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2019 (6) TMI 104 - AT - Service TaxInsurance Auxiliary Services - commission amount paid to the insurance agents - service tax was paid on reverse charge mechanism. Subsequently appellants recovered the amount equivalent to the Service Tax paid on the commission charges from the agents - Alleging that since the Appellant has recovered the Service Tax from the insurance agents, even though the Service Tax was required to be paid by the Appellant, therefore, such collection is without authority of law and accordingly required to be deposited as per Section 73A(2) of Finance Act, 1994 - demand alongwith interest and penalty - invocation of extended period of limitation - Valuation - inclusion of pre-recruitment training expenses, in the value of commission paid. Whether service tax paid by the Appellant in accordance with Rule 2(1)(d)(iii) of Service Tax Rules, 1994 as recipient of Insurance Auxiliary service and then recovered from the service providers i.e. insurance agents is required to be deposited as per Section 73A(2) of Finance Act, 1994? - HELD THAT - In the present case, the Revenue sought to recover the amount of service tax initially paid by the Appellant, but later passed on the burden under an agreement/arrangement to the insurance agents, while paying their commission for the service received. Neither side raised the issue that the service tax amount paid by the Appellant has been collected in excess from the insurance agents; it is the plea of the Revenue that since the payment of service tax has been cast on the recipient of service by virtue of Rule 2(1)(d)(iii) of Service Tax Rules, 1994, hence, the person liable to discharge service tax should absorb the liability and hence such person is precluded from shifting the burden to the insurance agent. However, in the event he passes on the service tax burden, then he is required to deposit the said amount with the govt., as the tax amount is not required to be further collected from the insurance agents - for the purpose of administrative convenience, the collection of service tax could be made either from the service provider or service recipient in relation to the service which is the object of the tax. Merely because the tax is collected from the service recipient, the character of the service tax will not be altered, but it would continue to remain as service tax only. Therefore, the reasoning of the learned Commissioner that since the service tax on Insurance Auxiliary service since to be paid by the Appellant, is in the nature of direct tax, hence, not authorised to pass on the burden to the Insurance agents. Whether the person is liable to pay service tax by virtue of Rule 2(1(d)(iii) of Service Tax Rules, 1994 is prohibited from passing on the burden to the customer? - HELD THAT - There are no stipulation under the Act or under Rule 2(1)(d)(iii) of Service Tax Rules,1994 which puts an embargo on an assessee who is initially required to discharge service tax, if later elects to shift the burden to the provider of service or to any other person by an arrangement or agreement, is restricted in doing so - In absence of any such stipulation to say that the burden of service tax initially discharged by the service recipient cannot be shifted to the service provider, there is no prohibition on such passing of burden. Whether the amount collected by the Appellant from the insurance agent is required to be deposited even though initially the applicable tax amount has been paid to the Government? - HELD THAT - This Tribunal, after analyzing the scheme of sub-section (1) and sub-section (2) of Section 73A, arrived at the finding that any amount if collected in excess only is required to be deposited with the Government. Valuation - expenses incurred in pre-recruitment training and post licence training of the Insurance Agents - inclusion in the value of commission paid to the agents - HELD THAT - Only w.e.f. 14.05.2015, by virtue of provision of Section 67 itself, such reimbursable expenditure or cost would also form part of the value of taxable service for charging service tax. In other words, prior to 14.05.2015, such expenditure or cost incurred by the assessee in providing taxable service cannot be included in the value of service - pre and post training expenses, incurred by the Appellant cannot form part of the value of commission paid to the insurance agents. Thus, the service tax initially paid by the Appellants and later collected from the insurance agents by adjusting the commission paid, cannot be directed to be deposited under Section 73A(2) of Finance Act, 1994 - The expenses incurred in pre-recruitment training and post licence training of insurance agents by the Appellants cannot form part of the gross taxable value of commission paid to the Insurance Agents in determining the service tax liability. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Collection of Service Tax under Section 73A(2) of the Finance Act, 1994. 2. Inclusion of pre-recruitment and post-license training expenses in the value of commission paid to insurance agents. Detailed Analysis: Issue 1: Collection of Service Tax under Section 73A(2) of the Finance Act, 1994 The primary contention was whether the service tax paid by the appellants as recipients of 'Insurance Auxiliary Service' and subsequently recovered from the insurance agents should be deposited under Section 73A(2) of the Finance Act, 1994. The appellants argued that since they were registered and assessed for service tax, any amount collected from the insurance agents should fall under Section 73A(1) and not Section 73A(2). They cited the Supreme Court's judgment in Mafatlal Industries Ltd. and the Tribunal's decision in HDFC Standard Life Insurance Co. Ltd., which held that amounts collected in excess of the applicable tax should be deposited with the government. The Revenue argued that Section 73A(1) and Section 73A(2) are mutually exclusive, and any amount collected as service tax, which is not required to be collected, must be deposited with the government. The Tribunal, however, noted that the scheme of Section 73A, particularly subsection (6), indicates that the government cannot retain any amount in excess of the applicable service tax. The Tribunal concluded that the service tax initially paid and later collected from the insurance agents does not fall under Section 73A(2) and should not be deposited again. Issue 2: Inclusion of Pre-Recruitment and Post-License Training Expenses in the Value of Commission Paid to Insurance Agents The second issue was whether the expenses incurred by the appellants in providing pre-recruitment and post-license training to insurance agents should be included in the value of the commission paid to the agents. The appellants argued that these expenses were not part of the commission paid and should not be included in the taxable value. They cited the Supreme Court's judgment in Bhayana Builders, which held that any amount not charged by the service provider to the service recipient should not be included in the taxable value. The Revenue contended that these expenses should be included as they are incurred in the course of providing taxable services. However, the Tribunal referred to the Supreme Court's judgment in Intercontinental Consultants & Technocrats Pvt. Ltd., which declared Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006, ultra vires. The Tribunal held that such expenses could not be included in the value of the commission paid to insurance agents before May 14, 2015, when the relevant provision was amended. Conclusion: 1. Service Tax Collection: The Tribunal held that the service tax initially paid by the appellants and later collected from the insurance agents should not be deposited under Section 73A(2) of the Finance Act, 1994. 2. Training Expenses: The expenses incurred in pre-recruitment and post-license training of insurance agents by the appellants cannot form part of the gross taxable value of the commission paid to the insurance agents. Final Orders: The impugned orders were set aside, and the appeals filed by the assessees were allowed. The Revenue's appeal was rejected. Penalties imposed on certain demands were also set aside, considering the issue was a pure question of interpretation of law.
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