TMI Blog2022 (7) TMI 457X X X X Extracts X X X X X X X X Extracts X X X X ..... an the service Tax not paid. There is no provision to say that service Tax which has already paid should not be recovered from anyone. Such an understanding is contrary to the principles of indirect taxation - If the person liable to pay Tax, having paid the Tax liable, has an understanding/agreement with his Customers to recover such Tax from them, the provisions of the Section cannot be invoked. Whether the appellants are liable to pay service tax on various expenses incurred in training, business promotion expenses, pre-recruitment etc.? - HELD THAT:- A perusal of provisions in section 67 of FA, indicates that the consideration for the purposes of levy of service tax include any amount that is payable for the taxable services provided or to be provided and any reimbursable expenditure are cost incurred by this service provider and charged - In the instant case it is not the case of the Revenue that the expenses in question were incurred by the service provider i.e. the insurance agents and charged to the appellants. It is the appellants that have incurred the expenditure. though, it can be argue, that the expenses on pre- recruitment training/ re-furbisher training should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Sachin Mishra appeared on behalf of the appellant and submits as regards the alleged non inclusion of expenses that the appellants have entered in to agreements with individuals/corporate who act as the insurance by the appellants. The appellants are discharging service tax on reverse charge basis on the commission amount paid to the insurance agents in terms of Rule 2(1)(d)(iii) of the Service Tax Rules, 1994. He explains the nature of different expenses incurred by them as follows:- 2.1 Sales training and other Training Expenses:- The appellants organizes training programmers for insurance agents at various location to adequately trained and update them about regulatory changes, the new product launch, market to be targeted, business strategy, feedback and also to discuss other issues. He submits that the appellants are not liable to pay service tax on the expenses incurred on these trainings; training institutes provide training to the agents, as per the contract with the appellants; the beneficiary of the services is the appellants and the same is a normal business expenditure in the hands of the appellants; by no stretch of imagination the same can be termed to be co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se is reissue after the expiry of 3 years. Therefore, the expenses incurred by the agents and reimbursed by the appellants this regards cannot be termed as commission for procuring insurance business. He further submits that various kinds of expenditure incurred by the appellant towards the recruitment trainee etc are normal business expenditure incurred by the appellants and are paid to the institutes. He submits that just because a third party derives a benefit out of a particular service, he doesn t mean that the original party who contracted to receive the service will be denied the benefit. He submits that this view is supported by the decision of the House of Lords in the English case of Customs and Excise Commissioner Vs. Redrow Group Plc. (1999 AII ER). He submits that the above case was relied upon by Bombay High Court in the case of Coca Cola India Pvt. Ltd. V CCE, Pune 2009 (242) E.L.T. 168 (Bom.) and was followed. 3. Learned Senior Counsel submits that the issue involved regarding the expenses incurred as above is no longer res integra having the settled by the Tribunal in the following cases:- (i) Bajaj Aliance Life Insurance Co. vs. Commissioner of C.E. S.T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etc.; these clauses also suggest that what is liable to service tax his money consideration and nothing more. He relies on H. H. Sri. Rama Verma vs. CIT, (1991) 187 ITR 308 (SC) and Vijaipat Singhania vs. CIT, (1992) 193 ITR 274 (SC). 7. Learned Senior Counsel further submits that the extended period is not evocable as the appellants did not suppress or misstate any fact with intent to evade payment of service tax; they have been in-continuous correspondent with the department in 2009-2010 the department is well aware of the facts. He submits that for this reason no penalty also is impossible. Submissions on the applicability of Section 73 A (2) and 73 A (3) 8. Learned Senior Counsel submits that the appellant have entered into agreements with individual/ corporate who act as insurance agents of the appellants; the appellants are discharging service tax on reverse charge mechanism on the commission paid to the insurance agents in term of Rule 2 (1) (d) (iii) of the Service Tax Rule, 1994; in terms of the applicant the commission paid to the insurance agents is inclusive of service tax paid on such commission; appellants had deducted 100 percent of the amount represent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Bajaj Life Insurance Company and Max Life Insurance Company (both supra). 