Custom, Excise & Service Tax Tribunal
Commissioner Of Service Tax, Mumbai vs Vs on 30 March, 2015
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
COURT NO.
Appeal No. ST/55/2010-Mum & ST/100/2010-Mum.
(Arising out of Order-in-Original No. 12/KLG/Th-II/2009 dt.13.11.2009 passed by the Commissioner of Central Excise, Thane-II )
For approval and signature:
Honble Mr. Anil Choudhary, Member (Judicial)
Honble Mr. P.S. Pruthi, Member (Technical)
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1. Whether Press Reporters may be allowed to see :
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the :
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy :
of the Order?
4. Whether Order is to be circulated to the Departmental :
authorities?
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Commissioner of Service Tax, Mumbai
:
Appellant
VS
M/s. Jaybharat Automobiles Ltd.
And
M/s. Jaybharat Automobiles Ltd.
Vs.
Commissioner of Service Tax, Mumbai
:
Respondent
Appearance
Shri R.G. Shetty Advocate for Respondent/ Appellant
Shri M.S. Reddy Deputy Commissioner (A.R) for Appellant/ Respondent
CORAM:
Mr. Anil Choudhary, Member (Judicial)
Mr. P.S. Pruthi, Member (Technical)
Date of hearing : 30/03/2015
Date of decision : /2015
ORDER NO.
Per : P.S. Pruthi
M/s Jaybharat Automobiles Ltd. in Appeal No.ST/100/2010 and Revenue in Appeal No.55/2010 have filed appeals against the order No 12/KLG TH II/2009 dated 27. 10. 2009 passed by the Commissioner of Central excise Thane. For convenience M/s. Jaybharat Automobiles Ltd. are hereinafter referred as appellant.
2. The appellant are an authorized dealer and service station of M/s Hyundai Motors India Ltd (HMIL). They are engaged in the activity of selling cars, servicing, and selling spares for the vehicles. They are also appointed as direct sales agents (DSA) for banks/financial institutions under agreements to arrange loans from these institutions for the prospective buyers of cars and receive commission/incentives to the extent of 5% of the loan amount from the banks/financial institutions. In all, they received commission/charges for various activities as under :
i) commission received from banks/financial institutions for promotion/marketing of auto loans given by banks to car purchasers.
ii) commission income under the heading incentives received from M/s HMIL on account of sale of vehicles, vehicle parts produced by or belonging M/s HMIL
iii) reference insurance commission received from New India Assurance Co Ltd for promotion/marketing of services provided by the insurance company.
iv) pre delivery inspection charges received from M/s HMIL on account of sale of new vehicles, which according to the Department, are leviable to service tax under the category of Business Auxiliary Service (BAS). The appellant were alleged to have wrongly availed exemption notification 13/2003 dated 20 June, 2003( for commission agents).
2.1 The appellant are in appeal against the demand of service tax confirmed against S.Nos. (i), (iii) and (iv) in para 2 above. Revenue is appeal against the setting aside of demand in respect of (ii) above.
2.2 Out of the total demand of Rs1.03 crores raised for the period July 03 to March 06 , the impugned order confirmed the demand of Rs. 35,59,053/- out of which the appellant paid an amount of Rs. 21,20,314/- before the issue of show cause notice. The appellant were also ordered to pay interest under section 75 of the Finance Act 1994 and penalties were imposed under sections 76, 77 and 78.
3. Heard both sides.
4. On the first issue regarding marketing of auto loans, the contention of the Ld counsel is that they do not promote auto loans provided by the banks and have not rendered any service, but have acted as a facilitator to banks by providing infrastructure. As per the agreement, the appellant are required to provide in their showroom requisite space and manning for sales financing representation designated and approved by HMIL. Their role is coordinating between the banks and the buyer of the vehicle. The Ld counsel contended that they acted as a commission agent and at most the demand can only be made on the actual amount of commission received by them under Rule 6 (1) of the Valuation Rules and not on the basis of details submitted by the banks. Further that the entire amount of commission was levied to service tax notwithstanding the fact that part of the amount was sub-vented. The appellant relied on the case of Jaika Motors Ltd Vs. Commr. 2014-TIOL-2033 CESTAT Mumbai in which it was held that when mere space is provided to banks in the premises of the dealer, it cannot be said that BAS has been provided. This judgement also referred to the case of Pagariya Auto Centre 2014-TIOL-141- CESTAT Delhi.
