Custom, Excise & Service Tax Tribunal
Hdfc Standard Life Insurance Co. Ltd vs Mumbai Ii on 13 April, 2016
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
APPEAL NO: ST/86000/2015
[Arising out of Order-in- Original No: 5/ST/RN/Commr/M-II/14-15 dated 30/01/2015 passed by the Principal Commissioner of Central Excise, Mumbai II.]
For approval and signature:
Honble Shri M V Ravindran, Member (Judicial)
Honble Shri C J Mathew, Member (Technical)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
:
No
2.
Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
:
No
3.
Whether Their Lordships wish to see the fair copy of the Order?
:
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
:
Yes
HDFC Standard Life Insurance Co. Ltd.
Appellant
versus
Commissioner of Central Excise
Mumbai II
Respondent
Appearance:
Shri V. Sridharan, Sr. Advocate with Shri S.S. Gupta, Chartered Accountant for the appellant Shri V.K. Singh, Special (AR) for the respondent CORAM:
Honble Shri M V Ravindran, Member (Judicial) Honble Shri C J Mathew, Member (Technical) Date of hearing: 13/04/2016 Date of decision: 13/04/2016 ORDER NO: ____________________________ Per: C J Mathew:
Appellant, M/s HDFC Standard Life Insurance Company Ltd, registered as per rule 4 of Service Tax Rules, 1994 as provider of a number of services, operates through a number of agents and are registered as assessee for discharge of tax on insurance auxiliary service under section 65 (105) (zy) of Finance Act, 1994 in accordance with the definition of person liable to pay tax in rule 2 of Service Tax Rules, 1994; the present dispute before us is on the demand of the amount of that tax which has, allegedly, been recovered by the appellant from the agents. Service tax authorities, pointing to the particular clause in the agreements of the appellants with their agents, proceeded on the premise that such reimbursements were collection of tax in excess that, under section 73A of Finance Act, 1994, is required to be credited to the Central Government. The impugned order held that ` 93,83,99,657/- reimbursed by agents of the appellant towards the service tax liability that devolved on the appellant between April 2006 and September 2013 was to be recovered.
2. The adjudicating authority, Commissioner of Central Excise Mumbai II, notes that non-corporate agents of the appellant were, under agreement, compelled to remit 60.3 % of the tax liability on agents commission to the appellant and that the notice for recovery has invoked section 73A92) of Finance Act, 1994. Impugned order-in-original no. 5/ST/RN/Commr/M-II/14-15 dated 30th January 2015 draws upon the specific insertion in section 73A of Finance Act, 1994 that does not find expression in the pari materia section 11D of Central Excise Act, 1944, the definition of person liable to pay tax in rule 2(1)(d)(iii) of Service Tax Rules, 1994 when insurance auxiliary services are rendered, rule 4A of Service Tax Rules, 1994 which prescribes inclusion of the tax amount, rule 3(1) of CENVAT Credit Rules, 2004 permitting credit of tax paid on any input or input service received by the provider of output service, rule 4(7) of CENVAT Credit Rules, 2004 that requires the value of input service and tax thereon to be paid as a pre-requisite for availing credit, and fourth proviso to the aforesaid sub-rule to hold that 20.3 In normal course, the amount of service tax indicated on the invoice (issued by the provider of service) is paid by the recipient of service to the provider of service and the provider of service pays tax to the government. In cases where the recipient of service has recovered part of the tax recoverable from the provider of service (insurance agent here), it cannot be said that full payment of service tax payable is made to the provider of service. In normal cases, the payment of service tax is also made by the recipient of service to the provider of service. In cases of tax liability o reverse charge method of paying the service tax payable to the government by the recipient of service, it is deemed that the recipient of service has made the payment of service tax to the provider. Instead of the provider of service paying the tax to the government, the recipient of service has paid the tax to the government (in a way, on behalf of or instead of the provider of service). This Is the general arrangement of payment of service tax.
20.4 The above provisions indicate that M/s HDFCSLICL is not supposed to collect any amount of service tax from the provider of service, namely, the insurance agent and if they do so, to that extent they are not eligible for availing CENVAT Credit also. Looked from either perspective of CDENVAT Credit Rules or from the perspective of service tax Credit (sic) Rules, the recipient of service is required to deposit the service tax if he has collected any amount from any person which he is not required to collect. The collection of amount of service tax from the provider of service by the recipient would negate the very principle of indirect taxation where the provider of service collects the tax from the recipient of service and pays to the government i.e. the incidence of tax is passed on to the recipient of service by the provider of service. Therefore, the provisions of Section 73 A(2) should cover the situation involved in the current case where the recipient has, instead of paying the service tax from his own pocket has recover4ed a part of the amount from the provider of service representing as service tax. Therefore, he is required to deposit the same to the government in terms of section 73 A (2) of the Finance Act, 1944.