10. Learned Senior Counsel submits that a close reading of Section 73 A of the Finance Act, 1994 makes it clear that sub section (1) covers a situation where a person liable to pay service tax is involved where as sub-section (2) covers a situation where any person otherwise not liable to pay service tax is involved; both the sections are mutually exclusive; in instant case only sub-section (1) is involved as the appellants are liable to pay service tax on the commission paid to the insurance agents; the show cause notice however, involves Section 73 A (2) of the Finance Act, 1994. He submits that Section 73 A (1) can also be not revoked in the present case as the appellant correctly discharged service tax on the commission paid by the insurance agents; the collection of said service tax from such agents is merely the contractual arrangement; Rule 2 (1) (d) of Service Tax Rules, 1994 does not contained a provision fastening the service tax on the service recipient which is actually to be paid by the service provider; it is only through the reverse mechanism the appellants are paying tax. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Section 68(2) of the Act read with Rule 2(1)(d)(ii) and Rule 2(1)(d)(i)(A) of the ST Rules read with Notification No. 36/2004 ST and 30/2012-St respectively, the Noticee is the person liable to pay service tax and they are not authorized to collect the service tax element from Agents. Since, the Noticee have recovered the Service Tax element from the Agents by way of deduction in Commission paid to the Agents, it is alleged that the said amount is recoverable from the Noticee under the provisions of Section 73A(2) of the Act. The Noticee claims that such collection is as per the contract /agreement between the Noticee and the Agents, wherein it is agreed that the Commission is inclusive of Service Tax element and the tax elements are to be borne by the Agents. 15. For ease of reference, the relevant statutory provisions are reproduced as under (i). Section 68 of the Finance Act, 1994, reads as under: (1) Every person providing taxable service to any person shall pay service tax at the rate specified in section 66 in such manner and within such period as may be prescribed. (2) Notwithstanding anything contained in sub-section (1), in respect of [such taxable servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tral Government. (3) Where any amount is required to be paid to the credit of the Central Government under sub-section (1) or sub-section (2) and the same has not been so paid, the amount, a notice requiring him to show cause why the said amount, as specified in the notice, should not be paid by him to the credit of the Central Government. 16. A plain reading of the provisions, of Section 73A (2) and (3), which have been invoked by the Revenue, it is clear that any person who has collected any amount, which is not required to be collected, from any other person, in any manner as representing service tax, shall forthwith pay the amount so collected to the credit of the Central Government. A correct reading of the provisions indicates that the amount representing service Tax would necessarily mean the service Tax not paid. There is no provision to say that service Tax which has already paid should not be recovered from anyone. Such an understanding is contrary to the principles of indirect taxation. It is not the case of the department that service tax has not been paid by the appellants. The provisions would apply only in cases where service tax is recovered, by the person l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal held that 9. In service tax levy, too, the person liable to pay the tax is required to deposit the tax amount irrespective of the quantum or stage of recovery from the person who bears the burden of tax. There is a distinct dichotomy, in both Central Excise Act, 1944 and Finance Act, 1994, of the obligation to credit the tax with Central Government and the recovery of the amount from the other person. And that is a dichotomy that does not brook any latitude whatsoever and its acceptance by Revenue is amply evidenced by Circular No. 870/8/2008-CX, dated 16th May, 2008 which clarifies that Section 11D of Central Excise Act, 1944 is not liable to be invoked even if the mandated payment for availing Cenvat credit on inputs used in exempt goods is recovered from the buyers of the output goods. That this ratio applies to service tax levy and that recovery of amount already paid would be tantamount to double deposit is enunciated by the Tribunal in Sangam India Ltd. v. Commissioner of Central Excise, Jaipur-II [2012 (28) S.T.R. 627 (Tri.-Del.)]. ------------------------------------------------------------------ 11 . The contractual obligation to reimburse the tax paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid to the insurance agents by way of reverse charge mechanism and that without prejudice to the above Rule 5 of the Service Tax Valuation Rule has been held ultra wires by the Apex Court in the case of intercontinental consultants and Technocrat Pvt. Ltd. (supra). We also find that the appellants have relied upon Bajaj Alliance Life Insurance Co; M/s. Max Life Insurance Company ltd; Edelweiss Tokio Life Insurance Company ltd all (supra) and stated that the issue is no longer res-integra. We find that Tribunal in the case of Bajaj Alliance Life Insurance Co. (supra) held that 52. Even though while confirming the demand by including