Custom, Excise & Service Tax Tribunal
Kotak Mahindra Old Mutual Life ... vs Commr Service Tax- Vi Mumbai on 31 May, 2019
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
MUMBAI
REGIONAL BENCH - COURT NO.1
Appeal No.ST/88681/2014
[Arising out of Order-in-Original No.PUN-EXCUS-003-COM-010-14-15,
dt.30.05.2014 , passed by the CCE & ST Pune-III]
M/s Bajaj Allianz Life Insurance Co. Ltd ......Appellant
G.E. Plaza, Ground Floor, Air Port Road, Yerwada,
Pune 411006
VERSUS
Commissioner of C.E. & S.T., Pune-III ......Respondent
41-A, ICE House, Sasoon Road,
Pune 411 001
WITH
SN Appeal No. Appellant Respondent
1 ST/85443/2016 Bajaj Allianz Life Insurance C.S.T., Pune-I
Co. Ltd
2 ST/85829/2016 C.S.T., Pune-I Bajaj Allianz Life
Insurance Co. Ltd
3 ST/86236/2016 Bajaj Allianz Life Insurance C.S.T., Pune-I
Co Ltd
4 ST/90151/2014 Tata AIA Life Insurance Co. C.S.T., Mumbai-II
Ltd
5 ST/87483/2015 Tata AIA Life Insurance Co. C.S.T., Mumbai-VII
Ltd
6 ST/86290/2015 Kotak Mahindra Old Mutual C.S.T., Mumbai-VI
Life Insurance Ltd
7 ST/86321/2016 Kotak Mahindra Old Mutual C.S.T., Mumbai-VI
Life Insurance Ltd
8 ST/86433/2016 India First Life Insurance Co. C.S.T., Mumbai-VI
Ltd
9 ST/86795/2016 Bharati-AXA Life Insurance Co C.S.T., Mumbai-VI
Ltd
10 ST/86796/2016 Bharati-AXA Life Insurance Co C.S.T., Mumbai-VI
Ltd
[Arising out of:-
(i) OIO No.PUN-EXCUS-003-COM-010-14-15, dt.30.05.2014, passed by CST,
Pune-III
(ii) OIO No.PUN-SVTAX-000-COM-30-31-32-15-16, dt.27.11.2015, passed by
P.CST, Pune and Corrigendum dt.18.1.16
(iii) OIO No.PUN-SVTAX-000-COM-068-15-16, dt.01.03.2016,passed by CST,
Pune,
(iv) OIO No.84/ST-II/RS/2014, dt.17.09.2014, passed by CST-II, Mumbai,
(v) OIO No.17/ST-VII/RS/COMMR/2015-16, dt.27.08.2015, passed by CST-VII,
Mumbai,
(vi) OIO No.18/ST-VI/RS/2014, dt.19.03.2015, passed by CST-VI, Mumbai,
Bajaj Allianz & Ors-38867114 etc resd-30.5
2
(vii) OIO No.11/ST-VI/RK/2015, dt.29.01.2016, passed by CST, Mumbai-VI,
(viii) OIO No.14-15/ST-VI/RK/2015, dt.29.02.2016, passed by CST-VI, Mumbai,
(ix) OIO No.17-18/ST-VI/RK/2015, dt.30.03.2016, passed by CST-VI, Mumbai
Appearance:
S/Shri Rohan Shah, S.S. Gupta, Chirag Shetty, Vinay Jain, Harsh Shah,
NiraliJigyaji - Advocates for the Assessees
S/Shri K.M. Mondal, Special Counsel, M.K. Sarangi, Jt.Cmr., and
M. Suresh, DC- Authorised Representatives for Revenue
CORAM:
HON'BLE DR. D.M. MISRA, MEMBER (JUDICIAL)
HON'BLE MR. C.J. MATHEW, MEMBER ( TECHNICAL)
Date of Hearing: 04.12.2018
Date of Decision: 31.05.2019
FINAL ORDER NO.A/86013-86023/2019
PER: D.M. MISRA
These 11 appeals are taken up together for disposal since
involve common issues. The details of each of the Appeal, i.e
impugned order, service tax demand, interest and penalties imposed
are tabulated as under:-
SN Appeal No. Impugned Order Service Tax Penalty
1 ST/88681/2016 OIO No.PUN-EXCUS- Rs.156,82,08,538/- Rs.10,000/-
003-COM-010-14- u/S 73A u/S 77(2)
15, dt.30.05.2014, with interest
passed by CST, u/S 74B.
Pune-III.
2 ST/85443/2016 OIO No.PUN-SVTAX- Rs.2,04,55,253/- Rs.1,14,27.766/-
000-COM-30-31-32- u/S 73(1) with u/S 78(1);
15-16, interest u/S 75;
dt.27.11.2015, Rs.65,47,25/-
passed by P.CST, Rs.37,64,584/- under 1st proviso
Pune. u/S 73(1) to Section 78(1);
and Corrigendum with interest
dt.18.1.16 u/S 75; Penalty shall
stand reduced to
Rs.3,02,421/- Rs.44,93,753/-
u/S 73(1) if duty demand
with interest u/S 75 with interest is
appropriating paid within 30
interest days.
Rs.12,31,309/-
paid against above.
3 ST/85829/2016 -do- -do- -do-
Bajaj Allianz & Ors-38867114 etc resd-30.5
3
4 ST/86236/2016 OIO No.PUN-SVTAX- Rs.16,60,31,650/- Rs.10,000/-
000-COM-068-15- u/S 73A u/S 77(2).
16, dt.01.03.2016, with interest
passed by CST, Pune u/S 73B
5 ST/90151/2014 OIO No.84/ST- Rs.14,51,18,675/- @ Rs.200/-
II/RS/2014, u/S 73(2) per day u/S 76;
dt.17.09.2014, with interest
passed by CST-II, u/S 75; Rs.5,000/-
Mumbai u/S 77;
Rs.47,83,73,026/-
u/S 73(2) Rs.62,34,91,701
with interest u/S 78.
u/S 73B.
