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TMI Blog2019 (6) TMI 104X X X X Extracts X X X X X X X X Extracts X X X X ..... of limitation - Valuation - inclusion of pre-recruitment training expenses, in the value of commission paid. Whether service tax paid by the Appellant in accordance with Rule 2(1)(d)(iii) of Service Tax Rules, 1994 as recipient of Insurance Auxiliary service and then recovered from the service providers i.e. insurance agents is required to be deposited as per Section 73A(2) of Finance Act, 1994? - HELD THAT:- In the present case, the Revenue sought to recover the amount of service tax initially paid by the Appellant, but later passed on the burden under an agreement/arrangement to the insurance agents, while paying their commission for the service received. Neither side raised the issue that the service tax amount paid by the Appellant has been collected in excess from the insurance agents; it is the plea of the Revenue that since the payment of service tax has been cast on the recipient of service by virtue of Rule 2(1)(d)(iii) of Service Tax Rules, 1994, hence, the person liable to discharge service tax should absorb the liability and hence such person is precluded from shifting the burden to the insurance agent. However, in the event he passes on the service tax burden, then he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of service - pre and post training expenses, incurred by the Appellant cannot form part of the value of commission paid to the insurance agents. Thus, the service tax initially paid by the Appellants and later collected from the insurance agents by adjusting the commission paid, cannot be directed to be deposited under Section 73A(2) of Finance Act, 1994 - The expenses incurred in pre-recruitment training and post licence training of insurance agents by the Appellants cannot form part of the gross taxable value of commission paid to the Insurance Agents in determining the service tax liability. Appeal allowed - decided in favor of appellant. X X X X Extracts X X X X X X X X Extracts X X X X ..... 13,56,49,742 u/S 75. ₹ 3,46,453/- u/S 76; ₹ 20,000/- u/S 77; ₹ 1,15,04,450/- u/S 78. 10 ST/86795/2016 OIO No.17-18/STVI/ RK/2015, dt.30.03.2016, passed by CST-VI, Mumbai ₹ 3,25,76,872/- u/S 73(1) appropriating ₹ 46,00,198/- and interest u/S 75 appropriating interest of ₹ 14,48,532 already paid; ₹ 17,22,897/- u/S 73(2) with interest. ₹ 1,54,24,042/- u/S 73(2) with interest u/S 75. ₹ 1,72,290/- u/S 76; ₹ 20,000/ u/S 77; ₹ 3,25,76,872/- u/S 78 11 ST/86796/2016 -do- -do- -do- 2. Out of the eleven Appeals ten are filed by the assessees and one by the Revenue. The facts almost common in all these appeals, are that the Appellants are providing taxable services viz. Insurance Auxiliary Service, Life Insurance Service, Management of Investment under ULIP Business Support Service etc. during the relevant period. The Appellants have appointed various individuals as well as corporate agents (insurance agents) for the purpose of selling Life insurance products marketed by the Appellants. The Appellants pay commission to these agents for providing the said services. Since the services provided by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal amount of 6% collected as Service Tax by the person liable to pay the Service Tax, is required to deposit the same with the Government. Thus, the said sub-section (1) would attract only when the Service Tax collected is in excess of the Service Tax required to be paid under the Finance Act. In the present case, the Service Tax paid by the Appellant is exactly equal to the Service Tax collected from the insurance agent, hence the said provision is not applicable to the present case. In any case, it is his contention that the show cause notice has not demanded duty under sub-section (1) of Section 73 of Finance Act, 1994, the basis of charge rests under sub-section (2) of Section 73 of Finance Act, 1994. (ii) The second situation enumerated in Sub. Sec.(2) of Section 73 of Finance Act,1994 is the amount collected representing as service tax which is not required to be collected. 5. Thus, two key issues are involved in the present case for determination viz. (i) the meaning of the term "Not required to be collected" and (ii) under a reverse charge mechanism, is an assessee barred from contracting to pass the burden of tax. 6. The learned Advocate, advancing his arguments furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... passing on the burden of Service Tax paid by them to the insurance agent. Further, the Service Tax is payable under the reverse charge mechanism, in no manner, affects the aforesaid interpretation. From the Circular dt.21.12.2007 issued by CBEC, it is clear that the liability of payment of service tax has been shifted by Government to the recipient of service as a measure of administrative convenience. Thus, Appellant cannot be asked to bear the burden of tax merely because they are liable to discharge the service tax under reverse charge mechanism. The principle been laid down in Mafatlal Industries and Rashtriya Ispat Nigam Ltd's case (supra), are equally applicable to the payment of Service Tax under reverse charge mechanism. Consequently, passing of burden of service tax by the Appellant to the insurance Agent is appropriate and hence the demand cannot be sustained under Section 73A(2) of Finance Act, 1994. The learned Advocate further submitted that the Tribunal on an identical issue, in the case of HDFC Standard Life Insurance Co. Ltd. Vs. Commr. C.E, Mumbai-II 2017 (49) STR 301(Tri.