pre- recruitment training expenses as well as post licence training expenses in the value of commission, the learned Commissioner has not specifically referred to the relevant rule, but, we find that in the notice, the said expenditure has been proposed to be included in the value of commission paid to insurance agents in accordance with Rule 67 of Finance Act, 1994 read with Rule 5(1) and Rule 6 of Service Tax (Determination of Value) Rules, 2006. In our view, this issue has been more or less, in the context of inclusion of value of free-issue mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovider for such service provided or to be provided by him' would lead to the obvious conclusion that the value of goods/material that is provided by the service recipient free of charge is not to be included while arriving at the 'gross amount' simply, because of the reason that no price is charged by the assessee/service provider from the service recipient in respect of such goods/materials. This further gets strengthened from the words 'for such service provided or to be provided' by the service provider/assessee. Again, obviously, in respect of the goods/materials supplied by the service recipient, no service is provided by the assessee/service provider. Explanation 3 to sub- section (1) of Section 67 removes any doubt by clarifying that the gross amount charged for the taxable service shall include the amount received towards the taxable service before, during or after provision of such service, implying thereby that where no amount is charged that has not to be included in respect of such materials/goods which are supplied by the service recipient, naturally, no amount is received by the service provider/assessee. Though, sub-section (4) of Section 67 state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by any other name, in the books of accounts of a person liable to pay service tax' would not include the value of the goods supplied free as no amount was credited or debited in any account. In fact, this last portion is related to the debit or credit of the account of an associate enterprise and, therefore, takes care of those amounts which are received by the associated enterprise for the services rendered by the service provider. 16. In fact, the definition of gross amount charged given in Explanation (c) to Section 67 only provides for the modes of the payment or book adjustments by which the consideration can be discharged by the service recipient to the service provider. It does not expand the meaning of the term gross amount charged to enable the Department to ignore the contract value or the amount actually charged by the service provider to the service recipient for the service rendered. The fact that it is an inclusive definition and may not be exhaustive also does not lead to the conclusion that the contract value can be ignored and the value of free supply goods can be added over and above the contract value to arrive at the value of taxable services. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words, valuation of taxable services for charging service tax, the authorities are to find what is the gross amount charged for providing 'such' taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service cannot a part of that valuation as that amount is not calculated for providing such 'taxable service'. That according to us is the plain meaning which is to be attached to Section 67 (unamended, i.e., prior to May 1, 2006) or after its amendment, with effect from, May 1, 2006. Once this interpretation is to be given to Section 67, it hardly needs to be emphasized that Rule 5 of the Rules went much beyond the mandate of Section 67. We, therefore, find that High Court was right in interpreting Sections 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider 'for such service' and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service. 25. This position did not change even in the amended Section 67 which was inserted on May 1, 2006. Sub-se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nance Act, 1994 and the said judgment has been upheld by the Hon ble Supreme Court in Intercontinental Consultants and Technocrats Pvt Ltd case (supra). 22. In view of the above, we have no doubt whatsoever expenditure incurred for training/refresher Training and other cost /expenses incurred by the appellants cannot be including in the value of the Taxable service prior to 14.05.2015. In respect of the period post 14.05.2015, the appellants submits that the explanation inserted by the amendment vide Finance Act, 2015 in Section 67 of the Finance Act, 1994 clearly states that consideration includes any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing are agree into provide a taxable service. He submits that for this explanation to apply the insurance agents bring a service provider in the present case ought to have incurred this expenses and claimed reimbursement from the appellants; in the present case the expenses have been incurred by the appellants being the service recipient on their own account and non of the cost is even getting reimbursed to the agents. 23. We find that the explanation inserted under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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