6 ST/87483/2015 OIO No.17/ST-VII/ Rs.2,32,87,955 @ Rs.100 per
RS/COMMR/2015- u/S 73(2) day u/S 76;
16, dt.27.08.2015, with interest
passed by CST-VII, u/S 75; Rs.10,000 u/S 77
Mumbai
Rs.6,05,25,583/-
u/S 73(2)
with interest u/S 75
7 ST/86290/2015 OIO No.18/ST- Rs.1,86,58,017/- @ Rs.200/-
VI/RS/2014, u/S 73(2) per day u/S 76;
dt.19.03.2015, with interest
passed by CST-VI, u/S 75; Rs.10,000/-
Mumbai u/S 77;
Rs.73,33,31,000/- Rs.75,19,89,017
u/S 73(2) u/S 78.
with interest
u/S 73B.
8 ST/86321/2016 OIO No.11/ST- Rs.78,39,016/- Rs.7,83,901/-
VI/RK/2015, u/S 73(2) u/S 76;
dt.29.01.2016, with interest
passed by CST, u/S 75; Rs.10,000/-
Mumbai-VI u/S 77 .
Rs.12,70,26,735/-
u/S 73A(2)
with interest
u/S 75.
9 ST/86433/2016 OIO No.14-15/ST- Rs.1,15,04,450/- Rs.3,46,453/-
VI/RK/2015, and Rs.34,64,525/- u/S 76;
dt.29.02.2016, u/S 73(2)
passed by CST-VI, appropriating Rs.20,000/-
Mumbai. Rs.68,55,448/- u/S 77;
interest u/S 75;
Rs.1,15,04,450/-
Rs.10,21,85,740/- u/S 78.
u/S 73(2);
Rs.3,34,64,001/-
with interest on
Rs.13,56,49,742
u/S 75.
10 ST/86795/2016 OIO No.17-18/ST- Rs.3,25,76,872/- Rs.1,72,290/-
VI/RK/2015, u/S 73(1) u/S 76;
dt.30.03.2016, appropriating
passed by CST-VI, Rs.46,00,198/- Rs.20,000/
Mumbai and interest u/S 77;
u/S 75
appropriating Rs.3,25,76,872/-
interest of u/S 78
Rs.14,48,532
already paid;
Bajaj Allianz & Ors-38867114 etc resd-30.5
4
Rs.17,22,897/-
u/S 73(2)
with interest.
Rs.1,54,24,042/-
u/S 73(2)
with interest
u/S 75.
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 the insurance agents fall under the
category of "Insurance Auxiliary Services", which are liable to
service tax under the reverse charge mechanism basis, in terms of
Rule 2(1)(d)(iii) of Service Tax Rules, 1994, the Appellants have
discharged Service Tax on the commission amount paid to the
insurance agents. Subsequently, in the light of the agreement
entered into between the Appellants and the insurance agents, the
Appellants recovered the amount equivalent to the Service Tax paid
on the commission charges from the agents. Alleging that since the
Appellant has recovered the Service Tax from the insurance agents,
even though the Service Tax was required to be paid by the
Appellant, therefore, such collection is without authority of law and
accordingly required to be deposited as per Section 73A(2) of
Bajaj Allianz & Ors-38867114 etc resd-30.5
5
Finance Act, 1994, consequently, demands have been raised against
each of the Appellant with interest and proposal for penalty invoking
extended period of limitation. It is also alleged that the Appellants
had collected and incurred pre-training expenses from the
prospective insurance agents and also provided post licence training
to the insurance agents, the expenditure incurred on account of the
said trainings have been considered as an additional consideration
and proposed to be included in computing the gross taxable value
i.e. in the commission amount paid to the insurance agent, in
determining the service tax liability. On adjudication, the demands
were confirmed with interest and penalty. Hence, the present
appeal.
3. The learned Advocate Shri Rohan Shah appearing for the
Appellant M/s Kotak Mahindra Old Mutual Life Insurance Co. Ltd, has
submitted that the total demand of Rs.88,68,64,768/- has been
confirmed against the Appellant, which comprises of
Rs.86,03,57,735/- on the issue of recovery of Service Tax from the
insurance agents, but not deposited with the Government as per
Section 73A(2) of Finance Act, 1994 and Rs.2,64,97,033/- is on
account of non-inclusion of the value of pre-recruitment training
expenditure in the commission paid to the insurance agents.
4. The learned Advocate has submitted that Section 73A of
FA,1994 prescribes two situations: (i) Sub-section (1) of Section 73A
covers the situation where Service Tax is payable and paid under
the Finance Act is @ 12% whereas, the Service Tax was collected @
18% , then the additional amount of 6% collected as Service Tax by
Bajaj Allianz & Ors-38867114 etc resd-30.5
6
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 further
submitted that the term "Not required to be collected" mentioned in
sub-section (2) of Finance Act, 1994 has to be read as "not liable to
Service Tax under the Finance Act, 1994". In support of his
contention, the learned Advocate referred to the judgment of this
Tribunal in the case of Prabhu Dayal Kanojiya Vs CCE Jaipur - 2014-
TIOL-1279-CESTAT-DEL, Josh P. John &Ors. Vs CST, Bangalore -
2014-TIOL-1753-CESTAT-BANG. Therefore, in the present case, as
the Service Tax was leviable under the Finance Act, 1994 on
Bajaj Allianz & Ors-38867114 etc resd-30.5
7
insurance auxiliary service provided by the insurance agent, sub-
section (2) of Section 73A of Finance Act, 1994 cannot be made
applicable to the present case.
7. He has further submitted that Section 73A of Finance Act,
1994, is pari materia to Section 11D of Central Excise Act, 1944.
Section 11D (1) of the Central Excise Act, 1944, corresponds to
Section 73A (1) of Finance Act, 1994. Further Section 11D(1A) of
the Central Excise Act, which was inserted w.e.f. 10.05.2008
corresponds to both the situations (exempt or Nil rate) covered
under Section 73A (1) and (2) of the Finance Act, 1994. Therefore,
the judicial interpretation of Section 11D of Central Excise Act, 1944
is squarely applicable to Section 73A of Finance, Act, 1994. Further
he has submitted that accordingly the law laid down by Hon'ble
Supreme Court in the case of Mafatlal Industries Ltd &Ors. Vs UOI -
[(1997)5 SCC 536] in the context of Section 11D is squarely
applicable to the present case. In the said case, the Hon'ble
Supreme Court, at Para 133 of the judgment, has held that if the
Excise duty due has already been paid by the manufacturer and later
collected by him when the goods are sold, such collection need not
be paid to the Government. It was held that only if the duty has not
been paid or if any excess is collected over and above the duty
already paid, then only in such circumstances, the excess amount
collected would attract Section 11D.