The case law cited by the assessee pertaining to Section 11D of the Central Excise Act are not applicable to the case in hand as there is no provision in Section 11D of Central Excise Act equivalent to Section 73A(2) of Finance Act, 1994 The findings supra by the adjudicating authority appear to stem from the provisions cited in the impugned order.
3. One of the foundations of the finding is that section 73A(2) of Finance Act is a unique and unparalleled provision that does not admit to the binding precedent of decisions rendered in disputes arising from implementation of section 11D of Central Excise Act, 1944. Yet, in defence of the impugned order, Mr VK Singh, Special Counsel appearing for the respondent-Commissioner, relies upon the decisions of the Tribunal in Vimal Moulders (I) Ltd v. Commissioner of Central Excise, New Delhi [2004 (164) ELT 302 (Tri-Del)], Katralla Products Pvt Ltd v Commissioner of Central Excise, Coimbatore [2008 (227) ELT 563 (Tri-Chennai)], Indian Oil Corporation Ltd v. Commissioner of Central Excise, Vadodara [20111 (263) ELT 698 (Tri-Ahmd)] and GTC Industries Ltd v. Commissioner of Central Excise, Vadodara [2004 (176) ELT 728 (Tri-Del)]. We find it difficult to attune ourselves to these apparently contradictory perspectives that appear to have guided the Commissioner and his authorised representative.
4. The adjudicating Commissioner bases the recovery order on the premise that liability to bear the incidence of tax is also mandated upon the person liable to pay the tax as a special measure for a purpose that the lawmakers had in mind. As to that purpose, it must be considered our good fortune that the adjudicating authority has, in his forays into the applicability of the principles of indirect taxation, wisely refrained from speculating upon. It is not anybodys case that the tax system compels the person liable to pay tax, whether in normal circumstances or on reverse charge, to pass on the incidence of tax. Conversely, the burden of incidence is not compelled on the person liable to pay the tax. That, in the absence of a specific provision in the tax law, is beyond the jurisdictional competence of the tax collector. It is certainly to the good that tax administrators study and comprehend the principles that should govern indirect taxation but such principles can neither substitute for nor govern interpretation of the taxing provision. Tax can be collected only in accordance with the law and it is that law which must be invoked in effecting recovery.
5. It is the contention of Mr V Sridharan, learned Senior Advocate, that the adjudicating authority has erred in invoking section 73A (2) of Finance Act, 1994 for, according to him, the first and second sub-rules are mutually exclusive in so far as the objects of their respective attentions are concerned. With the obligation in the first sub-rule restricted to a person liable to pay service tax and such liability to be fastened upon the persons so described in the Chapter, or any Rules made thereunder, an obligation in another sub-rule of the same provision covering any person cannot have been intended by the sovereign legislature to apply to the specified person in the first sub-rule. This proposition cannot but be considered favourably, and particularly, in the context of the observation of the adjudicating Commissioner that a parallel provision is not found in section 11D of the Central Excise Act, 1944. Considering the peculiarity of service tax as a destination-based tax with taxability as the determinant of status as assessee, situations of providers of non-taxable services, in ignorance or otherwise, collecting tax from recipients of service is not a possibility that can be ruled out. Such a possibility is remote in a transaction in goods. With the appellant being an assessee or person liable to pay service tax, excess collection, if any, is recoverable by invoking section 73A (1) of Finance Act, 1994.
6. That being so, the decisions cited by Mr VK Singh may not be entirely without relevance in determining the extent to which section 73A of Finance Act, 1994 can be resorted to by tax authorities. We note that the cited decisions address the issue of duties having been collected in excess of that deposited in the credit of Central Government by the manufacturing entities in each of these cases. We are not entirely sure if the facts in the dispute before us is one of collection of tax in excess of that deposited to the credit of the Central Government. To end that uncertainty, we turn to the transactions that were impugned before the adjudicating Commissioner.
7. That the appellant has received the taxable insurance auxiliary service from its agents in the pursuit of its objective of rendering output life insurance service and discharges tax liability as provider of service as well as on reverse charge basis on the value of input services is not in dispute. The appellant who pays commission to its agents, under agreement, also withholds 60.3% of the tax so paid on reverse charge basis and, thus, in effect recovers a portion of the tax liability from the service provider. We have not been informed if, in accordance with normal business practice, the provider of service raises an invoice for the commission amount but, even if it was issued, it is moot that the invoice would incorporate the tax amount considering that the insurance agent is not required to credit the tax to the Central Government - a responsibility devolving on the appellant as recipient of the service under the special provision of empowerment in proviso to section 68(2) of Finance Act, 1994. Even if it did, the amount so indicated would, as per the agreement for partial contribution, be less than the amount credited to the Central Government. For that reason the cited decisions do not sustain the recourse to recovery in the impugned order.