-Mum.) held that since the amount collected by the assessee from the insurance agent was not i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -recruitment training expenses and post licence training expenses in the value of commission paid by the Appellant to the insurance agents, the learned Advocate has submitted that the insurance agent has been defined under Section 2(10) of Insurance Act, 1938. It is evident that the insurance agent is a person who is licenced under Section 42 of IRDA for the purpose of soliciting business for the appellants. The pre-recruitment training expenses incurred by the Appellant are for recruitment of agents and not in soliciting of business. Every agent is required to undergo training as per Rule 5 of IRDA and cost of prospective agent is borne by the Appellant. Before training, the person is not qualified as an agent, therefore, the expenditure incurred by the Appellant cannot be included in the value of taxable services provided by the agent. In support, he has referred to the judgment of Hon'ble Supreme Court in the case of Bhayana Builders - 2018-TIOL-66-SC-ST. In the said judgement, the Hon'ble Supreme Court has observed that there should be nexus between the service and the amount received. In the present case, the insurance agent provides service of soliciting clients for insurance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Insurance Agents are in fact used by the Appellant itself in furtherance of their insurance business. The agreement with training institutes for training the agents is between the Appellant and the institute only. Insurance agents are beneficiary of such training hence the expenditure incurred for training of insurance agent forms part of normal business expenditure by the Appellant and cannot be included in the consideration received by the insurance agent. It is his contention that the term "consideration" means what is received by the service provider for the taxable service provided by him. Recipient of a service may provide various facilities available for the service provider which can be useful in provision of taxable service, however, such facility provided free does not necessarily form part of the consideration. He has vehemently argued that the Appellants are paying commission to the insurance agent, according to the IRDA norms and not just adjusting the said commission against the expenditure incurred by them for imparting the training to the insurance agents. Thus, the expenditure incurred by the Appellant are for his own business expenditure. In support, he has ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncentive on which the Appellant discharged service tax on reverse charge basis. Therefore, this rule is also not applicable. 16. Further, referring to the judgment of Hon'ble Delhi High Court in the case of Intercontinental Consultants & Technocrats Pvt. Ltd., it is submitted that Rule 5(1) which purports to include expenditure incurred and the cost in the course of providing service has been declared to be ultra vires. The said judgment of Hon'ble Delhi High Court has been upheld by Hon'ble Supreme Court reported in the case of UoI Vs Intercontinental Consultants & Technocrats Pvt. Ltd - 2018-TIOL-76-SC-ST. The Hon'ble Supreme Court has held that only w.e.f. 14.05.2015, the expenditure or cost incurred by the service provider in the course of providing taxable service would also form a part of valuation of taxable service. The learned Advocate further submitted that "any further sum" appearing in Clause (v) of Rule 6 of Service Tax (Determination of Value) Rules, 2006 should be construed to include any amount in the nature of commission, fee applying principle of ejusdem generis, hence, the expenses incurred by the Appellant during the training in the normal course of business n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & Ors - JT 2001 (9) SC 101. Further, he has submitted that the expression 'any person who is liable to pay tax' used in sub-section (1) also applicable to sub-section (2) of Sec. 73A. As the Appellant is registered with Service Tax department and liable to pay service tax for the transaction under reverse charge mechanism basis, only provisions which can be invoked in the present case is Sec.73A(1) of Finance Act, 1994. Referring to Section 3 (42) of General Clauses of Act, 1984, the learned Special Counsel has submitted that it can safely be inferred that "any person" will include insurance company and 'any other person' will include insurance agent regardless of whether they are registered or not with the Service Tax Department. Thus, both registered and unregistered persons be covered under sub-section (2) of Section 73A of Finance Act, 1994. It is settled law that statute has to be interpreted to give it true meaning and not to make it purposeless or nugatory. 21. He has submitted that the provision of sub-section (1) or subsection (2) being mutually exclusive, they cannot be mixed with each other. Sub-section (2) mandates that where any person has collected any amount as se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd Vs. CCE 2006 (4) STR 491(Tri-LB), which dealt with the provisions of Section 11D of Central Excise Act, 1944 have no application with the present proceedings inasmuch as Section 11D does not have the provision identical to Section 73A (2) of Finance Act, 1994. He has further contended that the decision of the Tribunal in Sangam India Ltd. Vs.CCE, Jaipur 2012 (28) STR 627 (T), besides being factually different, follows the Larger Bench decision. Therefore, the said judgement also not applicable to the facts of the present case. Referring to the judgment of Hon'ble Supreme Court in CCE Vs Alnoori Tobacco Products 2004 (170) ELT 135 (SC), the learned Special Counsel has submitted that a judgment cannot be blindly followed and made applicable to a case without proper analysis of the facts. 