8. Further, the learned Advocate for the Appellant, referring to
the judgment of Hon'ble Supreme Court in the case of Rashtriya
Bajaj Allianz & Ors-38867114 etc resd-30.5
8
Ispat Nigam Limited Vs Dewan Chand Ram Saran - 2012 (26) STR
289 (SC) submitted that there is no bar under the law on contractual
shifting of burden of tax arising out of an obligation under the
contract, that the it would be borne by the other party. Therefore,
they have not contravened the provisions of law by 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 in excess of the tax already deposited with
the Government, therefore, such amount collected cannot fall under
Section 73A of Finance Act, 1994.
Bajaj Allianz & Ors-38867114 etc resd-30.5
9
9. On the issue of inclusion of pre-recruitment training expenses,
in the value of commission paid, the learned Advocate has submitted
that the said expenses relates to the phase, when an individual is
not qualified or appointed as an insurance agent, accordingly, such
individual was not in a position to render taxable service of
"insurance auxiliary service". It is also possible that several of those
who undertake the training do not qualify as an insurance agent;
also, those who qualify may not choose to be an agent or remains
an agent of the Appellant. The commission paid by the Appellant to
all insurance agents is same irrespective of where they have
received pre-recruitment training or entered as a trading agent. The
commission required to be paid to the agents as per insurance
scheme is approved by the regulatory authority i.e. IRDA. Further
he has submitted that Rs.1,000/- collected from each individual
towards pre-training under a separate arrangement whereas under
the said agreement the Appellant is a service provider and individual
is the service recipient. The Appellant, after introduction of negative
list from 1.7.2012 paid service tax on the said amount of Rs.1,000/-
collected as pre-recruitment training expenses. Further, he has
submitted that the demand is inflated as it includes the amount paid
by those individual who do not qualify and/or who do not become an
agent after pre-recruitment training.
10. The learned Advocate Shri S.S. Gupta for the Appellant M/s
Tata AIA Life Insurance Co., subscribing to the arguments advanced
by the learned Advocate Shri Rohan Shah, has further submitted
that the issue is more or less covered by the judgment of the
Bajaj Allianz & Ors-38867114 etc resd-30.5
10
Tribunal in the case of HDFC Standard Life Insurance Co. Ltd - 2017
(49) STR 301 (T) and the argument advanced by the Department
that the said judgment of the Tribunal is sub-silentio is incorrect. In
the said case, the Tribunal has observed that the provision of
Section 73A(2) is applicable only to a person who is not an assessee.
Further, referring to Section 68 of Finance Act, 1994, the learned
Advocate has submitted that there is no bar under the said Section
73A to pass on the burden of tax to others.
11. On the issue of inclusion of pre-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
Bajaj Allianz & Ors-38867114 etc resd-30.5
11
of soliciting clients for insurance policies. Hence, the amount having
nexus to the said service can only be considered as part of the value
of the service. Further, he has submitted that in view of the ratio
laid down at Para 16 the transaction value cannot be ignored and
any amount cannot be included in the same. He has further
submitted that the expenses incurred during the course of providing
services are in the nature of hiring conference hall, printing of
training materials, arranging for lodging and boarding of the agents,
hiring of instructor, arranging food at the training venue, travelling
expenses of the agents from various locations to central location
where training is conducted etc are incurred for the benefit of the
agents. These expenses are directly borne by the Appellant and
never reimbursed to the agent. Hence, provision of Rule 5 (1) of
Service Tax (Determination of Value) Rules cannot be applicable. It
is his contention that the value of service required to be determined
as per Sec.67 of Finance Act, 1994. Further, he has submitted that
the Appellant have already paid service tax under reverse charge
mechanism and availed credit of the same. Therefore, the excess
amount if included in the value of commission, the same would be
available to the Appellant as credit which is a revenue neutral
situation. Consequently, invoking of extended period of limitation in
confirming the demand is untenable.
12. The learned Advocate Shri Vinay Jain appearing for Appellant
viz. M/s Bajaj Allianz Life Insurance Company Ltd, submitted that
the Appellants are not liable to discharge the service tax on pre-
recruitment training expenses as the expenses when incurred by
Bajaj Allianz & Ors-38867114 etc resd-30.5
12
the Appellant, the individuals are not even licenced to act in the
capacity of insurance agent by IRDA. Referring to the definition of
insurance agent, under Insurance Act,1938 the learned Advocate
has submitted that the insurance agent is a person who is licenced
by IRDA to act as an agent for soliciting and procuring insurance
business. Since the individuals were not licenced to act as an
insurance agent, at the time of training for recruitment, therefore,
inclusion of such pre-training expenses in the taxable value of
insurance auxiliary service does not arise. On the issue of inclusion
of post-licence training expenses, he has submitted that these
expenses are incurred by the Appellant in providing training facilities
to the 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
Bajaj Allianz & Ors-38867114 etc resd-30.5
13
imparting the training to the insurance agents. Thus, the
expenditure incurred by the Appellant are for his own business
expenditure. In support, he has referred to the Australian GSTR
2001/6 on Non-Monetary consideration, which says mere utilisation
of these services cannot form a part of services by the agent to the
Appellant. Since the expenditures are incurred to improve the ability
of insurance agents to sell the Appellant's product in the market and
the Appellants are themselves beneficiary of the said expenditure,
hence such expenditure cannot be included in the value of service
received.
13. He has further submitted that it is well settled principle that
just because the third party derives benefit out of a particular
service it does not mean that the original party who contracted to
receive the service will be denied this benefit. In support, he has
referred to the decision of the House of Lords in the English case of
Customs & Excise Commissioners Vs Redrow Group Plc. (1999 ALL
ER 1). A similar view has been expressed by Hon'ble Supreme Court
in the case of CIT Vs Chandulal Keshavlal & Co. (1960) 38 ITR 601
(SC).
14. The learned Advocate further contended that Rule 5 and Rule
6 of the Valuation Rules are not applicable to the present case. It is
his contention that Section 67 of Finance Act, 1994 prescribes for
gross amount charged by the service provider for providing taxable
service which shall be the value on which the service tax is required
to be paid. In the present case, the Appellants are already
Bajaj Allianz & Ors-38867114 etc resd-30.5
14
discharging service tax on the gross amount charged by the
insurance agent under reverse charge mechanism, hence the
expenditures for training cannot be included. Further, Rule 5(1) of
the Service Tax Valuation Rules,2006 provides that all expenses
incurred by the service provider during the course of provision of
taxable service shall be included in the value of taxable service.
