondary services. However in case where the secondary service gets consumed in part or toto for providing service in India, the service tax would be leviable on the secondary service provider. For this purpose both primary and secondary service providers would maintain the records deemed fit by t .....

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d, the rate of tax applicable would be 5% so long as the billing has been made prior to the date of passing of the Finance Bill. If the billing is made subsequent to the date of the passing of the Finance Bill, the service tax would be applicable at the enhanced rate of 8%. 6. The field formations may suitably be informed. 7. Trade Notice may be issued for the information of the trade. 8. The receipt of this circular may kindly be acknowledged. 9. Hindi version will follow." 22. Subsequent .....

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in sub-section (105) of section 65 of the said Act, provided to any person in respect of which payment is received in India in convertible foreign exchange, from the whole of the service tax leviable thereon under section 66 of the said Act. Provided that nothing contained in this notification shall apply when the payment received in India in convertible foreign exchange for taxable services rendered is repatriated from, or sent outside, India. [Notification No. 21/2003-S.T., dated 20-11-2003]& .....

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cillary service. To buttress this argument, the following contentions were raised. 24. The first and foremost contention is that the Adjudicating Authority as well as the Tribunal must construe the nature of services rendered by the assessee. According to the assessee, he performs the duties of a re-insurance broker as defined under Regulation No.4 of the IRDA (Insurance Brokers) Regulations 2002. The definition of re-insurance broker and insurance broker defined under Section 2 of the Insurance .....

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be deemed to mean a direct broker, a reinsurance broker or a composite broker, as the case may be, unless expressly stated to the contrary. (m) "reinsurance broker" means an insurance broker who, for a remuneration, arranges reinsurance for direct insurers with insurance and reinsurance companies." 25. Mr.M.Santhanaraman, learned counsel appearing for the Department has laid much emphasis on the above-said provisions. To buttress his plea, he submitted that primarily, the service .....

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surance business - (i) on tariff products: a. 10 percent of the premium on that part of the business which is compulsory under any statute or any law in force; b. 12 1/2 percent of the premium on others. (ii) on non-tariff products: 17 1/2 percent of the premium on direct business. (B) on direct life insurance business - (i) individual insurance (a) 30 percent of first year's premium (b) 5 per cent of each renewal premium (ii) annuity (a) immediate annuity or a deferred annuity in considerat .....

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vings component. (b) single premium 2 percent of risk premium (c) annual contributions, at new business procurement stage - 5 percent of non risk premium with a ceiling of Rupees three lakhs per scheme. (d) single premium new business procurement stage- 0.5 percent with a ceiling of Rupees five lakhs per scheme. (e) remuneration for subsequent servicing: (i) one year renewable group term assurance - 2 percent of risk premium with a ceiling of rupees 50,000/- per scheme. (C) on reinsurance busine .....

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rovisions of section 64VB of the Act shall continue to determine the question of assumption of risk by an insurer. (2) In the case of reinsurance contracts, it may be agreed between the parties specifically or as part of international market practices that the licensed reinsurance broker or composite broker can collect the premium and remit to the reinsurer and/or collect the claims due from the reinsurer to be passed on to the insured. In these circumstances the money collected by the licensed .....

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account with any other account, or to exercise any right of set off, charge or lien against money in that account; (d) ensure that all monies received from or on behalf of an insured is paid into the 'Insurance Bank Account' which remains in the 'Insurance Bank Account' to remain in deposit until it is transferred on to the reinsurer or to the direct insurer. (e) ensure that any refund of premium which may become due to a direct insurer on account of the cancellation of a policy .....

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quot;segregated amount". (emphasis supplied) 26. In the above scenario, we have to consider the nature of transaction in the present case. The assessee is an insurance intermediary as defined under Section 65 (31), 65 (46) and 65(55) of the Finance Act. L.R.D.E., Government of India (Defence Department) wanted to move the radar and accessories by land on government owned Trailers/Hired Trailers - containerised cargo from Kolar Karnataka State to Chandrapur, Orissa. Hence, they approached th .....

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and the IRDA (Insurance Brokers) Regulations 2002, took up the task of assessing the nature of business with the New India Assurance Co. Ltd. and in order to render advise on the basis of available re-insurance market and consultancy in risk management on re-insurance service and to provide service in the form of negotiation with the New India Assurance Co. Ltd. with the re-insurer, in the present case, a foreign company, entered into a series of negotiation with the New India Assurance Co. Ltd. .....

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wanted to retain ₹ 60 crores under own cover. Thereafter, for and on behalf of the foreign company - re-insurer, another mail was received on 10.11.2005 from Richmond John, Heath Lambert Group stating that the underwriters have offered 60% on certain terms, which includes commission including brokerage at 15%. The said document reads as follows: "Further to your todays Email have discussed with underwriters and have so far obtained 60% support to the following: 1) INR 3027 Million Exc .....

