2008 (11) TMI 82 - AT - Service Tax

Insurance as well as reinsurance broker reinsurance brokerage was not included in the taxable value of insurance auxiliary service rendered to insurers/reinsurers for the disputed period (16-7-01 to 30-6-05) - appellant contend that their liability to pay tax on reinsurance brokerage received from overseas reinsurers arose only w.e.f. 1-5-06 vide amendments in s. 65 of Finance Act, 1994 by the Finance Act,2006 - suppression not proved larger period not invokable penalty not sustainable

Issues Involved:
1. Demand of service tax and education cess.
2. Interest on the demanded amount.
3. Imposition of penalties.
4. Applicability of amendments to section 65 of the Finance Act, 1994.
5. Nature of reinsurance transactions.
6. Export of service claim.
7. Retrospective effect of amendments.
8. Limitation period for demand.

Detailed Analysis:

1. Demand of Service Tax and Education Cess:
The Commissioner confirmed a demand of Rs. 1,42,44,880 (service tax + education cess) against the appellants for the period 16-7-2001 to 30-6-2005 under the proviso to sub-section (1) of section 73 of the Finance Act, 1994. The demand pertained to brokerage received by the assessee from overseas reinsurers, which was not included in the taxable value of 'insurance auxiliary service' rendered by them.

2. Interest on the Demanded Amount:
Interest on the demanded amount was charged under section 75 of the Finance Act, 1994. The Tribunal upheld that interest under section 75 on the correct amount of service tax and education cess (to be quantified) is payable by the assessee.

3. Imposition of Penalties:
Penalties were imposed under sections 76 and 78 of the Finance Act, 1994. However, the Tribunal found a good case for vacating the penalties, noting that the dispute was highly interpretative of various provisions and that the assessee consistently maintained their liability arose only with effect from 1-5-2006 due to amendments by the Finance Act, 2006.

4. Applicability of Amendments to Section 65 of the Finance Act, 1994:
The assessee argued that their liability to pay service tax as an insurance intermediary between Indian insurance companies and overseas reinsurers was introduced only with effect from 1-5-2006 with amendments to clauses (58) and (105)(zl) of section 65 of the Finance Act, 1994. The Tribunal, however, held that the definition of 'insurer' was wide enough to include a 'reinsurer' even before the amendment, making the service taxable prior to 1-5-2006.

5. Nature of Reinsurance Transactions:
The Tribunal examined the legal character of reinsurance, noting that it is a separate contract between the insurer (the reinsured) and the reinsurer, independent of the original insurance contract. The service provided by the reinsurance broker (assessee) to the Indian insurance company was considered taxable under section 65(105)(zl) of the Finance Act, 1994.

6. Export of Service Claim:
The assessee claimed that the service rendered to overseas reinsurers was in the nature of 'export of service' and thus not leviable to service tax, relying on CBEC's Circular No. 56/15/2003-ST and the decision in J.B. Boda & Co. (P.) Ltd. v. CBDT. The Tribunal rejected this claim, noting that the brokerage was received in Indian currency and did not qualify as export of service under the Export of Services Rules, 2005 or the relevant notifications.

7. Retrospective Effect of Amendments:
The revenue argued that the amendments to section 65(58) and section 65(105)(zl) by the Finance Act, 2006 were clarificatory and had retrospective effect. The Tribunal, however, held that the definition of 'insurer' before the amendment was already wide enough to include a 'reinsurer', making the service taxable prior to 1-5-2006.

8. Limitation Period for Demand:
The show-cause notice invoked the proviso to section 73(1) of the Finance Act, 1994 on the ground of suppression of facts for recovery of service tax for the period 16-7-2001 to 30-6-2005. The Tribunal found that the allegation of suppression of facts was not sustainable and restricted the demand to the normal period and beyond up to 10-9-2004, as mere omission or failure to file returns was sufficient to invoke the larger period of limitation for the period prior to 10-9-2004.

Conclusion:
The Tribunal set aside the demand of service tax and education cess for the extended period of limitation, barring the period prior to 10-9-2004, and ordered the Commissioner to requantify the correct quantum of demand. Interest under section 75 on the correct amount of service tax and education cess was upheld, while penalties were vacated. The appeal was disposed of in these terms, and the miscellaneous application was dismissed as infructuous.

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