But, in the present case, the Appellants are not service recipient and
not service provider. It is also not the case of the department that
the insurance agents have incurred expenditure and then claimed
reimbursement. The expenditure is purely incurred in the course of
business operation of the Appellant.
15. Referring to Rule 6 of the Service Tax Valuation Rules,2006 he
has submitted that it comprises of any commission, fee or any other
sum received by the insurance agents which shall form a part of
value of taxable service. The value of taxable service rendered by
the insurance agent already comprises of commission incentive 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 -
Bajaj Allianz & Ors-38867114 etc resd-30.5
15
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
not covered by the expression "commission" or "fee". In support, he
has relied upon the judgment of Hon'ble Supreme Court in the case
of Devi Dass Gopal Krishnan & Others Vs State of Punjab - (1967)
20 STC 430.
17. Further, he has submitted that 'any other sum' should refer to
only monitory consideration and cannot extend to any other benefit.
In support, he has referred to the decision of Hon'ble Supreme Court
in the case of H.H. Sri Rama Verma Vs CIT - (1991) 187 ITR 308
(SC).
18. Rebutting the appeal filed by Revenue that the corrigendum
issued by the Commissioner subsequent to the issue of OIO is not
within his jurisdiction, the learned Advocate referred to Section 74 of
Finance Act, 1994 and submitted that the issue of corrigendum is
well within the jurisdiction of the Commissioner. In support, he has
referred to the judgment of Hon'ble Supreme Court in the case of
Bajaj Allianz & Ors-38867114 etc resd-30.5
16
Assistant Commissioner of Income Tax Rajkot Vs Saurashtra Kutch
Stock Exchange Ltd - 2010 (18) STR (SC).
19. The learned Advocates appearing for other Appellants more or
less subscribed to the aforesaid submissions advanced by the
learned Advocates Shri Rohan Shah and Shri S.S. Gupta.
20. Per contra, the Special Counsel Shri K.M. Mondal for the
Revenue, has submitted that Section 73A was inserted in Chapter 5
of Finance Act, 1994 w.e.f. 18.04.2006. Prior to such insertion,
Section 11D of Central Excise Act, 1944 was not made applicable to
Finance Act, 1994 and referring to the provision of sub-section (2) of
Section 73A of Finance Act, 1994, the Special Counsel has submitted
that sub-section (1) of Finance Act, 1994 is analogous to sub-section
(1) of Section 11D of Central Excise Act, 1944. However, sub-section
(2) of Section 73A of Finance Act, 1994 mentions no such provision
in Section 11D of Central Excise Act, 1944. It is his contention that
on careful reading of sub-section (1) and sub-section (2) of Section
73A of Finance Act, 1994, it is clear that the provisions are mutually
exclusive and their scope and ambit are also totally different. It is
his contention that the expression "any person" used in both sub-
sections has the same meaning and same sense throughout. In
support, he has referred to the judgment of HDFC Standard Life
Insurance Co. Ltd, S.K. Modi Vs UOI - 2002 (144) ELT 59 (Del.)
and the judgment of Hon'ble Supreme Court in the case of Central
Bank of India Vs Ravindra & Ors - JT 2001 (9) SC 101. Further, he
has submitted that the expression 'any person who is liable to pay
Bajaj Allianz & Ors-38867114 etc resd-30.5
17
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 sub-
section (2) being mutually exclusive, they cannot be mixed with
each other. Sub-section (2) mandates that where any person has
collected any amount as service tax from any other person, which is
not required to be collected, such person shall immediately pay the
said amount to the credit of Central Government. Thus, the
insurance company which has collected service tax from the
insurance agents, must deposit the same with the Central
Government. Otherwise, sub-section (2) of Section 73A of Finance
Act, 1994 will be rendered purposeless and nugatory. It is his
argument that the present proceedings are concerned only with
Bajaj Allianz & Ors-38867114 etc resd-30.5
18
provision of sub-section (2) and not with provisions of sub-section
(1) of Section 73A of Finance Act, 1994.
22. Referring to the judgment of this Tribunal in HDFC Standard
Life Insurance Co. Ltd's case, the learned Counsel submitted that the
Tribunal in the said case, has not recorded any specific finding
regarding the scope and ambit on sub-section (2) of Section 73A of
Finance Act, 1994. The judgment totally based on the interpretation
of sub-section (1) of Section 73A. The decision is therefore sub-
silentio in respect of the issue involved. In support, he has referred
to the judgment of this Tribunal in the case of Oil & Natural Gas
Corporation Ltd Vs CC Raigad - 2010 (262) ELT 1078 (T).
23. Further, he has submitted that excess collection of service tax
over and above the service tax due which is covered by Section
73A(1) of Finance Act, 1994. This is case of collection of service tax
by the Appellant i.e. insurance company from the insurance agent
who are not liable to pay service tax covered under Section 73A (2).
In support, he has referred to the judgment of Hon'ble Delhi High
Court in the case of Makemytrip (India) Pvt. Ltd Vs UoI - 2016 (44)
STR 481 (Del.), Prabhu Dayal Kanojia Vs CCE Jaipur 2014-TIOL-
1279-CESTAT-DEL (supra).
24. Admittedly, since each of the Appellants has collected Service
Tax from the insurance agent, which was not required to be
collected said agents, therefore, it is clear violation of mandate of
Section 73A (2) of Finance Act, 1994. Also, in each of these cases,
Bajaj Allianz & Ors-38867114 etc resd-30.5
19
the Appellant is an assessee and is also a person liable for payment
of service tax under reverse charge mechanism in terms of provision
of Rule 2(1)(d)(iii) of Service Tax Rules, 1994 read with Section
68(2) of Finance Act, 1994.