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ou. We await your further advices with much interest. Kind Regards, John." 28. Thereafter, after series of negotiation, it appears that the assessee wanted to part with portion of the cover based on part of the commission to the New India Assurance Co. Ltd. to sustain the business and therefore offered to take 7.5% as cover including brokerage and passed on the benefit to the New India Assurance Co. Ltd. This is evident from the letter dated 15th November, 2005, which reads as follows: &quo .....

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d, including R/I Commission at 7.5% making the Nett Rate to you at 0.06937%. Trust this meets with your requirement and we request you to kindly confirm your FAC RI Order in order to proceed to bind 100% support. We await your response." 29. Subsequent to the above correspondence, the New India Assurance Co. Ltd. made an offer to the assessee that they were willing to place the risk at 0.075% premium less 10% RI commission on certain terms. This was subsequently confirmed by the assessee on .....

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t." 30. The above discussions were confirmed by the New India Assurance Co. Ltd. vide letter dated 12th December, 2005,stating as follows: "Re: Reinsurance of risk - LRDE (Bangalore) marine transit risk We confirm our discussions on the reinsurance quote for the above proposal. The risk has now been accepted by our Bangalore office. We are placing the risk with you @ 0.075% premium less 10% RI commission giving us the net rate of acceptance. The policy details will be sent to you immed .....

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k details for payment has been stated as follows: "Bank of India, Nariman Point Branch, Mumbai - 500 021. Bankers MICR No.400013043 Further Credit to Suprasesh General Insurance Services & Brokers Pvt. Ltd. Current a/c CD No.4768." 32. The assessee forwarded the cover note and debit note to the New India Assurance Co. Ltd. on 16th January, 2006 for processing the debit note for immediate payment. Thereafter, on 19th January, 2006, the Heath Lambert Group raised a debit on the asses .....

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letter was issued by the assessee to the Chief Manager, Bank of India, Overseas Branch, Armenian Street, Chennai requesting the bank to remit the payment of Indian ₹ 1,680,960 in equivalent US Dollars, based on the debit note dated 19.1.2006. The details of the said letter reads as follows: "We have to remit the payment of premium of INR1,680,960/- in respect of the above risk to M/s.Heath Lambert Ltd., London, who have sent their Debit Note No.MB3686005/0030201 dt.19.1.2006. We would .....

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py of letter dt.12.12.2005 from M/s.The New India Assurance Co. Ltd., Mumbai 2. Copy of the above mentioned Debit Note. Kindly acknowledge and send us your confirmation for having effected above remittance." 34. The New India Assurance Co. Ltd. , on the basis of the debit note dated 16th January, 2006, issued a cheque dated 14.2.2006 for a sum of ₹ 18,91,080/-. 35. A careful reading of the above-said documents reveals that the net premium payable by the New India Assurance Co. Ltd. to .....

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m, retaining the balance amount as commission/brokerage. This transaction is illustrative of series of transactions which had taken place over the period in dispute in the show cause notice. In effect, in respect of remitting the entire amount to the re-insurer and getting the brokerage separately, the assessee, in this case, in relation to the trade practice prevalent in the trade internationally and following the practice and procedure that is followed by the re-insurance brokers with the rein .....

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. Ltd., it is not a case of export of service. To support this argument, it was contended that there is no receipt of convertible foreign exchange by the assessee in this transaction and therefore, they would not fall within the parameters of Notification No.6/99 dated 09.04.1999, 9/01 dated 16.07.2001, 13/02 dated 01.08.2002 and 2/03 dated 01.03.2003. 37. The issue raised by the Department is sought to be repelled by the assessee by placing reliance on the decision in the case of JB Boda and Co .....

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rendered to a foreign company, the decision in the case of JB Boda's was relied upon. 38. In the case of JB Boda and Co. Pvt. Ltd. V. Central Board of Direct Taxes reported in [1997] 223 ITR 271 (SC), the dispute arose under Section 80-O of the Income Tax Act. The appellant therein was engaged in the brokerage business as reinsurance brokers, as in the present case. It received commission at 3 to 6% relating to maritime and other insurance. The appellant in that case arranged for re-insuranc .....

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ondon, who are brokers in London for placement of reinsurance business. The appellant therein furnished all the details about the risk involved, the premium payable, the period of coverage and the portion of the risk which is sought to be reinsured. The said London brokers contacted various underwriters and after getting confirmation about the portion of the risk the foreign reinsurers were prepared to undertake, informed the appellant about such reinsurance coverage. Thereafter, the Indian cedi .....

