2022 (10) TMI 59 - AT - Service Tax

Levy of service tax - life insurance service - non-compete fees - exclusivity bonus - It is the contention of the tax authorities that non-compete fee and exclusivity bonus paid to agents from 2007 to 2011 was not consideration for such forbearance as the agents were not working exclusively for them and, hence, was commission, and liable to tax - reverse charge mechanism. HELD THAT - The right of a disputant to carry decisions of the Tribunal to the next level in the appellate hierarchy embodied in the tax statute is not to be detracted from but the mere filing of an appeal does not alter the authority of the order so impugned unless it be stayed or until it be overruled. As an adjudicating authority, expected to be compliant with judicial discipline, the correct approach on his part cannot be faulted. Nor has Learned Authorized Representative been able to adduce any decision to the contrary. Demands under section 73(1) of Finance Act, 1994 - HELD THAT - The recovery has been fastened on appellant-assessee on the premise that these are, in reality, commission for executing sales of policy and, with subterfuge, transferred to provider of service to overcome the regulatory stipulations on payment to their agents. Effectively, it is averred that this is commission paid outside the pale of law but, notwithstanding the egregiousness, discharge of tax liability by the assessee in accordance with reverse charge mechanism would suffice for tax authorities to turn a Nelson s eye to this breach; in other words, compliance with the law of the land is not mandatory as long as the exchequer s pound of flesh is parted with - The proper course of action available to tax authorities was to bring this alleged breach to the attention of the regulator but with that tax kitty may have been that much poorer. Levy of service tax - payments admittedly made to M/s ICICI Bank and M/s ICICI Securities towards display of publicity materials, enhancing customer awareness and obtaining customer feedback - period from July 2012 to March 2014 - HELD THAT - It is on record that the assessee had produced evidence of tax payment by M/s ICICI Bank and M/s ICICI Securities for the various activities undertaken by them at their behest. The said invoices were not discarded but the tax discharge indicated therein were found to be incompatible for not having been discharged by the assessee - the attempt to foist levy afresh on the assessee-appellant does meet the test of law and must be set aside. The appeal of Revenue fails and the dropping of demand in the impugned order is upheld. The recoveries confirmed under section 73 of Finance Act, 1994 and demand on payments made to M/s India Infoline Insurance Services Ltd towards rewards and recognition and towards market support/administration support are set aside and the dispute remanded to enable the adjudicating authority to decide afresh after considering the submissions of the assessee-appellant - Appeal disposed off.

Summary

Issues Involved:
1. Taxability of 'non-compete fee' and 'exclusivity bonus' paid to agents.
2. Taxability of 'reward and recognition' and 'market support and administrative support' payments.
3. Recovery of tax under the 'reverse charge mechanism.'
4. Revision of classification at the receiving end and 'nomenclature neutrality.'

Issue-wise Detailed Analysis:

1. Taxability of 'Non-Compete Fee' and 'Exclusivity Bonus':
M/s ICICI Prudential Life Insurance Co Ltd argued that payments made to agents from 2007 to 2011, labeled as 'non-compete fee' and 'exclusivity bonus,' were not commissions. The tax authorities contended these payments were commissions and thus taxable. The Tribunal noted that similar issues had been resolved in previous cases, such as Sargam Retails Pvt Ltd v. Commissioner of Central Excise, Nashik, and Jamna Auto Industries Ltd v. Commissioner of Central Excise, Indore, which were not considered by the adjudicating authority. Consequently, the Tribunal remanded this issue for reconsideration in light of these decisions.

2. Taxability of 'Reward and Recognition' and 'Market Support and Administrative Support' Payments:
The adjudicating authority confirmed demands on payments made to M/s India Infoline Insurance Services Ltd and other entities, labeling them as 'hidden commissions.' The Tribunal found that the adjudicating authority did not adequately consider the evidence provided by the assessee, particularly regarding the period after October 2008 when M/s India Infoline ceased to be agents. The Tribunal remanded this issue for fresh adjudication, emphasizing the need to consider the evidence and submissions of the assessee.

3. Recovery of Tax under the 'Reverse Charge Mechanism':
The Tribunal addressed the issue of tax recovery under the 'reverse charge mechanism,' where the assessee was accused of recovering tax from agents and not depositing it with the exchequer. The Tribunal referenced the case of HDFC Standard Life Insurance Co Ltd v. Commissioner of Central Excise, Mumbai, and other similar cases to conclude that the recovery order was not sustainable. The Tribunal emphasized that the contractual obligation to reimburse tax paid by the designated person did not warrant recourse to Section 73A of the Finance Act, 1994. Consequently, the Tribunal dismissed the Revenue's appeal on this issue.

4. Revision of Classification at the Receiving End and 'Nomenclature Neutrality':
The Tribunal considered the decisions of the Hon'ble Supreme Court and the Tribunal in cases such as Sarvesh Refractories (P) Ltd v. Commissioner of Central Excise & Customs and Katrina R Turcotte v. Commissioner of Service Tax, Mumbai, which held that revision of classification at the receiving end is not authorized by law. The Tribunal found that the assessee had provided evidence of tax payment by M/s ICICI Bank and M/s ICICI Securities, and the adjudicating authority had inappropriately disregarded this evidence. The Tribunal set aside the attempt to levy tax afresh on the assessee, emphasizing conformity with established legal principles.

Conclusion:
The Tribunal upheld the dropping of certain demands in the impugned order, dismissed the Revenue's appeal, and remanded specific issues for fresh adjudication. The Tribunal emphasized the need for the adjudicating authority to consider the submissions and evidence provided by the assessee in accordance with established legal principles. The appeals were disposed of on these terms.