25. It is his contention that the judgment of Hon'ble Apex Court in
the case of Mafatlal Industries Ltd (supra) and Larger Bench decision
in the case of Unison Metal 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 the plea that it is
Bajaj Allianz & Ors-38867114 etc resd-30.5
20
permissible under an agreement between the parties to collect the
tax. Referring to the judgment in the case of Delhi Transport
Corporation Vs. Commissioner of Service Tax 2015 (38) STR 289
(SC), the learned Special Counsel has submitted that in the said
case the honourable court has held that in terms of statutory
provision it is the appellant. Discharge the liability was revenue on
account of service tax. Further, distinguishing the judgment in
Rashtriya Ispat Nigam Ltd's case, the learned Special Counsel has
submitted that the judgment is not an authority on the subject to
say that the agreement between the parties would take precedent
over the statutory provisions.
27. On the issue of inclusion of training expenses in the value of
taxable service, the learned Special Counsel has submitted that in
view of Board's Circular dt.10.04.2006 wherein it is clarified that the
value for the purpose of charging service tax is the gross amount
received as a consideration for provision of service. All the expenses
or cost incurred by the service provider in providing the taxable
service form an integral part of the taxable value and hence are
includible in the value.
28. On the issue of time bar, the learned Special Counsel has
submitted that no time limit has been prescribed under Section 73A
of Finance Act, 1994 for recovery of amount either under Section
73A(1) or 73A(2). Therefore, the time limit prescribed under
Section 73 cannot pressed into service. Provisions of section 73 and
Bajaj Allianz & Ors-38867114 etc resd-30.5
21
those of Section 73A are quite distinct and different. In support, the
learned Special Counsel refers to the judgment of this Tribunal in
Checkmate Industries Services Vs. CCE, Pune 2016 (44) STR 290
(T). Further, he has submitted that Section 73A is self-contained
provision, therefore, the time limit prescribed under Section 73 is
not applicable to the Section 73A. In support, he has referred to the
decision of this Tribunal in the case of Indian Farmers Fertilizers Co-
op. Ltd. Vs. CCE,1989 (41) ELT 474(T) where under it is held that
for recovery of central excise duty under rule 196 of the erstwhile
Central Excise Rules, 1944, the limitation prescribed under section
11A cannot be made applicable. Rebutting the plea of revenue
neutrality, the learned Special Counsel has submitted that it cannot
be the ground for non-payment of service tax on the training
expenses incurred 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
Bajaj Allianz & Ors-38867114 etc resd-30.5
22
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 on
reverse charge basis. Expenses which are in the nature of input
service, cannot be included from the gross taxable value for the
purpose of service tax. In support, he has referred to the judgment
in the case of Jecobs Engineering India Pvt. Ltd Vs CST Ahmedabad
- 20178 -TIOL-2914-CESTAT-AHM, Sri Bhagavathy Traders Vs CCE
Cochin - 2011 (24) STR 290 (Tri-LB), BEE Am Industries Pvt. Ltd Vs
CST - 2017-4-GSTL-185-Tri-Del. Further, referring to the Board's
Circular No.B-1/4/2006-TRU, dt.19.04.2006, on the issue of
reimbursable expenditure, it is clarified that all the expenses or cost
incurred by the service provider in the course of providing taxable
service forms an integral part of the taxable value and are includible
in the value. It is not relevant that various expenses or costs are
separately indicated in the invoice or bills issued by the service
provider to his client.
30. Heard both sides at length and perused the records.
31. The common issues involved in these appeals for
determination are:-
(i) Whether service tax paid by the Appellant in accordance
with Rule 2(1)(d)(iii) of Service Tax Rules, 1994 as recipient of
Bajaj Allianz & Ors-38867114 etc resd-30.5
23
'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;
(ii) The expenses incurred in pre-recruitment training and
post licence training of the Insurance Agents be includible in
the value of commission paid to the agents.
32. The contention of the Appellants on the first issue is that since
the Appellants are registered with the Service Tax Department and
assessed to service tax for receiving the insurance services in
accordance with Rule 2(1)(d)(iii) of Service Tax Rules, 1994,
therefore, when the tax amount initially paid and later collected
from the insurance agents, at best would fall under sub-section (1)
and not under sub-section (2) of Section 73A of Finance Act, 1994
as held in the impugned order. It is further argued by the Appellants
that the principle of law laid down by the Hon'ble Supreme Court in
Mafatlal industries' case and Larger Bench decision in Unison Metal
Ltd.'s case in relation to Sec.11D of CEA,1944 is squarely applicable
to Sec. 73A of the Finance Act,1994. The Revenue's contention, on
the other hand, is that both these provisions i.e. sub sec. (1) & (2)
of Sec 73A are mutually exclusive, 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
Bajaj Allianz & Ors-38867114 etc resd-30.5
24
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 thereunder, and has collected any
amount in excess of the duty assessed or determined and paid on any
excisable goods under this Act or the rules made thereunder from the
buyer of such goods in any manner as representing duty of excise, shall
forthwith pay the amount so collected to the credit of the Central
Government.
(2) Where any amount is required to be paid to the credit of the Central
Government under sub-section (1) and which has not been so paid, the
Central Excise Officer may 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, should not be paid by him to the credit of the Central
Government.
(3) The Central Excise Officer shall, after considering the representation, if
any, made by the person on whom the notice is served under sub-section
(2), determine the amount due from such person (not being in excess of
the amount specified in the notice) and thereupon such person shall pay
the amount so determined.
(4) The amount paid to the credit of the Central Government under [sub-
section (1) or sub-section (3), shall be adjusted against the duty of excise
payable by the person on finalisation of assessment or any other
proceeding for determination of the duty of excise relating to the excisable
goods referred to in sub-section (1).
(5) Where any surplus is left after the adjustment under sub-section (4),
the amount of such surplus shall either be credited to the Fund or, as the
case may be, refunded to the person who has borne the incidence of such
amount, in accordance with the provisions of section 11B and such person
may make an application under that section in such cases within six
months from the date of the public notice to be issued by the Assistant
Commissioner of Central Excise for the refund of such surplus amount.
Bajaj Allianz & Ors-38867114 etc resd-30.5
25
34. The said Section 11D has been amended w.e.f. 10.05.2008 by
insertion of sub-section (1A) which reads as under:-
"Every person, who has collected any amount in excess of duty assessed or
determined and paid on any excisable goods or has collected any amount
as representing duty of excise on any excisable goods which are wholly
exempt or are chargeable to nil rate of duty from any person in any
manner, shall forthwith pay the amount so collected to the credit of the
Central Government."
35. Section 73A (1) and (2) inserted in Finance Act, 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, should not be paid by him to the credit
of the Central Government.
