2022 (2) TMI 546 - AT - Service Tax

Recovery of service tax - service being taxable but the liability has not been discharged by the appellant - business auxiliary services - Service Tax on Insurance Commission - Service tax on finance pay outs - Service tax on incentive received from MUL - Service tax on handling and logistic charges - Service tax on registration charges and extended warranty - Service tax on consumables used during the course of servicing of the vehicles - Non Reconciliation of ST-3 Return with Balance Sheet and Cenvat Credit on Inadmissible Documents - Reimbursement of Expenses from MUL - Service tax under reverse charge mechanism on the expenses appearing in audited profit and loss account - period 2012-13 to 2016-17 - extended period of limitation - first SCN was adjudicated by the Learned Commissioner Central Excise Service Tax Lucknow and the adjudicating authority through its Order in Original dated 30/10/2009 dropped the demand of Service Tax on Incentive received from MUL amounting to ₹ 36, 52,967/ and confirmed the demand on all the issues raised in the SCN dated 16/10/2008 - Second SCN was adjudicated by the Learned Commissioner Central Excise Service Tax Lucknow and the adjudicating authority through its Order in Original dated 08/02/2017 dropped the demand of Service tax on servicing of Motor Car, Registration Charges sale of extended warranty but confirmed the demand of Service tax on insurance commission, differential Service tax payable on account of reconciliation of ST3 returns - while adjudicating the third SCN, the adjudicating authority had confirmed the entire demand without considering the submissions documents submitted during the course of adjudication made by the appellant - HELD THAT - It is observed that vide Final Order of this Tribunal bearing No.70112 of 2015 dated 17.12.2015, the entire demand of SCN dated 16.10.2018 on the several issues as mentioned above stands already been set aside. Apparently, no appeal has been filed by the Department against the said order. The said decision, therefore, stands attained finality - With respect to the SCN dated 24.10.2013, Department itself has dropped the demand except for demand of Service Tax on insurance commissions, advertisement expenses, reimbursement from MUL and on different job receipts. However, the adjudicating authority with respect to the third SCN of 20th November, 2017 has again confirmed the demand on all the issues raised in the said SCN despite this fact that most of them are similar to those in the prior two notices where all such demands have been already dropped except for the demand with respect to non-conciliation of ST-3 Returns, Service Tax on reimbursement of expenses from MUL, Cenvat Credit on inadmissible documents, and service tax under reverse charge mechanism on entire expenses appearing in audited and profit and loss accounts - issues which have been already decided by the Final of 17.12.2015, the decision thereof, were to be followed by the adjudicating authorities while adjudicating the impugned both the SCNs. it becomes clear that the adjudicating authorities have absolutely ignored the principles of judicial discipline by not following the binding order passed by this Tribunal. Hon ble High Court of Karnataka while deciding a Writ Petition in XL HEALTH CORPORATION INDIA PVT. LTD. VERSUS THE UNION OF INDIA, DEPUTY COMMISSIONER SERVICE TAX, DIVISION-III SERVICE TAX-I, COMMISSIONERATE 2018 (10) TMI 1565 - KARNATAKA HIGH COURT - the confirmation of demand on such issues, which have already been dealt with by this Tribunal and demand has been set aside stands set aside for the impugned SCNs. Service Tax on Insurance Commission - HELD THAT - It becomes clear that the recipient of insurance services is liable to pay the service tax. Admittedly appellant herein is the service provider being an insurance agent. The service recipients are the insurance companies for which the appellant had worked. Hence, it were the insurance companies, who were liable to discharge the service tax liability with respect to the amount on insurance commission received by the appellant. A copy of certificate issued by IRDA was also submitted by the appellant. The same has not been considered by the adjudicating authorities below. The confirmation of demand on this issue is therefore held to have been wrongly confirmed. Service tax on finance pay outs - HELD THAT - The adjudicating authority has failed to consider that the service tax liability with respect to finance pay outs, therefore, stands discharged though partly through cenvat and partly through cash. The demand is, therefore, held to have wrongly been confirmed. Service tax on incentive received from MUL - HELD THAT - It is observed that the appellant purchases vehicles from MUL and sells the same to the buyers. The agreement between appellant and MUL clarifies that appellant works on a principal to principal basis instead of working as an agent of MUL. Appellant, however, has agreed to undertake certain sales promotion activities as well. In the given circumstances, carrying out of such activities by the appellant is for the mutual benefit of the business of the appellant as well as for the business of the MUL - the amount of incentives received on such account cannot be treated as consideration for any service and the incentives received by the appellant therefore, are wrongly held livable to the Service tax. Service tax on handling and logistic charges - HELD THAT - The copy of VAT assessment orders were also provided by the appellant. Once the liability of VAT is discharged, the demand of service tax on the same transaction is not permissible under Indian Constitution. The demand on this issue otherwise has already been set aside by this Tribunal in the Final Order dated 17.02.2015. Confirmation of the demand on this is therefore, liable to be set aside. Service tax on registration charges and extended warranty - HELD THAT - This issue is observed to have already been settled by Tribunal, Mumbai while deciding the case of TOYOTA LAKOZY AUTO PVT. LTD. VERSUS COMMISSIONER