2018 (12) TMI 1537 - AT - Service Tax

Levy of service tax - remuneration paid to channel partners as brokerage, commission, etc. - recipient of service - reverse charge mechanism - Held that - The extract of a sample agreement entered into between the respondent and the lead generator makes it amply clear that their function is limited to marketing of the product whereas an insurance agent acts in place of the insurance company in so far as the policyholder is concerned. This is not to disclaim the scope of coverage of the service provided by lead generator under any other head of taxable service - The transfer of burden of discharge to the service recipient within section 68 of Finance Act, 1994 is specific and limited without scope for extending beyond the few transactions listed in rule 2(d)(i) of Service Tax Rules, 1994. The Central Board of Excise and Customs, vide instruction no. 137/21/2011-ST dated 15th April 2013, has clarified, in the context of certain levies under Finance Act, 1994, which had a reference to some other laws for the purpose of definition that the scope of such indirect definitions would not extend beyond the specific content of those definitions. It is, therefore, reasonable to surmise that the claim of the Learned Authorised Representative that the Finance Act, 1994 has been aligned entirely with the Insurance Act, 1938 is too farfetched for us to place reliance upon. The service rendered by lead generator is not that of an insurance agent and, consequently, the commission paid by respondent to such entities are not liable to be included in the assessable value of the respondent for discharge of tax liability under Finance Act, 1994 - appeal dismissed - decided against Revenue.

Summary

Issues:
- Challenge to dropping of proceedings against respondent by Revenue
- Tax liability on commission paid to 'Lead generators'
- Interpretation of provisions of Finance Act, 1994 and Insurance Act, 1938
- Application of reverse charge mechanism
- Validity of show cause notice and demand for extended period

Analysis:
1. Challenge to Dropping of Proceedings:
The appeal was filed by Revenue challenging the dropping of proceedings against the respondent, M/s. Reliance Nippon Life Insurance Co. Ltd., for not including commission paid to 'Lead generators' in the assessable value. The impugned order held that tax liability arises only on services rendered by licensed persons under the Insurance Act, 1938, which 'Lead generators' were not. Revenue contended that the respondent attempted to evade service tax by excluding commission paid. The Tribunal analyzed the legislative intent and held that the respondent's actions did not warrant tax liability on the commission paid to 'Lead generators'.

2. Tax Liability on Commission Paid:
The dispute revolved around whether the commission paid to 'Lead generators' should be included in the assessable value for tax liability under the Finance Act, 1994. Revenue argued that all entities in the insurance sector should be covered under the tax provisions, regardless of nomenclature or designation. However, the Tribunal found that 'Lead generators' were not 'insurance agents' based on the definition under the Insurance Act, 1938. The Tribunal concluded that the commission paid to 'Lead generators' was not liable for tax under the Finance Act, 1994.

3. Interpretation of Provisions:
The Tribunal examined the definitions of 'insurance agent' and related terms under the Finance Act, 1994 and the Insurance Act, 1938. It was argued that the 'reverse charge mechanism' for services rendered by insurance agents specifically applied, and 'Lead generators' did not fall under this category. The Tribunal emphasized that the legislative intent did not encompass 'Lead generators' as insurance agents, thus rejecting the imposition of tax liability on the commission paid to them.

4. Application of Reverse Charge Mechanism:
The Tribunal clarified that the tax liability under the reverse charge mechanism applied to insurance agents as defined under the relevant acts. The 'Lead generators' appointed by the respondent did not meet the criteria to be considered as insurance agents, thereby exempting the commission paid to them from tax liability.

5. Validity of Show Cause Notice:
Regarding the validity of the show cause notice and demand for an extended period, the Tribunal noted that the demand for the extended period was beyond the permissible limit as per the relevant provisions. The Tribunal held that the show cause notice, issued after the expiry of the statutory period, was not sustainable, leading to the dismissal of the appeal.

In conclusion, the Tribunal dismissed the appeal by Revenue, upholding the order that the commission paid to 'Lead generators' was not liable for tax under the Finance Act, 1994. The judgment clarified the scope of tax liability in relation to insurance agents and 'Lead generators,' emphasizing the importance of adherence to statutory definitions and provisions in determining tax obligations.