8. Learned Senior Advocate drew our attention to the pellucid meaning and purpose of section 11D of Central Excise Act, 1944 assigned by their Lordships in Mafatlal Industries Ltd v. Union of India [1997 (89) ELT 247 (SC)] thus:
97.?It was contended by the learned counsel for the appellants-petitioners that Section 11D provides for double taxation. It was contended that sub-section (1) of Section 11D makes the manufacturer liable to pay duty which he collects from the buyer as part of the price of goods even where the manufacturer has already 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 are removed/cleared without effecting their sale. In such a case, Section 11D is not attracted. It is attracted only when goods are sold. The purport of this section is in accord with Section 11B and cannot be faulted. xxxxxxxx 133 Section 11D requires clarification. Excise duty is, ordinarily paid or payable at the time of clearance of the goods. The sale of the goods may be later. So, if excise duty due is already paid by the manufacturer, and later collected by him when the goods are sold, such collection, need not be paid to the Government. Only if the duty has not been paid already or if any excess is collected over and above the duty already paid, then only an occasion arises for payment of the duty collected or excess collected and this is the purport of Section 11D. The said section (Section 11D) should be understood in the above practical and business sense. In Unison Metals Ltd v. Commissioner of Central Excise, Ahmedabad I [2006 (4) STR 491 (Tri-LB)], a Larger Bench of this Tribunal, citing this decision, came to the conclusion that:
9.?The scheme of Central Excise duty payment is that a manufacturer removed goods from the factory of production after payment of duty. While selling the goods, the manufacturer recovered the duty so paid. In doing so, an assessee is recouping the tax already paid. The arrangement is not that the assessee first collected the tax from the buyer of the goods and then remits the amount to the government. Section 11D has to be read keeping this scheme in view. Therefore, the provisions for every person who is liable to pay duty........ and has collected any amount from the buyer of any goods in any manner representing as duty of excise, shall forthwith pay the amount so collected to the credit to the Central Government has application only when equivalent duty had not been deposited at the time of removal of the goods. The scheme of the law is that manufacturers shall not collect amounts falsely representing them as central excise duty and retain them, thus, unjustly, benefiting themselves. In the present cases, (irrespective of whether the 8% payments were duty or not) since the 8% amount remain already paid to the revenue, and no amount is retained by the assessee, Section 11D has no application.
9. In service tax levy, too, the person liable to pay the tax is required to deposit the tax amount irrespective of the quantum or stage of recovery from the person who bears the burden of tax. There is a distinct dichotomy, in both Central Excise Act, 1944 and Finance Act, 1994, of the obligation to credit the tax with Central Government and the recovery of the amount from the other person. And that is a dichotomy that does not 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) STR 627 (Tri-Del)].
10. In Rashtriya Ispat Nigam Ltd v. Dewn Chand Ram Saran [2012-TIOL-37-SC-ST], the Honble 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:
26.?As far as the submission of shifting of tax liability is concerned, as observed in paragraph 9 of Laghu Udyog Bharati (supra), service tax is an indirect tax, and it is possible that it may be passed on. Therefore, an assessee can certainly enter into a contract to shift its liability of service tax. Though the appellant became the assessee due to amendment of 2000, his position is exactly the same as in respect of Sales Tax, where the seller is the assessee, and is liable to pay Sales Tax to the tax authorities, but it is open to the seller, under his contract with the buyer, to recover the Sales Tax from the buyer, and to pass on the tax burden to him. Therefore, though there is no difficulty in accepting that after the amendment of 2000 the liability to pay the service tax is on the appellant as the assessee, the liability arose out of the services rendered by the respondent to the appellant, and that too prior to this amendment when the liability was on the service provider. The provisions concerning service tax are relevant only as between the appellant as an assessee under the statute and the tax authorities. This statutory provision can be of no relevance to determine the rights and liabilities between the appellant and the respondent as agreed in the contract between two of them. There was nothing in law to prevent the appellant from entering into an agreement with the respondent handling contractor that the burden of any tax arising out of obligations of the respondent under the contract would be borne by the respondent.
11. The contractual obligation to reimburse the tax paid by the person designated to do so by law is, thus, not tax collected in any manner warranting recourse to section 73A of Finance Act, 1994
12. The appellant has paid the tax on commission paid to agents on reverse charge basis and appellant is, under CENVAT Credit Rules, 2004, entitled to take credit of such tax paid. Contribution, partial or entire, to the tax liability in an agreement with the provider of the service is not forbidden by law. To the extent that the contributor has not ventured to avail credit of such contributions, there is no detriment to public revenue. And to the extent that the appellant has not deprived the provider of the service of any amount in excess of the tax deposited by the appellant, there can be no substance to the allegation that appellant has contravened section 73A of Finance Act, 1994.
13. The appeal is allowed and impugned order is set aside.
(Pronounced in Court) (M V Ravindran) Member (Judicial) (C J Mathew) Member (Technical) */as 13