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2015 (8) TMI 503 - AT - Service TaxBusiness 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 clearly indicated in their replies to the department the details of commission passed on by the bank. We find no reason to discard the information given by the bank. If appellant wanted to dispute the same, the appellant were free to get a clarification from the bank during last 7 years from 2006 when the Bank gave the details to the Department. But the appellant chose not to do so. Once the department produces a letter from the bank the onus shifts to the appellant to dis-prove the same. Therefore, 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 is shared with the customers, that is an independent transaction between the dealer and the purchaser of the vehicle, and does not involve the service rendered by the dealer to the bank. Tax payable by the dealer would be the gross amount paid by the bank. - 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 providing services for promotion or marketing of 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 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. It is also seen that the service tax was being paid by the appellant on identical service provided to other financial institutions such 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. Taxability of incentive / discount - Held that - Only because some incentives/discounts are received by the appellant under various schemes of the manufacturer cannot lead to the conclusion that the incentive is received for promotion and marketing of goods. It is not material under what head the incentives are shown in the Ledgers, what is relevant is the nature of the transaction which is of sale. All manufacturers provide discount schemes to dealers. Such transactions cannot fall under the service 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. regarding duty demands except for demand of tax on inter dealer claim, is rejected. Interest under Section 75 and penalties under Sections 76 and 78 are ordered to be paid appropriately in accordance with the amount of demand confirmed by us. Penalty under Section 77 is upheld. - Decided partly in favour of Revenue.
Issues Involved:
1. Marketing of auto loans. 2. Commission income from sale of vehicles and parts. 3. Referral commission from insurance companies. 4. Pre-delivery inspection charges. 5. Quantum of commission received from HDFC. 6. Applicability of Business Auxiliary Service (BAS) and Business Support Service (BSS). 7. Invocation of extended period of limitation and penalties. Detailed Analysis: 1. Marketing of Auto Loans: The appellant contended that they merely facilitated banks by providing infrastructure and did not promote auto loans. They argued that the demand should be based on the actual commission received under Rule 6 (1) of the Valuation Rules, not on details submitted by banks. The Tribunal, however, found that the appellant's activities fell under the ambit of Business Auxiliary Service (BAS) as they were marketing financial products of the banks. The Tribunal referred to agreements indicating the appellant's role in marketing financial products, thus rejecting the appellant's claim that they only provided infrastructural space. 2. Commission Income from Sale of Vehicles and Parts: The Revenue appealed against the setting aside of demand on commissions received from M/s. HMIL. The Tribunal upheld the Commissioner's decision that these transactions were on a principal-to-principal basis. The ownership of parts transferred to the appellant, and any promotion was in their own interest, not a service to HMIL. The Tribunal relied on the decision in Pillay and Sons, which stated that service tax cannot be levied on amounts subjected to sales tax. 3. Referral Commission from Insurance Companies: The appellant argued that they merely referred customers to insurance companies and acted as commission agents. The Tribunal disagreed, stating that the promotion and marketing of insurance services are covered under Section 65 (19) (ii) of the Finance Act, 1994, effective from 1.7.2003. The Tribunal found that the appellant's activities constituted BAS, warranting the invocation of the extended period for demanding tax due to non-declaration of commission received. 4. Pre-delivery Inspection Charges: The appellant contended that no charges were recovered from customers for free services, and the correct classification should be Business Support Service. The Tribunal found that the services provided fell under BAS, specifically customer care service on behalf of the client. The Tribunal upheld the Commissioner's partial allowance of the claim, confirming the demand for service charges received by way of 'interdealer claim income' for pre-delivery inspections. 5. Quantum of Commission Received from HDFC: The appellant disputed the commission amount indicated by HDFC and requested cross-examination of bank officials. The Tribunal held that cross-examination was unnecessary, as the bank's letters to the department were clear. The Tribunal emphasized that the onus was on the appellant to disprove the bank's information, which they failed to do. The Tribunal upheld the service tax demand based on the gross commission paid by the bank, including amounts subvented to customers. 6. Applicability of BAS and BSS: The appellant argued that their activities should be classified under Business Support Service (BSS). The Tribunal referred to definitions of BAS and BSS and concluded that the appellant's services fell under BAS, specifically the promotion or marketing of services provided by the client. The Tribunal rejected the contention that the services were BSS, emphasizing that the appellant marketed auto loans, which is a BAS activity. 7. Invocation of Extended Period of Limitation and Penalties: The Tribunal found that the appellant knowingly did not pay tax on the commission received from HDFC, despite paying service tax for similar services to other banks. This constituted suppression of facts, justifying the invocation of the extended period of limitation. The Tribunal upheld penalties under Sections 76 and 78, citing clear suppression of facts. The Tribunal also upheld the penalty under Section 77. Conclusion: The Tribunal rejected the appeal of M/s. Jaybharat Automobiles Ltd. regarding duty demands except for the demand of tax on inter-dealer claims. Interest under Section 75 and penalties under Sections 76 and 78 were ordered to be paid appropriately. The appeal of Revenue was rejected. The Tribunal emphasized that the appellant's activities fell under BAS, and the extended period of limitation and penalties were justified due to suppression of facts.
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