26. Further, he has submitted that even though there is no doubt that service tax is an indirect tax and the burden can be shifted to ultimate consumer recipient of service, however, the present case is not the case of shifting a burden of tax but it is collection of tax from a person who is not required to pay tax. An assessee cannot ignore mandate of Section 73A(2) of Finance Act, 1994 on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncurred by the appellant on the agents forming part of the value of taxable services. ce. In support, he has referred to the judgment in the case of Nitin Spinners Ltd. Vs. CCE, Jaipur-II 2017 (355) ELT 562(T). 29. The learned A.R. for the Revenue Shri M.K. Sarangi, reiterating the arguments advanced by the learned Special Counsel Shri K.M. Mondal on the issue of applicability of Section 73A of Finance Act, 1994 on the issue of valuation submitted that the Appellant had heavily relied upon the judgment of Hon'ble Supreme Court in the case of Intercontinental Consultant & Technocrats Pvt. Ltd. In the said judgment, Hon'ble Supreme Court was concerned with the fact that any amount not providing "such" taxable service cannot form part of taxable value. The said judgment cannot be made applicable as in the present case it is not relevant to consider inclusion of value of reimbursement, but rather it is a case that what are the input services for providing taxable output service i.e. insurance auxiliary service by the agent. In the present case, if any input service is required for providing output service by the agent, the same is includible in the value. The insurer is liable to pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , hence, any person who has collected any amount representing as service tax, which is not authorised to be collected from any other person, whether he is a service Tax assessee or otherwise, then such person shall forthwith deposit the said collected amount with Central Government. It is the contention of the Revenue that since the circumstances prescribed under subsection (2) of section 73A is not contained under Sec.11D of CEA,1944, hence the principle of law laid down with regard to Sec. 11D is not applicable to the facts of the present case. 33. Before analysing the arguments advanced, it is necessary to have a glimpse on Section 11D of Central Excise Act, 1944, and Section 73A(1) and (2) of Finance Act, 1994 in its form as was in force during the relevant period. The said provisions are reproduced as below:- SECTION 11D. Duties of excise collected from the buyer to be deposited with the Central Government. - (1) Notwithstanding anything to the contrary contained in any order or direction of the Appellate Tribunal or any Court or in any other provision of this Act or the rules made thereunder, every person who is liable to pay duty under this Act or the rules made ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1994 w.e.f. 18.04.2006 reads as under:- "Section 73A. Service tax collected from any person to be deposited with Central Government. - (1) Any person who is liable to pay service tax under the provisions of this Chapter or the rules made thereunder, and has collected any amount in (1) excess of the service tax assessed or determined and paid on any taxable service under the provisions of this Chapter or the rules made thereunder from the recipient of taxable service in any manner as representing service tax, shall forthwith pay the amount so collected to the credit of the Central Government. (2) Where any person who has collected any amount, which is not required to be collected, from any other person, in any manner as representing service tax, such person shall forthwith pay the amount so collected to the credit of the Central Government. (3) Where any amount is required to be paid to the credit of the Central Government under sub-section (1) or sub-section (2) and the same has not been so paid, the Central Excise Officer shall serve, on the person liable to pay such amount, a notice requiring him to show cause why the said amount, as specified in the notice, shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce from insurance agents, the tax assumes the character of direct tax and ought to have been retained by the Appellant instead of shifting the burden to the insurance agents. The learned Special Counsel did not pursue the said finding before us. However, his argument is that the Appellants are not authorised/required to collect the service tax amount from the insurance agent in view of Rule 2(1)(d)(iii) of Service Tax Rules, 1994 as the law requires the Insurer to discharge the service tax, hence, the amount so collected cannot be retained by the Appellant, but to be deposited with the govt. as per sub.-sec.(2) of Sec. 73A. 38. To examine the said argument, it is relevant to read Rule 2(1)(d)(iii), which is as under:- Service Tax Rules, 1994 Rule 2. Definitions - (1) ...... (d) "Person liable for paying service tax" means, - (i) .. (ii) ... (iii) in relation to insurance auxiliary service by an insurance agent, any person carrying on the general insurance business or the life insurance business, as the case may be, in India) 39. Needless to mention, generally it is the economists concepts who classify tax base broadly into direct and indirect one. Income ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the service provider is required to be deposited under Section 73A(2) of Finance Act, 1994. 