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2022 (7) TMI 457 - AT - Service TaxValuation - non-inclusion of certain expenses incurred by the service recipient - Insurance Auxiliary Services - Illegal recovery of service tax from the insurance agent - non-inclusion of certain expenses such as business promotion expenses, pre recruitment training expenses, refreshable training expenses sells and other training expenses. Whether the appellants are required to pay service tax on the amount representing the service tax paid by them and deducted by them from the commission payable to their life insurance agents? - HELD THAT - A plain reading of the provisions, of Section 73A (2) and (3), which have been invoked by the Revenue, it is clear that any person who has collected any amount, which is not required to be collected, from any other person, in any manner as representing service tax, shall forthwith pay the amount so collected to the credit of the Central Government. A correct reading of the provisions indicates that the amount representing service Tax would necessarily mean the service Tax not paid. There is no provision to say that service Tax which has already paid should not be recovered from anyone. Such an understanding is contrary to the principles of indirect taxation - If the person liable to pay Tax, having paid the Tax liable, has an understanding/agreement with his Customers to recover such Tax from them, the provisions of the Section cannot be invoked. Whether the appellants are liable to pay service tax on various expenses incurred in training, business promotion expenses, pre-recruitment etc.? - HELD THAT - A perusal of provisions in section 67 of FA, indicates that the consideration for the purposes of levy of service tax include any amount that is payable for the taxable services provided or to be provided and any reimbursable expenditure are cost incurred by this service provider and charged - In the instant case it is not the case of the Revenue that the expenses in question were incurred by the service provider i.e. the insurance agents and charged to the appellants. It is the appellants that have incurred the expenditure. though, it can be argue, that the expenses on pre- recruitment training/ re-furbisher training should have been born by the agents themselves in order to obtain a license from the Regulatory Authority, the explanation to Section 67 as above does not provide for inclusion of any expenditure that could have been borne by the service providers - the expenses incurred by the appellants are not goes required to be included in terms of the explanation under Section 67. Therefore, the demands confirmed on the various expenses incurred by the appellants are not sustainable. Accordingly, they need to be set aside. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Liability of the appellants to pay service tax on amounts representing service tax and TDS deducted from commissions payable to insurance agents. 2. Liability of the appellants to pay service tax on various expenses incurred in training, business promotion, pre-recruitment, etc. Detailed Analysis: 1. Liability to Pay Service Tax on Amounts Representing Service Tax and TDS Deducted from Commissions: Findings: - The appellants engaged insurance agents and paid service tax on a reverse charge basis on commissions paid to these agents. - The appellants deducted service tax and TDS from the commission payable to the agents. - The Revenue sought to recover these deducted amounts under Section 73A(2) and Section 73A(3) of the Finance Act, 1994, alleging unauthorized collection of service tax from the agents. Legal Provisions: - Section 68(2) of the Finance Act, 1994, and Rule 2(1)(d) of the Service Tax Rules, 1994, designate the appellants as liable to pay service tax on behalf of the agents. - Section 73A(2) mandates that any amount collected as service tax, which is not required to be collected, must be paid to the credit of the Central Government. Judgment: - The Tribunal found that the appellants correctly discharged service tax on the commission paid to the agents and that recovery of service tax from the agents was a contractual arrangement. - The provisions of Section 73A apply only when service tax is collected but not paid to the government, which was not the case here. - The Tribunal referred to the Supreme Court's decision in Rashtriya Ispat Nigam Ltd. and previous Tribunal decisions in similar cases (e.g., HDFC Standard Life Insurance Co., Bajaj Alliance Life Insurance Co., Max Life Insurance Company Ltd., and Edelweiss Tokio Life Insurance Company Ltd.) to conclude that such tax recovered is not again taxable. - The demand of Rs. 344,39,75,575 was set aside, and the question of interest and penalty did not arise. 2. Liability to Pay Service Tax on Various Expenses Incurred: Submissions: - The appellants argued that expenses incurred for training, business promotion, and pre-recruitment are normal business expenditures and not related to the consideration paid to insurance agents. - Rule 5 and 6 of the Service Tax (Determination of Value) Rules, 2006, were deemed not applicable as the appellants were service recipients and not service providers. - The appellants cited previous Tribunal decisions (e.g., Bajaj Alliance Life Insurance Co., Max Life Insurance Company Ltd., and Edelweiss Tokio Life Insurance Company Ltd.) and the Supreme Court's decision in Intercontinental Consultants & Technocrats Pvt. Ltd., which struck down Rule 5 as ultra vires. Judgment: - The Tribunal agreed that these expenses are business-related and not part of the commission paid to insurance agents. - The Supreme Court in Bhayana Builders clarified that only the gross amount charged for services provided is taxable, not additional business expenses. - The Tribunal held that the expenses incurred by the appellants for training and business promotion are not includable in the taxable value of services provided by the agents. - For the period post-14.05.2015, the explanation to Section 67 includes reimbursable expenses incurred by the service provider and charged to the service recipient. However, in this case, the expenses were incurred by the appellants, not the agents. - The demands based on these expenses were set aside, and the penalties were deemed unsustainable. Conclusion: - The impugned order was set aside, and the appeals were allowed with consequential relief as per law.
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