2024 (7) TMI 1458 - AT - Service Tax

Valuation - Passenger and Third Party Accidental Compensation Policy-2000 - whether the insurance scheme and the surcharge charged by the appellant amounts to premium? - levy of interest and penalty - HELD THAT - According to popular understanding, insurance is a legal agreement between an insurer (insurance company) and an insured (individual), in which an insured receives financial protection from an insurer for the losses he may suffer under specific circumstances. Under an insurance policy, the insured needs to pay regular amount of premiums to the insurer. The insurer pays a predetermined sum assured to the insured if an unfortunate event occurs, such as death of the life insured, or damage to the insured or his property. In the instant case, there is no insurance policy issued by Appellant mentioning any conditions and circumstances under which its passengers are assured for its liability to indemnify in case of any loss. In order to issue an insurance policy, the appellant should have to be licensed with the Insurance Regulatory and Development Authority (IRDA), in order to run business of insurance in India. The IRDA is an autonomous statutory body responsible for managing and regulating insurance re-insurance industry. In the instant case, there is no insurance policy issued by Appellant mentioning any conditions and circumstances under which its passengers are assured for its liability to indemnify in case of any loss. In order to issue an insurance policy, the appellant should have to be licensed with the Insurance Regulatory and Development Authority (IRDA), in order to run business of insurance in India. The IRDA is an autonomous statutory body responsible for managing and regulating insurance re-insurance industry - It has to be noted that such a victim/third party has not paid any amount of such 'surcharge'. Consequently, we hold that for the period prior to 1.7.2012, the accident surcharge collected by the appellant is not in the nature of premium and such activity of the appellant is not covered by the term general insurance , as defined in Section 65(49) of the Finance Act, 1994. Further, the transportation of passengers as stage carriage, was exempted Vide Notification No. 20/2009-ST dated 7th July 2009, for inter-state or intrastate transportation of passengers, excluding tourism, conducted tours, charter or hire service. Hence, no service tax was payable on such service as well. The main service of stage carriage can be provided by the appellant with or without charging accidental compensation surcharge, which is not the case. It has been submitted before us that these two viz, Cost of Ticket Accident surcharge are always charged together. There is no option available to the passenger, to not pay and travel - the service of stage carriage being essential character is the main service offered by the appellant, which is not taxable due to its coverage under negative list u/s 66D of the Finance Act, 1994. As the demand does not survive, no penalty or interest is leviable. The impugned order is set aside - appeal allowed.

Summary

Issues Involved:
1. Whether the "Passenger and Third Party Accidental Compensation Policy-2000" is an insurance scheme and the surcharge charged by the appellant amounts to premium.
2. Whether interest and penalty is leviable for the period.

Issue-wise Detailed Analysis:

1. Whether the "Passenger and Third Party Accidental Compensation Policy-2000" is an insurance scheme and the surcharge charged by the appellant amounts to premium:

The appellant, M/s Rajasthan State Road Transport Corporation, is a state-owned passenger transport organization. They collected an "Accidental Compensation Surcharge" from passengers, which was utilized to pay compensation for accidents involving their vehicles. The Department argued that this surcharge constituted a premium for providing General Insurance Services, making the appellant liable for service tax.

The appellant contended that they were not providing General Insurance Services as they were not registered with the Insurance Regulatory and Development Authority (IRDA) and no insurance policy was issued to passengers. They argued that the surcharge was part of the operational cost and not directly related to any insured value or specific insurance policy.

The Tribunal examined the definitions under the Finance Act, 1994, and the General Insurance Business (Nationalization) Act, 1972. It was noted that for an activity to be considered insurance, there must be a legal agreement with specific conditions and a premium related to an insured value. The surcharge collected by the appellant did not meet these criteria as there was no insurance policy, no correlation between the surcharge and insured value, and no fixed obligation on the appellant. The compensation was determined based on the "Passenger and Third Party Accidental Compensation Policy-2000" or court orders, and it extended to third parties who did not pay the surcharge.

For the period prior to 1.7.2012, the Tribunal concluded that the surcharge was not a premium and the appellant was not providing General Insurance Services. The transportation of passengers was exempt from service tax under Notification No. 20/2009-ST.

For the period post 1.7.2012, the Tribunal noted that the service provided was transportation of passengers, which was exempt under the Mega exemption Notification No. 25/2012-ST. The surcharge was part of the fare and not a separate service. Section 66F(3)(a) of the Finance Act, 1994, was cited, stating that naturally bundled services should be treated as a single service, which in this case was transportation.

2. Whether interest and penalty is leviable for the period:

The Tribunal held that since the demand for service tax did not survive, no interest or penalty was leviable. The appellant had not provided any taxable service and had not contravened any provisions of the Act or Rules. The collection of the surcharge was integral to the transportation service and not a separate insurance service.

Conclusion:

The Tribunal set aside the impugned order, ruling that the appellant was not liable for service tax on the "Accidental Compensation Surcharge." Consequently, no interest or penalty was applicable. The appeal and the miscellaneous application were allowed.