OF SERVICE TAX/CENTRAL EXCISE MUMBAI -II / MUMBAI - V 2016 (12) TMI 541 - CESTAT MUMBAI wherein it has already been held that the facilitation charges collected from customers for registration of vehicles with RTO do not qualify to be as an amount towards providing business auxiliary service - this issue also remains no more res integra. The confirmation of demand on this count is also held liable to be set aside. Service tax on consumables used during the course of servicing of the vehicles - HELD THAT - Documents with respect to security expenses, travelling expenses, legal expenses, freight expenses have also been submitted by the appellant but the orders under challenge are observed to not to have considered those documents also the challans amounting to deposit of ₹ 4,16,35,200/- during the entire disputed period. The challans summary as submitted is sufficient to show that excess amount of service tax pertaining to business auxiliary services on this count stands already paid by the appellant. Departments own verification report in respect of the reply submitted by the appellants in respect of SCN dated 20.12.2017 as was called by Superintendent CGST, Lucknow from Jt. Commr., CGST, Lucknow is also produced by the appellant. The said report dated 21.02.2019 also confirms the payment of service tax in lieu of business auxiliary service and repair, reconditioning of motor vehicles by 23 challans as mentioned in the said report which were found duly included in the list of 265 challans amounting to a total of ₹ 4,13,40,105/-. Both the orders under challenge have been passed prior to the said verification report - in the light of said verification report, it stands clear that the demand on this account also cannot be confirmed. Non Reconciliation of ST-3 Return with Balance Sheet and Cenvat Credit on Inadmissible Documents - HELD THAT - The verification report as mentioned above has verified that total 8 ST-3 Returns were filed by the appellant during the financial year 2012-13 to 2015-16. The said Returns reflect the duty payment. The report also verifies that the duty paid challans mentioned in the ST-3 returns filed are also available in the ACES data. As per those ST-3 Returns, it is verified that the appellant has not availed any cenvat credit against the capital goods except they availed the credit against the input services received directly. Departments own verification report is, therefore, held to have falsify the confirmation of the demand on this count by the adjudicating authorities below. The confirmation is according liable to be set aside. Reimbursement of Expenses from MUL - HELD THAT - The issue is no more res integra as has already been discussed above with respect to the decision of this Tribunal in M/S. ROHAN MOTORS LIMITED VERSUS COMMISSIONER OF CENTRAL EXCISE, DEHRADUN 2020 (12) TMI 1014 - CESTAT NEW DELHI . The adjudicating authorities below are held to have ignored the decision on this issue arrived at by this Tribunal. The adjudicating authority are held to have violated the principles of judicial discipline - the confirmation of demand on this score also cannot sustain. Service tax under reverse charge mechanism on the expenses appearing in audited profit and loss account - HELD THAT - The demand of service tax under RCM on repair and maintenance service is also not sustainable as the parties have failed to consider that those expenses pertaining to the purchase of material spare parts and wages paid to the concerned person without deploying any contractor. Travelling expenses also have been wrongly confirmed under RCM, despite the apparent fact that those expenses pertains to the purchase of rail tickets, air tickets and conveyances expenses of the employees of the appellant. Similarly demand of service tax on legal and professional expenses under RCM is not sustainable as the documents produced by the appellant clarifies that those expenses pertain to the payment of the paid to the banks for enhancement and renewal of limits and also for payment to Chartered Accountants and other technical consultants. All such expenses have duly been mentioned in their profit and loss account which were duly got verified vide the verification report of 21.02.2019 as was submitted by Jt. Commissioner, CGST. The demand on this account is also therefore, held not sustainable. Extended period of limitation - HELD THAT - The question of any evasion which entitles Department to invoke extended period of limitation does not at all arises. It is accordingly, held that the Department has wrongly invoked the extended period of limitation. The Hon ble Apex Court in the case of TAMIL NADU HOUSING BOARD VERSUS COLLECTOR OF CENTRAL EXCISE, MADRAS 1994 (9) TMI 69 - SUPREME COURT has held that powers to extend period from one year to five years are exceptional powers, hence, have to be constructed strictly. It was held that fraud, collusion etc. and intention to evade duty must concur. As already held above, nothing of this sort is apparent on part of the appellant - Department has wrongly invoked the extended period of limitation. Both the SCNs are therefore, held to be barred by the period of limitation. It has been held that the demands on several counts have wrongly been confirmed. The Adjudicating Authority is rather held to have violated the principles of judicial discipline. The SCN is held to be barred by time. Both the orders under challenge are, therefore, hereby set aside - Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Invocation of extended period of limitation.
2. Service tax on insurance commission.
3. Service tax on finance payouts.
4. Service tax on incentives received from MUL.
5. Service tax on handling and logistic charges.
6. Service tax on registration charges and extended warranty.
7. Service tax on consumables used during vehicle servicing.
8. Non-reconciliation of ST-3 Returns with the balance sheet and Cenvat credit on inadmissible documents.
9. Service tax on reimbursement of expenses from MUL.
10. Service tax under reverse charge mechanism on expenses in the audited profit and loss account.