43. Now, analysing the scheme of relevant provisions prescribed under Section 73A of Finance Act, 1994, it is clear that under subsection (1) any person who is liable to service tax collects any amount in excess of the service tax assessed and paid, then such excess amount ought to be deposited with the Government. Subsection (2) prescribes that any person who collects any amount which is not required to be collected from any other person in any manner, representing service tax, is required to be deposited with the Government. Sub-section (3) empowers the Central Excise officers to issue notice for recovery of amount not deposited with Government. Sub-section (4) authorises the officer to determine the amount payable by the said person and such person will pay the amount so determined. Sub-section (5) prescribes that the amount so paid under Sub-Sec.(1) or Sub-sec. (2) or Sub. Sec (4), shall be adjusted against the service tax payable by the person on finalisation of assessment or any other proceedings for determination of service tax relating to the taxable service referred to in su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy paid the duty at the time of removal. We do not think that there is any foundation for the said understanding or apprehension. There are no words in the section which provide for payment of duty twice over. All that the section says is this : the amount collected by a person/manufacturer from the buyer of goods as representing duty of excise shall be paid over to the State; even if the tax collected by the manufacturer from his purchaser is more than the duty due according to law, the whole amount collected as duty has to be paid over to the State; if on the assessment being made it is found that the duty collected and paid over by the manufacturer is more than the duty due according to law, such surplus amount shall either be credited to the Fund or be paid over to the person who has borne the incidence of such amount in accordance with the provisions of Section 11B. It is obvious that if in a given case, the manufacturer has collected less amount as representing the duty of excise than what is due according to law, he is not relieved of the obligation to pay the full duty according to law. This is the general purport and meaning of Section 11D. These may be case where goods ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis of a mere permission in an agreement that the liability to compensate/reimburse to service tax liability of the service provider, is on the service recipient. A factual finding that a person has collected service tax is a condition precedent for passing an order under Section 73A(2) read with sub-section (4) thereof. Sub-section (4) specifically enjoins that an order should be passed under this provision only after considering the representation, if any, made by the person on whom the notice is served under sub-section (3) and to determine the amount due from such person, not being in excess of the amount specified in the notice. Sub-section (3) of Section 73(A) requires a notice to be issued to show cause why the amount, as specified in the notice, in respect of a liability arising under Section 1 and 2, should not be paid by the Noticee to the credit the Central Government." 46. While dealing with the circumstances at Para 4 i.e. confirmation of the demand for ₹ 4,18,685/- solely on the ground that the said amount must have been paid under the relevant agreement, since the stipulation in the agreement disclosed that service tax element, if payable, is extra, the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... brook any latitude whatsoever and its acceptance by Revenue is amply evidenced by Circular No. 870/8/2008-CX, dated 16th May, 2008 which clarifies that Section 11D of Central Excise Act, 1944 is not liable to be invoked even if the mandated payment for availing Cenvat credit on inputs used in exempt goods is recovered from the buyers of the output goods. That this ratio applies to service tax levy and that recovery of amount already paid would be tantamount to double deposit is enunciated by the Tribunal in Sangam India Ltd. v. Commissioner of Central Excise, Jaipur-II [2012 (28) S.T.R. 627 (Tri.-Del.)]. 10.In Rashtriya Ispat Nigam Ltd. v. Dewn Chand Ram Saran [2012-TIOL- 37-SC-ST = 2012 (26) S.T.R. 289 (S.C.)], the Hon'ble Supreme Court was called upon to decide whether the principal who was, by law, designated as 'assessee' under Section 65 of Finance Act, 1994 could, in enforcing contractual obligations, be allowed to recover the service tax dues paid by it for the services rendered by a contractor and it was held that : As far as '26. the submission of shifting of tax liability is concerned, as observed in paragraph 9 of Laghu Udyog Bharati (supra), service tax is an indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of this Tribunal is sub-silentio, as it did not take into consideration specific provision viz. sub-section (2) of Section 73A of Finance Act, 1994. Opposing the said contention, it was argued by the learned Advocates on behalf of the Appellant that the Tribunal, taking note of the argument at Para 5 of the judgment, about the applicability of Section 73A(2) of the Finance Act, 1994 and parallel provision under Excise Act viz. Section 11D, summarized its findings at Paras 9 to 12 of the judgment. Therefore, it cannot be said that the judgment is not a binding precedent being sub silentio. 49. We find merit in the contention of the learned Advocate for the Appellant. This Tribunal, after analyzing the scheme of sub-section (1) and sub-section (2) of Section 73A, arrived at the finding that any amount if collected in excess only is required to be deposited with the Government. 