2023 (2) TMI 1093 - AT - Service Tax

Denial of CENVAT Credit - Out of the premium collected from the buyer of the motor car/vehicle, a portion thereof is paid by the appellant to the automotive dealer as a commission - on the basis of the invoices issued by the automotive dealer and the service tax paid by the automotive dealer to the government, the appellant had availed CENVAT credit - HELD THAT - In this case, it is an undisputed facts that the automotive dealers had paid service tax on the nature of services described in the invoices issued to the appellant; that payment of service tax by such dealers have been accepted by the service tax authorities having jurisdiction over their business premises. Since, the service tax paid by such dealers was availed as Cenvat credit by the appellant, availment of such credit is in conformity with the Cenvat statute. In an identical case, Cenvat credit was denied by the Department, holding that the invoices issued by the automotive dealers are false/fraudulent/invalid, since no service of the description contained therein was rendered by the auto dealer. The dispute was resolved by the co-ordinate Bench of the Tribunal in the case of M/S. CHOLAMANDALAM MS GENERAL INSURANCE CO. LTD. VERSUS THE COMMISSIONER OF G.S.T. CENTRAL EXCISE, CHENNAI 2021 (3) TMI 24 - CESTAT CHENNAI , holding that since the service tax was paid by the auto dealer, under the taxable head of Business Auxiliary Service and the assessment of auto dealer has not been re-opened or questioned, credit availed cannot be denied to the insurance company. The regulatory authority namely, Insurance Regulatory Development Authority (IRDA) has also clarified the correct position in the letter dated 12.08.2015 addressed to the Chairman, CBEC. Such clarification furnished by the Regulatory Authority regarding the procedures followed for outsourcing non-core services of the automotive/automobile dealers, is binding on the Revenue. - thus, the law is well settled that when a competent authority has issued an opinion on a particular matter, the same shall be binding and cannot be questioned by the other agencies. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Interpretation of service tax liability on insurance services provided through automotive dealers; Denial of Cenvat credit based on invoices issued by automotive dealers; Legality of commission payment by the insurance company to automotive dealers under the Insurance Act, 1938.

Analysis:

Issue 1: Interpretation of service tax liability on insurance services provided through automotive dealers
The case involved an appellant, a general insurance company providing insurance services for automobiles through automotive dealers. The appellant registered with the service tax department as a service provider and recipient. The dispute arose when the Department sought to deny Cenvat credit availed by the appellant based on the service tax paid by automotive dealers. The Tribunal examined the nature of services described in the invoices issued by the dealers and confirmed that the service tax paid was accepted by the authorities. The Tribunal referred to previous judgments to establish that once the tax liability is discharged and accepted by the Department, the recipient is entitled to avail Cenvat credit, even if the description of services in the invoices is questioned.

Issue 2: Denial of Cenvat credit based on invoices issued by automotive dealers
The Tribunal addressed the contention that the invoices issued by automotive dealers were false, fraudulent, or invalid, leading to the denial of Cenvat credit. Relying on precedents and the judgment of the Supreme Court, the Tribunal emphasized that as long as the tax liability was discharged and accepted by the Department, the recipient of the services, in this case, the insurance company, cannot be denied the Cenvat credit. The Tribunal highlighted the importance of upholding the credit availed by the appellant based on the tax paid by the dealers.

Issue 3: Legality of commission payment by the insurance company to automotive dealers under the Insurance Act, 1938
The Tribunal examined the legality of the commission payment made by the insurance company to automotive dealers under Section 40 of the Insurance Act, 1938. The Original Authority held that such payments were illegal, but the Tribunal disagreed. It considered the undisputed receipt of tax by the Government from the dealers and the clarification provided by the Insurance Regulatory Development Authority (IRDA) regarding the procedures followed for outsourcing non-core services by automotive dealers. The Tribunal concluded that the regulatory authority's opinion is binding, and the payment of commission, as recorded by the dealers, does not affect the eligibility of the insurance company to avail Cenvat credit.

In conclusion, the Tribunal set aside the impugned order, allowing the appeal in favor of the appellant, emphasizing the legality of availing Cenvat credit based on the tax paid by automotive dealers and the regulatory authority's clarification regarding commission payments.