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TMI Blog2018 (4) TMI 1407X X X X Extracts X X X X X X X X Extracts X X X X ..... (Business Support Service). Such charges can at best be called as ‘penal rent’ for retaining the containers beyond the pre-determined period. Therefore, the amount collected as ‘detention charges’ is not chargeable to service tax. The surrender charges are not part of taxable service of management of funds. Rather it is in the nature of penalty or liquidated damages which is not a service and hence cannot be made liable for tax during the period involved - demand cannot sustain. Time limitation - Held that: - the demand is also time barred as the issue involved is of interpretation and therefore no element of suppression, fraud or intention to evade taxes can be made against Appellant - information of surrender charges stands disclosed in books of accounts and also in Balance Sheet as per the directions of IRDA. Hence it is not a case of suppression - extended period not invoked. Appeal allowed - decided in favor of appellant. - Appeal No. ST/85584/2015 - A/85966/2018 - Dated:- 10-4-2018 - Shri Ramesh Nair, Member (Judicial), Shri Raju, Member (Technical) Shri Gopal Mundra, C.A. for Appellant Shri M. Suresh, Deputy Commissioner (A.R) for respondent Per : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eto cannot be liable for service tax. That even if the surrender charges are considered as liquidated damages it is not a consideration towards the provision of service. That if the contention of the revenue that the surrender charges are to recoup the expenses incurred towards procurement and administration of the policy and incidental thereto and that it should be regarded as consideration towards the provision of the services is accepted in that case it has to be accepted that the same are in the form of liquidated damages. The termination of policy by the policy holder causes losses or damages to the Appellant and are mentioned in policy contract and recovered as surrender charges from the policy holder and therefore are in the nature of liquidated damages. It falls under the scope of section 74 of the Contract act. The Recovery of surrender charges are not main source of revenue i.e. provision of ULIP Service but merely compensation against premature termination of a contract in full or in part which was made between the Appellant and policy holder. Even the same is shown as miscellaneous income in their books of accounts and are different from the other charges which are re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice as : to a policy holder, by an insurer carrying on life insurance business, in relation to management of investment, under unit linked insurance business, commonly known as Unit Linked Insurance Plan (ULIP)scheme . Explanation. - For the purposes of this sub-clause, - (i) management of segregated fund of unit linked insurance business by the insurer shall be deemed to be the service provided by the insurer to the policy holder in relation to management of investment under unit linked insurance business; [(ii) the gross amount charged by the insurer from the policy holder for the said service provided or to be provided shall be equal to the difference between, - (a) Premium paid by the policy holder for the Unit Linked Insurance Plant policy; and (b) The sum of premium paid for or attributable to risk cover, whether for life, health or other specified purposes, and the amount segregated for actual investment. (iii) in addition to the amount referred to in clause (ii), the gross amount charged shall include any amount charged subsequently, whether or not periodically, by the insurer from the policy holder in relation to management of inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the above shows that the charges are either in the nature of penalty or liquidated damages or a combination of both. Thus in no way it can be considered as charges towards providing of any services of management of investment under Unit Linked Insurance Plan. Further the surrender value of the policy is always calculated as per the formula which shows as to how the same shall be calculated. In the Guidelines on ULIP we find that Premium Allocation charges, Fund Management charges and policy management charges which are levied towards Management and administration of fund and are capped on the basis of duration where as the surrender charges are charged for surrender of contract i.e surrender of ULIP and are not imposed after 5 years of policy. The clause 2 of Letter Ref : 055/IRDA/Act/ULIP/2009 10 DT.24.09.2009 define it as surrender penalty. We find that the ULIP is primarily a contract between the insurer and insured and thus when seen in the context of Section 73 and 74 of the Contract Act, 1872 what transpires is that surrender of policy is nothing but ending of contract for which compensation in the form of damages which cannot be termed as charges towards management. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t all expenditure or costs incurred by the service provider in the course of providing the taxable service shall be treated as consideration for the taxable service and shall be included in the value for the purpose of charging service tax goes beyond the man date of Section 67 merits acceptance. Section 67 as it stood both before 1-5-2006 and after has been set out here in above. This section quantifies the charge of service tax provided in Section 66, which is the charging section. Section 67, both before and after 1-5-2006 authorises the determination of the value of the taxable service for the purpose of charging service tax under Section 66 as the gross amount charged by the service provider for such service provided or to be provided by him, in a case where the consideration for the service is money. The underlined words i.e. for such service are important in the setting of Sections 66 and 67. The charge of service tax under Section 66 is on the value of taxable services. The taxable services are listed in Section65(105). The service provided by the petitioner falls under clause (g). It is only the value of such service that is to say, the value of the service rendered by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Larger Bench in case of SMALL INDUSTRIES DEV. BANK OF INDIA Vs. COMMR. OF S.T., AHMEDABAD 2015 (38)S.T.R. 666 (Tri. - Ahmd.) and hence present case may also be referred .We are of the view that the issue involved in above case is prepayment of charges to Bank whereas in the present case the issue is absolutely different as the surrender charges of ULIP has got no relation with the service. Thus we are not inclined to accept the suggestion put forth by the Revenue. 7. We also find that the demand is also time barred as the issue involved is of interpretation and therefore no element of suppression, fraud or intention to evade taxes can be made against Appellant. The information of surrender charges stands disclosed in books of accounts and also in Balance Sheet as per the directions of IRDA. Hence it is not a case of suppression. Our views are also based upon the judgment of Hon ble Supreme Court in case of PAHWA CHEMICALS PRIVATE LIMITED Vs. CCE, DELHI 2005 (189) E.L.T.257 (S.C.) and COLLECTOR OF CENTRAL EXCISE Vs. CHEMPHAR DRUGS LINIMENTS 1989 (40) E.L.T. 276 (S.C.) wherein the Hon ble Court has held that mere inaction or failure on the part of the assessee cannot be construe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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