Issue-wise Detailed Analysis:

1. Invocation of Extended Period of Limitation:
The Tribunal observed that the Department had previously audited the appellant's records for the period 2003-2007 and issued an SCN on 16.10.2008. The appellant had regularly filed ST-3 Returns, and the Department's verification report confirmed the availability of duty-paid challans. Hence, it was concluded that there was no suppression of facts by the appellant. The Tribunal held that the Department wrongly invoked the extended period of limitation, citing the Supreme Court's precedent that exceptional powers to extend the period must be strictly construed.

2. Service Tax on Insurance Commission:
According to Rule 2(d) of the Service Tax Rules, 1994, the recipient of insurance services (i.e., the insurance companies) is liable to pay the service tax. The Tribunal found that the appellant, being an insurance agent, was not liable for the service tax on insurance commissions. The adjudicating authority had ignored the appellant's submission of an IRDA certificate. Thus, the demand was wrongly confirmed.

3. Service Tax on Finance Payouts:
The Tribunal noted that the appellant had availed Cenvat credit on capital goods and utilized it for service tax liability on finance payouts under business auxiliary services. The adjudicating authority failed to consider that the service tax liability was discharged partly through Cenvat and partly through cash. Therefore, the demand was wrongly confirmed.

4. Service Tax on Incentives Received from MUL:
The Tribunal observed that the appellant operated on a principal-to-principal basis with MUL and undertook sales promotion activities for mutual business benefit. The incentives received were not consideration for any service. Previous Tribunal decisions, including the final order dated 17.12.2015, had already set aside similar demands. Hence, the confirmation of the demand was liable to be set aside.

5. Service Tax on Handling and Logistic Charges:
The Tribunal found that VAT had already been discharged by the appellant on handling charges. Once VAT liability is discharged, service tax on the same transaction is not permissible. This issue had already been settled by the Tribunal's final order dated 17.12.2015. Therefore, the demand was liable to be set aside.

6. Service Tax on Registration Charges and Extended Warranty:
The Tribunal referred to previous decisions where facilitation charges for vehicle registration with RTO were not considered business auxiliary service. Hence, the confirmation of the demand on this count was also liable to be set aside.

7. Service Tax on Consumables Used During Vehicle Servicing:
The appellant had submitted documents showing repair and maintenance expenses, security expenses, and service tax payments amounting to ?4,16,35,200/-. The Tribunal noted that the orders under challenge did not consider these documents. The Department's verification report confirmed the payment of service tax. Therefore, the demand could not be confirmed.

8. Non-Reconciliation of ST-3 Returns with Balance Sheet and Cenvat Credit on Inadmissible Documents:
The verification report confirmed that the appellant had filed ST-3 Returns reflecting duty payment and had not availed Cenvat credit against capital goods. The Tribunal held that the confirmation of the demand on this count was falsified by the Department's own verification report.

9. Service Tax on Reimbursement of Expenses from MUL:
The appellant provided an affidavit and a statutory auditor's certificate stating that reimbursements from MUL related to trade discounts on which VAT and excise duty were already discharged. The Tribunal found that the adjudicating authorities ignored previous Tribunal decisions on this issue. Hence, the confirmation of the demand could not sustain.

10. Service Tax Under Reverse Charge Mechanism on Expenses in Audited Profit and Loss Account:
The Tribunal noted that RCM for security services applies only to non-corporate entities. The appellant had availed services from private limited companies and paid salaries to permanent employees. The demand under RCM for security agencies was not sustainable. Similarly, demands for repair and maintenance, travelling, and legal expenses were wrongly confirmed, as these expenses were for material purchases, employee conveyances, and payments to banks and consultants. The Department's verification report supported the appellant's claims.

Conclusion:
The Tribunal concluded that the demands were wrongly confirmed and set aside both orders under challenge. The SCNs were also held to be barred by the period of limitation. Consequently, both appeals were allowed.