2018 (7) TMI 27 - AT - Service Tax

Business Auxiliary Services - appellants advised their customers to approach the HDFC for taking insurance policies for the vehicles - Department took the view that this activity of both the appellants are in the nature of promoting and marketing of insurance products and services provided by HDFC Chubb and would therefore fall under the category of Business Auxiliary Service - Held that - Based on that information, the appellants may not have actively promoted the insurance policies of HDFC Chubb. But in restricting their data base access only to HDFC Chubb, that too on real time basis and they enabled the latter to have access to a pool of new vehicle buyers who would obviously also need first time car insurance - appellants therefore promoted the business of HDFC Chubb and for which services they were given agreed upon payment for every car insured by HDFC Chubb. Also, the transactional documents and other evidences on record indicate a substantial activity falling within the contours of the definition of Business Auxiliary Service in Section 65 (19) of the Finance Act, 1994. Penalty - Held that - The issue per se was mired in confusion and litigation - appellants had a reasonable cause for their failure to discharge tax liability and must be given the benefit of doubt - penalty set aside. Appeal allowed in part.

Summary

Issues:
1. Whether the activities of the appellants promoting and marketing insurance products fall under the category of 'Business Auxiliary Service' (BAS) as per Section 65(19) of the Finance Act, 1994?
2. Whether the penalties imposed under Sections 76, 77 & 78 of the Act are justified?
3. Whether the extended period for issuing the second show cause notice to the Delhi showroom of the appellant is invocable?

Analysis:

Issue 1:
The case involved determining whether the appellants' activities promoting and marketing insurance products constituted 'Business Auxiliary Service' (BAS) as defined in Section 65(19) of the Finance Act, 1994. The appellants argued that there was no principal-client relationship between them and HDFC, hence the commission received should not be deemed as that of a 'commission agent.' They contended that the contractual arrangement was limited to sharing the customer database with HDFC and that they were not promoting HDFC's services. However, the tribunal found that by providing HDFC Chubb access to their customer data base and receiving a Referral Fee based on insurance policies generated, the appellants were indeed promoting HDFC Chubb's business, thus falling under the definition of BAS. The tribunal referred to relevant transactional documents and evidence to support this conclusion.

Issue 2:
Regarding the penalties imposed under Sections 76, 77 & 78 of the Act, the tribunal noted that there was confusion and conflicting decisions on the matter, leading to the constitution of a Larger Bench. Given the reasonable cause for the appellants' failure to discharge tax liability in such a scenario, the tribunal held that the penalties could not be sustained and were set aside. The appeals were partly allowed on this basis.

Issue 3:
The third issue involved the extended period for issuing the second show cause notice to the Delhi showroom of the appellant. The appellants argued that the second show cause notice was time-barred as it was issued after the first notice to the Chennai showroom. However, the tribunal did not delve into this issue as it was not necessary after deciding on the primary issue of BAS classification.

In conclusion, the tribunal upheld the classification of the appellants' activities as 'Business Auxiliary Service,' set aside the penalties imposed, and did not address the extended period issue due to the primary decision on the nature of the services provided by the appellants.