(4) The Central Excise Officer shall, after considering the representation, if
any, made by the person on whom the notice is served under sub-section
(3), determine the amount due from such person, not being in excess of
the amount specified in the notice, and thereupon such person shall pay
the amount so determined.
(5) The amount paid to the credit of the Central Government under sub-
section (1) or sub-section (2) or sub-section (4), shall be adjusted against
the service tax payable by the person on finalisation of assessment or any
other proceeding for determination of service tax relating to the taxable
service referred to in sub-section (1).
(6) Where any surplus amount is left after the adjustment under sub-
section (5), such amount shall either be credited to the Consumer Welfare
Fund referred to in section 12C of the Central Excise Act, 1944 (1 of 1944)
or, as the case may be, refunded to the person who has borne the
incidence of such amount, in accordance with the provisions of section 11B
of the said Act and such person may make an application under that
section in such cases within six months from the date of the public notice
Bajaj Allianz & Ors-38867114 etc resd-30.5
26
to be issued by the Central Excise Officer for the refund of such surplus
amount."
36. 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
is required to deposit the said amount with the govt., as the tax
amount is not required to be further collected from the insurance
agents.
37. In the impugned order, the learned Commissioner has
observed that once the law requires the Appellant to discharge the
service tax on receipt of the service 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,
Bajaj Allianz & Ors-38867114 etc resd-30.5
27
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
tax, Wealth tax property tax, etc. is placed in the category of direct
tax, whereas customs, excise, sales tax, VAT, GST etc. are popularly
called as indirect taxes. In India the tax is not levied and collected
classifying as Direct and Indirect Tax unlike few other Countries. It is
held by the Hon'ble Supreme Court, that service tax is an indirect
tax and is a destination based consumption tax. However, for the
purpose of administrative convenience, the collection of service tax
could be made either from the service provider or service recipient
in relation to the service which is the object of the tax. Merely
because the tax is collected from the service recipient, the character
of the service tax will not be altered, but it would continue to
remain as service tax only. Therefore, the reasoning of the learned
Bajaj Allianz & Ors-38867114 etc resd-30.5
28
Commissioner that since the service tax on Insurance Auxiliary
service since to be paid by the Appellant, is in the nature of direct
tax, hence, not authorised to pass on the burden to the Insurance
agents, is incorrect and contrary to the principles of law laid down by
the Hon'ble Supreme Court.
40. The next question which needs to be addressed is whether the
person is liable to pay service tax by virtue of Rule 2(1(d)(iii) of
Service Tax Rules, 1994 is prohibited from passing on the burden to
the customer. We do not find any such stipulation under the Act or
under Rule 2(1)(d)(iii) of Service Tax Rules,1994 which puts an
embargo on an assessee who is initially required to discharge service
tax, if later elects to shift the burden to the provider of service or
to any other person by an arrangement or agreement, is restricted
in doing so. In absence of any such stipulation to say that the
burden of service tax initially discharged by the service recipient
cannot be shifted to the service provider would be contrary to the
observation by the honourable Supreme Court in Rashtriya Ispat
Nigam's case (supra).
41. Now, coming to the core of the issue, that is, whether the
amount collected by the Appellant from the insurance agent is
required to be deposited even though initially the applicable tax
amount has been paid to the Government.
42. It is the contention of the learned Special Counsel for the
Revenue that even though there is no bar under the Act and rules
Bajaj Allianz & Ors-38867114 etc resd-30.5
29
made there under in passing the burden to the service provider, but
the amount so collected 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 sub-
section (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. Sub-
section (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 sub-section (1). Sub-section (6) lays down whether any
service amount left after adjustment, such amount either be credited
and deposited in Consumer Welfare Fund or be refunded to the
person who has borne the incidence of said amount, in accordance
with the provisions of Sec.11B of the said Act and such person may
make an application under that section within six months from the
Bajaj Allianz & Ors-38867114 etc resd-30.5
30
date of public notice to be sued by the central excise officer for
refund of the such surplus amount.
44. A careful reading of the said self contained provisions of Sec.
73A, and in particular Sub. Sec.(6), it can safely inferred that the
Government cannot retain the amount in excess of applicable service
tax collected and deposited with the Govt., but after adjustment of
the tax levied and payable in relation to the service either by the
service provider or the service recipient, required to transfer the
excess amount to the Consumer Welfare Fund or refund it to the
person who borne the incidence of duty. In other words, in the
event, initially the service tax has been paid by the service receiver
and later it has been collected from the service provider, it cannot
be construed that it is the amount in excess of service tax
chargeable and has been collected and therefore required to be
deposited with the Government. What is the objective and purport of
the said provision is that any amount in excess of the tax leviable is
collected, the said amount should be deposited with the Govt. and
the excess amount would be dealt with by the Govt. either refunding
to the person who bears the burden or transfer it to the consumer
welfare Fund. The said inference is supported by the ratio laid down
by the Hon'ble Supreme Court in Mafatlal Industries' case(supra)
and also in conformity with the philosophy of taxation enshrined in
the Constitution of India at Art.265 which mandates that no tax shall
be collected without authority of law. Their Lordships in Mafatlal
Industries' case analysing the scope of Sec. 11D of CEA,1944,
observed as under:-
Bajaj Allianz & Ors-38867114 etc resd-30.5
31
MEANING AND PURPORT OF SECTION 11D
"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."
45. Both sides have referred to the judgment of this Tribunal in
the case of Prabhu Dayal Kanojiya Vs CCE Jaipur (supra). Revenue,
referring to the said judgment, has argued that in the event no
service tax liability arise out of the transaction, if any, collected has
to be deposited with the Government. To understand the said
judgment in its proper perspective, it is necessary to read Paras 4 &
5 of the judgment before analyzing the observation of the Tribunal
which reads as under:-
"4. However, in para-39 of the impugned order, the Authority confirmed a
demand for Rs.4,18,665/- on the ground that this amount is the service tax
component on the work executed by the appellant under work order
no.MB6 PO-2817 dated 4.3.2010, involving construction of digester domes
for the Delhi Jal Board. The Adjudicating Authority observed that since the
relevant agreement contains a term that service tax element if payable is
extra, it must be inferred that the appellant had collected the amount of
service tax; the appellant had not furnished any evidence to prove that no
Bajaj Allianz & Ors-38867114 etc resd-30.5
32
service tax was collected from the recipient under this contract, hence,
Rs.4,18,665/- must be remitted, in terms of Section 73 A(2) of the Act.