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ermission of the Reserve Bank of India. 39. The appellant - M/s.JB Boda contended that amount of commission retained by it was a receipt of convertible foreign exchange without a corresponding foreign remittance within the meaning of section 9 of the Foreign Exchange Regulation Act. In that case, the Indian insurers make payment in Rupees to the appellant - JB Boda for the amount of reinsurance premium to be remitted to the foreign company, furnishing all particulars with an advice to the appell .....

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ome in terms of foreign exchange as per Section 80-O of the Income Tax Act. The Income Tax Department, however, took a view that the income in question was generated in India and was not received in convertible foreign exchange as required under Section 80-O and declined the grant of benefit. The challenge to the said proceedings was dismissed by the Delhi High Court and the matter was persuaded before the Apex Court. 40. Section 80-O of the Income Tax Act, as it then was reads as follows: " .....

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rcial or scientific knowledge, experience or skill made available or provided or agreed to be made available or provided to such Government or enterprise by the assessee, or in consideration of technical services rendered or agreed to be rendered outside India to such Government or enterprise by the assessee, under an agreement approved in this enterprise by agreement approved behalf by the Chief Commissioner or the Director-General and such income is received in convertible foreign exchange in .....

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into, India, in computing the total income of the assessee: Provided that the application for the approval of the agreement referred to in this section is made to the Chief Commissioner or, as the case may be, the Director-General in the prescribed form and verified in the prescribed manner before the 1st day of October of the assessment year in relation to which the approval is first sought: . . . . Explanation. For the purposes of this section, (i) "convertible foreign exchange" mea .....

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by which the appellant remitted the reinsurance premia, after retaining the fee due to it for technical services rendered, would satisfy the requirement of section 80-O of the Income-tax Act. 42. The contention of the Department before the Apex Court in that case was that the Central Board of Direct Taxes was justified in declining to approve the agreement submitted by the appellant since the income under the agreement is generated in India and is not received in convertible foreign exchange as .....

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dgwick Offshore Resources Ltd., London, who is also a broker is in the nature of services rendered outside India. 43. On the issue as to whether the retention of the commission of brokerage by the appellant - J.B.Boda, the insurance broker would amount to receipt of convertible foreign exchange as required under Section 80-O of the Income Tax Act, the Supreme Court placing reliance on the circular No.731 dated 20.12.1995 held that the premium that is payable to the re-insurer abroad is transferr .....

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formality and a meaningless ritual. It is to be noted that in J.B.Boda's case, the amount was received by the appellant re-insurance broker in Indian rupees and thereafter by approaching the Reserve Bank of India necessary permission was sought for to convert the same into US dollars. In the present case, the amount is received by the assessee in Indian Rupees and through the banking channels, the premium less the commission/brokerage is sent in foreign exchange to the re-insurer abroad. 44. .....

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Hence, we hold that the services rendered by the assessee in this case to the re-insurer abroad and the transaction with the foreign re-insurer would have to be necessarily accepted as 'export of service'. Once we hold that it is export of service, we will now look into the provisions of the Service Tax Act. 45. Insofar as Notification Nos.6/99 dated 09.04.1999 and the rescinding Notification No.2/03 dated 01.03.2003 and the subsequent Notification No.21/03 dated 20.11.2003 are concerned .....

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service tax. 46. This position does not really affect the case of taxable service. It is clarified by the Government of India, Ministry of Finance vide circular dated 25.4.2003, which we have already referred to, emphasis can be made to paragraph 3, which we reiterate hereunder: "3. The Board has examined the issue. In this connection I am directed to clarify that the Service Tax is destination based consumption tax and it is not applicable on export of services. Export of services would c .....

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service. They have clarified that export of service would continue to remain tax-free even after withdrawal of notification No.6/99 dated 9.4.99. In effect, if the destination based consumption tax is relatable to export of service, all these notifications will have no effect. This clarification gets the stamp of approval by the Supreme Court in the decision reported in 2007 (7) SCC 527 (All India Federation of Tax Practitioners V. Union of India), wherein in paragraph 25, the Supreme Court hel .....

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s a matter of fact, the substantial portion of the demand in the show cause notice and the adjudication order falls outside the purview of the Export of Service Rules. On and from 15.3.2005, Export of Service Rules comes into operation. The period between 15th March, 2005 to 31st March, 2006, the Rules may apply and in the instant case upto 31.3.2006. However, it is now argued by Sri.Natarajan, learned Senior Counsel appearing for the assessee that in respect of term 'export of taxable servi .....

