2019 (1) TMI 723 - AT - Service Tax

Demand of Service Tax - Banking and Financial services - business auxiliary services - interest income from hire purchase/activities - commission received from Insurance Company for canvassing their policies - commission which they received from various vendors of the consumer durables etc. - time limitation - penalty. Banking and Financial services - interest income from hire purchase/activities - Held that - In this case as it is evident from the arrangement with the government employees and their offices the ownership of the goods lies with the appellants and gets transferred to the employee only after he pays all the hire charges and thereafter pays a transfer fee of rupee one. Therefore the activity undertaken by the appellant is clearly hire purchase and not hire purchase finance and is exigible to service tax during the relevant period - however the service tax can be levied only on the hire purchase charges excluding the interest element for the period post 10.09.2004. For the period prior to 10.09.2004 the service tax is payable including the interest element. Banking and Financial services - commission received from Insurance Company for canvassing their policies - Held that - The appellant received commission from the insurance companies for promoting their products and thus acted as their agent. Therefore this falls under the category of insurance auxiliary service which was chargeable under reverse charge mechanism during the relevant period and the service tax has to be collected on it from the insurance company and not from the agent. Therefore the demands on this count need to be dropped - demand set aside. Business auxiliary services - commission which they received from various vendors of the consumer durables etc. - Held that - Such commissions were exempted vide Notification No. 13/2003-ST until 09.07.2004 and service tax is chargeable thereafter along with interest. Time Limitation - Held that - The appellants have not declared the value of the services to the department in their returns. Therefore they suppressed the value of taxable services from the department - the extended period of limitation can be invoked in this case. Penalties - Held that - Cnsidering that the appellant is public sector undertaking it is found that they may not have had a malafide intention of evade service tax. Hence invoking Section 80 the penalties imposed on the appellant is set aside. Appeal disposed off.

Summary

Issues Involved:
1. Service tax on interest income from hire purchase activities under Banking and Financial services.
2. Service tax on commission received from insurance companies under Banking and Financial services.
3. Service tax on commission received from various vendors under Business Auxiliary services.
4. Imposition of penalties.

Detailed Analysis:

Issue 1: Service tax on interest income from hire purchase activities under Banking and Financial services

The appellant, a State Government undertaking, argued that their activities were hire purchase finance activities and not hire purchase activities, which were not leviable to service tax. The appellant cited a previous judgment where it was held that their activities were hire purchase finance activities. They also argued that a major portion of the alleged taxable value was interest, which was not taxable as per Section 67 of the Act at the material time.

The Tribunal upheld that the appellant's activities were indeed hire purchase and not hire purchase finance, based on the ownership of goods transferring only after all installments were paid and a transfer fee was submitted. This was in line with the Supreme Court's decision in the case of Bajaj Auto Finance Ltd. The Tribunal also noted that interest on loans was excluded from taxable value post-10.09.2004, as clarified by CBEC, and thus service tax could only be levied on hire purchase charges excluding the interest element for the period post-10.09.2004. For the period prior to this date, the service tax was payable including the interest element.

Issue 2: Service tax on commission received from insurance companies under Banking and Financial services

The appellant received commissions from insurance companies for promoting their products, which they argued fell under 'insurance auxiliary service' and should be taxed under the reverse charge mechanism. The Tribunal agreed, noting that the service tax should be collected from the insurance company and not the agent. Therefore, the demands on this count were dropped.

Issue 3: Service tax on commission received from various vendors under Business Auxiliary services

The appellant received commissions from vendors for promoting sales of goods, which were exempted from service tax under Notification No. 13/2003-ST until 09.07.2004. The Tribunal upheld that the service tax is chargeable post-09.07.2004 along with interest. The Tribunal also held that the extended period of limitation could be invoked as the appellant had not declared the value of services in their returns, thus suppressing the value of taxable services from the department.

Issue 4: Imposition of penalties

Considering that the appellant is a public sector undertaking, the Tribunal found no malafide intention to evade service tax. Invoking Section 80, the Tribunal set aside the penalties imposed on the appellant.

Conclusion:
a) The demand of service tax on hire purchase activities is upheld, excluding the interest portion post-10.09.2004 and including the interest prior to this date.
b) The demand of service tax on commission received from vendors is upheld post-09.07.2004, and the demand for the period prior to this date is set aside.
c) The demand of service tax on commission received from insurance companies is set aside.
d) The demand of interest on the above demands is upheld.
e) Penalties imposed on the appellants are set aside.

The appeal was disposed of as indicated above.