5. Section 73 A of the Act enumerates provisions for liability to remit
service tax collected by a person. Sub-section (2) of this provision enacts:
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. On a true and fair construction of this
provision, the legislative intent is clear. The conditions precedent for
ordering any person to remit (an amount collected as service tax, which is
not required to be so collected), is a finding of fact that the person had in
fact collected an amount towards service tax even though no service tax
liability arises under the transaction qua which such collection is made. This
finding of fact must be recorded by the Revenue. The liability to remit
service tax under Section 73 A(2) does not arise on the basis 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 Rs.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 Tribunal, analyzing the
scope of Section 73A(2) of Finance Act, 1994, observed that the
conditions required for directing any person to remit any amount
collected as service tax, which is not required to be so collected, is a
finding of fact and it is for the Revenue to establish that the person
had, in fact, collected the amount, representing as service tax, even
though no service tax liability arises under the transaction qua for
which such collection is made. It is the observation of the Tribunal
that the condition need to be satisfied for demanding the amount
u/s 73A(2) that no service tax liability arises, but the amount has
Bajaj Allianz & Ors-38867114 etc resd-30.5
33
been collected representing as service tax. Subsequently, the
Tribunal proceeded in observing that the liability to remit service tax
under Section 73A(2) does not arise on the basis of mere permission
in an agreement that the liability to compensate, reimburse the
service tax liability of the service provider, is on the service
recipient. In other words, a liability which is not accrued, cannot
ultimately be translated into a liability merely because there is
stipulation in the agreement that in the event, any liability arises,
the service recipient to discharge the liability.
47. The Appellant has also placed reliance on the judgment of this
Tribunal in the case of HDFC Standard Life Insurance Co. Ltd. Vs.
Commr. C.E. The facts are similar to the present case. In the case
of HDFC Standard Life Insurance Co. Ltd. Vs. Commr. C.E,
discharged the service tax liability on insurance auxiliary service
taxable under Section 65(105)(zy) in accordance with the Rule
2(1)(d)(iii) of the Service Tax Rules, 1994. Referring to a particular
clause in the agreement between Appellant and their agents, the
Department proceeded on the premise that reimbursement were
collection-cum-tax in excess and consequently required to be
credited/deposited under Section 73A of the Finance Act, 1994. This
Tribunal, observed as follows:-
"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
Bajaj Allianz & Ors-38867114 etc resd-30.5
34
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
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."
48. The learned Special Counsel for the Revenue, have
vehemently argued that the said judgment 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
Bajaj Allianz & Ors-38867114 etc resd-30.5
35
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 pre-
recruitment training expenses are nothing but training and
examination fee provided by the Appellant to the individuals so as to
qualify to work as insurance agent as per IRDA norms. In some
cases, viz. Kotak Mahindra Old Mutual Life Insurance Ltd, the
Appellant had collected Rs.1,000/- as pre-training expenditure
charges from the individuals, whether subsequently after receiving
the training, the trainees took up the profession as an insurance
agent and served the Appellant or otherwise. It is the contention of
the learned Advocate Shri Rohan Shah for the said Appellant is that
out of the total candidates provided with pre-recruitment training
approximately 40% later, rendered service to the Appellant as
Bajaj Allianz & Ors-38867114 etc resd-30.5
36
Insurance Agents. It is his contention that the amount of Rs.1,000/-
collected from the individuals cannot, in any manner, be considered
to be a part of the value of commission as per Section 67 of Finance
Act, 1994 read with Service Tax Valuation Rules before the
candidates quality to become Agent. Further, he has submitted that
it is a service rendered by the Appellant to the insurance agents and
hence after introduction of negative regime w.e.f. 1.7.2012, they
discharged the service tax. The contention of the learned A.R. for
the Revenue is that by providing pre-recruitment training to the
prospective insurance agents, the expenditure incurred, which
otherwise, would have been the cost to the insurance agents in
providing service, hence, liable to be included in the taxable value of
commission paid to the insurance agents. Similar line of argument
advanced by the Advocates appearing for other Appellants with
regard to the inclusion of pre-recruitment training expenditure as
well as post licence training expenditure provided by the Appellant
by way of training to the insurance agents, who later after
recruitment provides the service to the Appellant. The Appellants
have heavily relied upon the judgment of Hon'ble Supreme Court in
the case of Bhayana Builders (supra).
51. Before considering the argument advanced by both sides, it is
appropriate to refer to the relevant valuation provisions as were in
force during the relevant time.
SECTION 67. Valuation of taxable services for charging service tax-
(1) Subject to the provisions of this Chapter, where service tax is
chargeable on any taxable service with reference to its value, then such
value shall, --
Bajaj Allianz & Ors-38867114 etc resd-30.5
37
(i) in a case where the provision 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 amount that is payable for the
taxable services provided or to be provided;
(b) "money" includes any currency, cheque, promissory note, letter
of credit, draft, pay order, travellers cheque, money order, postal
remittance and other similar instruments but does not include
currency that is held for its numismatic value;
(c) "gross amount charged" includes payment by 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.
Service Tax (Determination of Value) Rules, 2006
RULE 5. Inclusion in or exclusion from value of certain expenditure
or costs. -- (1) Where any expenditure or costs are incurred by the
service provider in the course of providing taxable service, all such
expenditure or costs shall be treated as consideration for the taxable
service provided or to be provided and shall be included in the value for
the purpose of charging service tax on the said service.
...................................................................................
RULE 6. Cases in which the commission, costs, etc., will be included or excluded. -- (1) Subject to the provisions of section 67, the value of the taxable services shall include‚ -
Bajaj Allianz & Ors-38867114 etc resd-30.5
38
(i) ...
(ii) ...
(iii) ....
(iv) ....
(v) the commission, fee or any other sum received by an actuary, or intermediary or insurance intermediary or insurance agent from the insurer;
.........................................................................