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ervices specified in sub-clauses (d), (p), (q), (v) and (zzq) of clause (105) of section 65 of the Act, such taxable services as are provided in relation to an immoveable property which is situated outside India; (2) in relation to taxable services specified in sub-clauses (a), (f), (h), (i), (j), (l), (m), (n), (o), (s), (t), (u), (w), (x), (y), (z), (zb), (zc), (zi), (zj), (zn), (zo), (zq), (zr), (zt), (zu), (zv), (zw), (zza), (zzc), (zzd), (zzf), (zzg), (zzh), (zzi), (zzj), (zzl), (zzm), (zzn .....

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xable service, which are provided and used in or in relation to commerce or industry and the recipient of such services is located outside India: Provided that if such recipient has any commercial or industrial establishment or any office relating thereto, in India, such taxable services provided shall be treated as export of services only if - (a) order for provision of such service is made by the recipient of such service from any of his commercial or industrial establishment or any office loc .....

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includes the designated areas in the Continental Shelf and Exclusive Economic Zone of India as declared by the notifications of the Government of India in the Ministry of External Affairs Nos. S.O. 429(E), dated the 18th July, 1986 and S.O. 643(E), dated the 19th September 1996." 51. There is some difficulty in identifying the particular clause because there are two 3(ii) . The proviso to Rule 3(3) does not get attracted to the present case, as the recipient of the taxable service is not lo .....

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le service is located outside India in terms of Rule 4, there is no requirement of payment of service tax. 52. Yet another factor, which enures to the benefit of the assessee is that in contrast to Rule 3(3) (i) (ii) and (iii) and proviso makes it clear that only in respect of the services relatable to proviso, if the payment received for such service by the service provider is in convertible foreign exchange, then it will be export of taxable service. Since the insurer in the present case does .....

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nsurance Brokers) Regulations stating that the definition on 're-insurance broker' clearly means that an insurance broker, who, for a remuneration, arranges reinsurance for direct insurers with insurance and reinsurance companies. In the present case, the assessee has acted as a re-insurance broker with the New India Assurance Co. Ltd. and with the foreign company and his functioning as re-insurer is predominantly in relation to New India Assurance Co. Ltd. and not to the foreign re-insu .....

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ions and adequate capacity based upon the broker's experience and knowledge of market availability. The resulting programme is then placed for the client with secure markets at competitive price or terms." As an intermediary, the reinsurance broker seeks suitable reinsurers, on behalf and in the interest of primary insurers and their reinsurance requirements. He advises the primary insurer on adequate risk coverage, negotiates and finalises the placement of reinsurance contracts and han .....

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type of business to be placed, and negotiates the final terms, which are summarised on the reinsurance slip. After the terms and conditions have been finalised with the leader, the broker places the entire business by approaching other reinsurers. The placement of treaties with high capacities or premium volumes, or large special facultative risks of a complex nature, is cometimes shared by and between two or more brokers, through different reinsurance markets, ie so-called co-brokering. After .....

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the standard of organisation and administration of the reinsurance broker ensures reliability and efficiency, particularly with regard to contract and administration and handling of accounts, including cash loss settlements. The services of reinsurance brokers are usually required for placing and properly spreading high exposure cat covers (eg natural perils such as windstorm and earthquake), taking advantage of their contact networks with reinsurance markets worldwide. The reinsurer pays the r .....

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s. Brokerage rates tend to vary according to market conditions. As a rule, they are much lower for proportional than NP treaties since the latter normally generate lower premium volumes. Higher volumes of business tend to produce lower brokerage rates. In rare instances, brokerage is linked to treaty results. Brokerage is not an integral part of the contractual relationship between reinsureds and reinsurers. However, when quoting for NP business, it consitutes one of the pricing elements used by .....

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Rule 4 (c) (d) (e) (f) (g) and (h) of the IRDA (Insurance Brokers) Regulations, which are as follows: "4. Functions of a re-insurance broker - the functions of a re-insurance broker shall include any one or more of the following: (a) .... (c) rendering advice based on technical data on the reinsurance covers available in the international insurance and the reinsurance markets; (d) maintaining a database of available reinsurance markets, including solvency ratings of individual reinsurers; .....

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and providing it written acknowledgements and progress reports; (j) collecting and remitting premiums and claims within such time as agreed upon; (k) assisting in the negotiation and settlement of claims; (l) maintaining proper records of claims; and (m) exercising due care and diligence at the time of selection of reinsurers and international insurance brokers having regard to their respective security rating and establishing respective responsibilities at the time of engaging their services.& .....

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ation 23 speaks for itself that the role of the assessee as an insurance broker is not merely receiving and transmitting the amount as has been propounded by the Adjudicating Authority and the Tribunal. There is much more to be done by the Insurance broker even as per the IRDA (Insurance Brokers) Regulations, of which much emphasis has been made by the Tribunal in paragraph No.15. If this is the role of the assessee, we fail to understand how the Tribunal could have said that it is just forwardi .....

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