50. The next issue for consideration is whether the expenditure incurred by the Appellant in providing pre-recruitment and post licence training to the insurance agent be considered as a part of the value of commission paid to the insurance agents. The prerecruitment training expenses are nothing but tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him; (ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money as, with the addition of service tax charged, is equivalent to the consideration; (iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner. (2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged. (3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service. (4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in such manner as may be prescribed. Explanation. - For the purposes of this section, - (a) "consideration" includes any am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n paid to insurance agents in accordance with Rule 67 of Finance Act, 1994 read with Rule 5(1) and Rule 6 of Service Tax (Determination of Value) Rules, 2006. In our view, this issue has been more or less, in the context of inclusion of value of free-issue material in the value of taxable service, has been considered and settled in Bhayana Builders' case (supra) by the Hon'ble Supreme Court. Their Lordships observed as follows:- "12. On a reading of the above definition, it is clear that both prior and after amendment, the value on which service tax is payable has to satisfy the following ingredients : a. Service tax is payable on the gross amount charged :- the words "gross amount" only refers to the entire contract value between the service provider and the service recipient. The word "gross" is only meant to indicate that it is the total amount charged without deduction of any expenses. Merely by use of the word "gross" the Department does not get any jurisdiction to go beyond the contract value to arrive at the value of taxable services. Further, by the use of the word "charged", it is clear that the same refers to the amount billed by the service provider to the service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erials/goods which are supplied by the service recipient, naturally, no amount is received by the service provider/assessee. Though, sub-section (4) of Section 67 states that the value shall be determined in such manner as may be prescribed, however, it is subject to the provisions of sub-sections (1), (2) and (3). Moreover, no such manner is prescribed which includes the value of free goods/material supplied by the service recipient for determination of the gross value. 14. We may note at this stage that Explanation (c) to subsection (4) was relied upon by the learned counsel for the Revenue to buttress the stand taken by the Revenue and we again reproduce the said Explanation herein below in order to understand the contention : "gross amount charges" includes payment by (c) cheque, credit card, deduction from account and any form of payment by issue of credit notes or debit notes and [book adjustment, and any amount credited or debited, as the case may be, to any account, whether called 'suspense account' or by any other name, in the books of account of a person liable to pay service tax, where the transaction of taxable service is with any associated enterprise.]" 15. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t value to arrive at the value of taxable services. The value of taxable services cannot be dependent on the value of goods supplied free of cost by the service recipient. The service recipient can use any quality of goods and the value of such goods can vary significantly. Such a value, has no bearing on the value of services provided by the service recipient. Thus, on first principle itself, a value which is not part of the contract between the service provider and the service recipient has no relevance in the determination of the value of taxable services provided by the service provider." 53. The Hon'ble Supreme Court, while examining the vires of Rule 5(1) of Service Tax (Determination of Value) Rules, 2006, in Intercontinental Consultants & Technocrats Pvt. Ltd case(supra), observed as follows:- "21. Undoubtedly, Rule 5 of the Rules, 2006 brings within its sweep the expenses which are incurred while rendering the service and are reimbursed, that is, for which the service receiver has made the payments to the assessees. As per these Rules, these reimbursable expenses also form part of 'gross amount charged'. Therefore, the core issue is as to whether Section 67 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o lay down the manner in which value of taxable service is to be determined. However, Section 67(4) is expressly made subject to the provisions of sub-section (1). Mandate of sub-section (1) of Section 67 is manifest, as noted above, viz., the service tax is to be paid only on the services actually provided by the service provider." 54. Hon'ble Supreme Court in the above case, at Para 29 of the said judgment has concluded that Clause (a) of Section 67(4) of Finance Act, 1994 which deals with 'consideration' is suitably amended w.e.f. 14.05.2015 to include reimbursable expenditure or cost incurred by the service provider and charged in the course of providing the taxable service. Thus, only w.e.f. 14.05.2015, by virtue of provision of Section 67 itself, such reimbursable expenditure or cost would also form part of the value of taxable service for charging service tax. In other words, prior to 14.05.2015, such expenditure or cost incurred by the assessee in providing taxable service cannot be included in the value of service. Thus in the value commission paid by the Appellant to insurance agents such expenses cannot be included. In other words, pre and post training expenses, incur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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