2008 (10) TMI 160 - AT - Service Tax

Insurance Auxiliary services became taxable w.e.f. 16-8-2002 - there was dispute as to whether the Insurance companies are liable to pay service tax on the renewal commission paid to their agents in respect of Insurance policies issued before 16-8-2002 - appellants on their own had made a representation to the Board in September, 2003 seeking Board s clarification this issue - Immediately on receipt of clarification from Board, they paid the service tax and thereafter paid the interest - delay in payment of service tax was on account of confusion - provisions of Section 80 are applicable and therefore, no penalty is called for

Summary

Issues:
1. Liability of insurance companies to pay service tax on renewal commission paid to agents for policies issued before 16-8-2002.
2. Imposition of penalty under Section 76 of the Finance Act for delayed payment of service tax.

Analysis:
1. The judgment revolves around the issue of whether insurance companies are liable to pay service tax on renewal commission paid to agents for policies issued before 16-8-2002. The appellant sought clarification from the Central Board of Excise & Customs regarding this matter in September 2003. The Board responded on 9th February 2004, confirming that service tax would apply to renewal commission paid after 16-8-2002 for policies issued before that date. The appellant then promptly paid the service tax in February 2004, followed by interest in September 2004. The Tribunal acknowledged that the delay in payment was due to confusion, hence invoking Section 80 to waive the penalty under Section 76 of the Finance Act. Consequently, the impugned penalty was set aside, and the appeal was allowed.

2. The second issue pertains to the imposition of a penalty under Section 76 of the Finance Act for the delayed payment of service tax. The Department issued a show cause notice in May 2005, alleging a delay in payment and imposing a penalty of Rs. 5,11,880. The appellant argued that the delay was a result of the confusion regarding the applicability of service tax on renewal commission. The Department contended that the penalty was justified as the appellant failed to inform them about paying renewal commission for policies issued before 16-8-2002. However, the Tribunal found that the appellant had proactively sought clarification from the Board and promptly paid the tax upon receiving clarification. As a result, the penalty under Section 76 was deemed inapplicable, and the appeal was upheld.

In conclusion, the judgment clarifies the liability of insurance companies regarding service tax on renewal commission and emphasizes the importance of seeking clarification from relevant authorities to avoid penalties for delayed payments.