2024 (6) TMI 851 - AT - Service Tax

Classification of services - Business Support Services or not - KVB had collected certain charges being the cost of reimbursement received from insurance companies for the supply of infrastructure like table chair, network, electricity, telephone, etc, to the personal of M/s Bajaj Alliance and M/s Sun Life Insurance for providing insurance service - interest - penalties - extended period of limitation. Classification of services - HELD THAT - As per section 182 of the Indian Contract Act, 1872 an 'agent' is a person employed to do any act for another, or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the 'principal' - Agency in law connotes the relation which exists where one person has an authority or capacity to create legal relations between a person occupying the position of principal, and third parties. The actions of the appellant have not been shown to create any legal relations between the principal (insurance companies) and third parties. In fact the activities of the appellant mentioned above are other than that of selling insurance policy independently on behalf of the insurance companies and are limited to providing business support to the insurance companies and are correctly classifiable under the category of Business Support Services under section 65(104c) of FA 1994. Hence their appeal must fail. Interest - HELD THAT - Once duty is paid belatedly, interest become payable automatically. Hence the payment of interest demanded under section 75 of FA 1994 cannot be faulted. Penalties - HELD THAT - Once the matter was within the knowledge of the department leading to the issue of an earlier SCN, the question of suppression of information with intention to evade payment of duty leading to equal penalty will not arise on the same facts, in the subsequent SCNs. Hence the penalty under section 78 of FA 1994 merits to be dropped and is so ordered - the penalty imposed under section 77 of FA 1994 alone upheld. Extended period of Limitation - HELD THAT - The demand for duty is also restricted to the normal period, as it is found that a case of suppression of information with intention to evade duty has not been made out. The impugned orders are upheld and the appeals fail except with respect to penalties that have been modified above - appeal disposed off.

Summary

Issues Involved:
1. Classification of services provided by the appellant.
2. Liability to pay service tax on reimbursed expenses.
3. Applicability of interest and penalties.

Summary:

1. Classification of Services Provided by the Appellant:
The appellant, M/s Karur Vysya Bank Limited (KVB), provided infrastructure support to insurance companies, which the department classified as 'Business Support Services' u/s 65(104c) of the Finance Act, 1994. The appellant argued that these services were part of their role as corporate agents, falling under 'Insurance Auxiliary Service' u/s 65(55) of FA 1994, and thus not liable for service tax. However, the Tribunal found that the appellant's activities, such as providing office facilities and conducting marketing initiatives, were distinct from selling insurance policies and did not establish a principal-agent relationship. Therefore, these activities were correctly classified as 'Business Support Services'.

2. Liability to Pay Service Tax on Reimbursed Expenses:
The appellant claimed that reimbursed expenses from insurance companies should not be taxed, referencing the Supreme Court judgment in Union of India vs Intercontinental Consultants and Technocrats Private Limited. The Tribunal rejected this argument, stating that the payments received were for contractual obligations and constituted the gross value of taxable services. The Tribunal emphasized that merely labeling an amount as reimbursement does not exempt it from service tax unless it is clear that the expenses were incurred on behalf of the insurance companies outside the agreement.

3. Applicability of Interest and Penalties:
The Tribunal upheld the demand for interest u/s 75 of FA 1994, as interest is payable automatically on belated duty payments. However, penalties u/s 78 were set aside due to the absence of suppression of information with intent to evade duty, as the matter was already known to the department from an earlier show cause notice. The penalty u/s 76 was also set aside for uniformity, following the lower authority's decision in a related case. The penalty u/s 77 was upheld, and the demand for duty was restricted to the normal period.

Conclusion:
The Tribunal upheld the classification of services as 'Business Support Services' and the demand for service tax on reimbursed expenses. Interest on delayed payments was confirmed, but penalties were modified. The appeals were disposed of accordingly, with the appellant eligible for consequential relief as per law.