52. Even though while confirming the demand by including pre-
recruitment training expenses as well as post licence training expenses in the value of commission, the learned Commissioner has not specifically referred to the relevant rule, but, we find that in the notice, the said expenditure has been proposed to be included in the value of commission 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 receiver. Therefore, in terms of Section 67, unless an amount is charged by the service provider to the service recipient, it does not enter into Bajaj Allianz & Ors-38867114 etc resd-30.5 39 the equation for determining the value on which service tax is payable.
b. The amount charged should be for "for such service provided" : Section 67 clearly indicates that the gross amount charged by the service provider has to be for the service provided. Therefore, it is not any amount charged which can become the basis of value on which service tax becomes payable but the amount charged has to be necessarily a consideration for the service provided which is taxable under the Act. By using the words "for such service provided" the Act has provided for a nexus between the amount charged and the service provided. Therefore, any amount charged which has no nexus with the taxable service and is not a consideration for the service provided does not become part of the value which is taxable under Section 67. The cost of free supply goods provided by the service recipient to the service provider is neither an amount "charged" by the service provider nor can it be regarded as a consideration for the service provided by the service provider. In fact, it has no nexus whatsoever with the taxable services for which value is sought to be determined"
13. A plain meaning of the expression 'the gross amount charged by the service provider for such service provided or to be provided by him' would lead to the obvious conclusion that the value of goods/material that is provided by the service recipient free of charge is not to be included while arriving at the 'gross amount' simply, because of the reason that no price is charged by the assessee/service provider from the service recipient in respect of such goods/materials. This further gets strengthened from the words 'for such service provided or to be provided' by the service provider/assessee. Again, obviously, in respect of the goods/materials supplied by the service recipient, no service is provided by the assessee/service provider. Explanation 3 to sub- section (1) of Section 67 removes any doubt by clarifying that the gross amount charged for the taxable service shall include the amount received towards the taxable service before, during or after provision of such service, implying thereby that where no amount is charged that has not to be included in respect of such materials/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 sub- section (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 Bajaj Allianz & Ors-38867114 etc resd-30.5 40 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. It was argued that payment received in 'any form' and 'any amount credited or debited, as the case may be...' is to be included for the purposes of arriving at gross amount charges and is leviable to pay service tax. On that basis, it was sought to argue that the value of goods/materials supplied free is a form of payment and, therefore, should be added. We fail to understand the logic behind the aforesaid argument. A plain reading of Explanation (c) which makes the 'gross amount charges' inclusive of certain other payments would make it clear that the purpose is to include other modes of payments, in whatever form received; be it through cheque, credit card, deduction from account etc. It is in that hue, the provisions mentions that any form of payment by issue of credit notes or debit notes and book adjustment is also to be included. Therefore, the words 'in any form of payment' are by means of issue of credit notes or debit notes and book adjustment. With the supply of free goods/materials by the service recipient, no case is made out that any credit notes or debit notes were issued or any book adjustments were made. Likewise, the words, '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 accounts of a person liable to pay service tax' would not include the value of the goods supplied free as no amount was credited or debited in any account. In fact, this last portion is related to the debit or credit of the account of an associate enterprise and, therefore, takes care of those amounts which are received by the associated enterprise for the services rendered by the service provider.
16. In fact, the definition of "gross amount charged" given in Explanation (c) to Section 67 only provides for the modes of the payment or book adjustments by which the consideration can be discharged by the service recipient to the service provider. It does not expand the meaning of the term "gross amount charged" to enable the Department to ignore the contract value or the amount actually charged by the service provider to the service recipient for the service rendered. The fact that it is an inclusive definition and may not be exhaustive also does not lead to the conclusion that the contract value can be ignored and the value of free supply goods can be added over and above the contract 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:-
Bajaj Allianz & Ors-38867114 etc resd-30.5 41 "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 permits the subordinate legislation to be enacted in the said manner, as done by Rule 5. As noted above, prior to April 19, 2006, i.e., in the absence of any such Rule, the valuation was to be done as per the provisions of Section 67 of the Act.
22. Section 66 of the Act is the charging Section which reads as under:
"there shall be levy of tax (hereinafter referred to as the service tax) @ 12% of the value of taxable services referred to in sub-clauses of Section 65 and collected in such manner as may be prescribed."
23. Obviously, this Section refers to service tax, i.e., in respect of those services which are taxable and specifically referred to in various sub-clauses of Section 65. Further, it also specifically mentions that the service tax will be @ 12% of the 'value of taxable services'. Thus, service tax is reference to the value of service. As a necessary corollary, it is the value of the services which are actually rendered, the value whereof is to be ascertained for the purpose of calculating the service tax payable thereupon.
24. In this hue, the expression 'such' occurring in Section 67 of the Act assumes importance. In other words, valuation of taxable services for charging service tax, the authorities are to find what is the gross amount charged for providing 'such' taxable services. As a fortiori, any other amount which is calculated not for providing such taxable service cannot a part of that valuation as that amount is not calculated for providing such 'taxable service'. That according to us is the plain meaning which is to be attached to Section 67 (unamended, i.e., prior to May 1, 2006) or after its amendment, with effect from, May 1, 2006. Once this interpretation is to be given to Section 67, it hardly needs to be emphasized that Rule 5 of the Rules went much beyond the mandate of Section 67. We, therefore, find that High Court was right in interpreting Sections 66 and 67 to say that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider 'for such service' and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service.
25. This position did not change even in the amended Section 67 which was inserted on May 1, 2006. Sub-section (4) of Section 67 empowers the rule making authority to 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 Bajaj Allianz & Ors-38867114 etc resd-30.5 42 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, incurred by the Appellant cannot form part of the value of commission paid to the insurance agents.
55. We summarise the findings as below:-
i) 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.
(ii) 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.
56. The impugned orders contrary to the above findings are set aside, and the assesses Appeals are allowed accordingly. Revenue's Appeal being devoid merit is rejected. In appeals No.ST/86795/2016 and ST/86796/2016 filed by M/s Bharati-AXA Life Insurance Co Ltd, the service tax amount paid on 'other expenses', have not been contested, only the penalty imposed on account of such demand has Bajaj Allianz & Ors-38867114 etc resd-30.5 43 been disputed. We find merit in the submission of the Appellant that since the said issue is a pure question of interpretation of law, hence, imposition of penalty on this count is unwarranted and accordingly set aside and the impugned Orders are modified accordingly.
57. All the Appeals are disposed of as above.
(Order pronounced in the open court on 31.05.2019) (D.M. Misra) Member (Judicial) (C.J. Mathew) Member (Technical) CBBahalkar