4.1 On the second issue where Revenue is in appeal, the Commissioner decided in their favour holding that the transactions between HMIL and the appellant are on a principal to principal basis. According to the Ld counsel, on purchase of the parts, the ownership changes to the appellant and as dealers of those vehicles and spare parts, it was their own interest to promote sales of the same and such promotion cannot be regarded as service rendered to HMIL. He relied on the Tribunals decision in the case of Pillay and Sons 2009 (14) S.T.R. 844 in which it was held that service tax cannot be levied on amounts which have been subjected to the levy of sales tax. He added that the incentives received by them on the sale are related to the sale only. He relied on the departments order in original dated 22.06.2009 in the case of M/s SAI Service Station Pune.
4.2. On the third issue of referral commission received from New India Assurance Co Ltd, the contention is that they merely referred the prospective customers, that is the owners of the cars, to the insurance company for renewal of insurance after due follow-up at their workshop. Further that they only acted as a commission agent and therefore, at best, their liability would be from 16 June 2005, when an explanation for the term commission agent was provided in the definition of BAS.
4.3 As regards the pre delivery inspection charges received from HMIL, the allegation is that such services are covered under sub clause (iii) of section 65 (19) of BAS under the subhead customer care service provided on behalf of the client. The contention of the appellant is that no charge is recovered from the customers for the free services. The Commissioner partly allowed their claim and confirmed the demand only to the extent of amount of service charges received by way of interdealer claim income towards the pre delivery inspection(PDI) and free services provided by the appellants.
4.4 The Ld counsel submits that the correct classification of the activity undertaken by them would be Business Support Service, which became taxable from 1/5/2006. He relied on Credentials (2009 (15) STR 307 (TRI Mum); Popular Vehicles And Services Ltd (2010 (18) STR 493 (TRI Bang) and Marikar Motors Ltd That (2011 (23) S.T.R. 458 (TRI Bang). He further contended that even if the activity undertaken is covered under BAS, it will get classified under the sub heading (vi) of BAS which covers provision of service on behalf of the client which came into effect from 10 September 2004. He agreed that Board circular dated 16 November 2006 clarified that such activities would come under BAS from 01.07 2003 as held by Tribunal decisions such as City Motors And Financial Services versus CCE, Gurgaon (2012 (25) STR 449 (TRI. Del ; South city motors Ltd versus Commissioner ST Delhi (2012 (25) STR 483 (TRI.Del). But the appellants had a bona fide belief that they were acting as a commission agent and exempted under notification 13/2003. They took registration in October 2004 for BAS. In view of the conflicting decisions, the invocation of extended period of limitation is not sustainable and neither are the penalties imposed under sections 76 and 78. He relied on the cases of City Motors(supra), South City Motors(supra), Brij Motors 2012(25)STR489 and Charak Pharma Pvt Ltd 2012(278)ELT319. According to the appellant, the present case is fit for invoking the provisions of section 80 for waiving the penalty. The Ld counsel also argued that the larger bench in the case of Pagariya Auto Centre (2014 (33) STR 506 (TLB) held that no uniform principal emerges as would guide determination of whether a particular transaction involving an interface between an automobile dealer and bank or financial institution would per se amount to BAS.
4.5 The Ld. counsel challenges the amount of commission on which service tax has been demanded. According to him the service tax payable on the commission received from HDFC bank is Rs. 16,98,132/- and not Rs. 23,58,519/-. And service tax can be demanded only on the basis of entries in their books of account and not on the basis of details submitted by the HDFC. The amount given by HDFC bank without being corroborated is unsustainable in law as per section 34 of the Indian Evidence Act; even their request for cross-examination of the concerned official of HDFC bank whose statement was recorded was not granted. The learned counsel submitted that although the respondents were directed to produce records pertaining to HDFC showing the gross commission given to the appellant and its treatment in the banks account, the respondent has not been able to produce any further record in spite of opportunity given by this Bench.
5. Ld. A.R. appearing for Revenue states that the Vice President of the appellant confirmed in his statement that they received commission on the loan amount from the banks. The service rendered by them to the financial institutions falls under the category of Business Auxiliary Service as held by the Tribunal in the following judgments:
(i) M/s. Roshan Motors Vs. Commissioner 2009 (13) STR 667 (Tri. -Del.)
(ii) Bridgestone Financial Services 2007 (8) STR 505 (Tri.Bang.)
(iii) Chambal Motors Pvt. Ltd. 2008 (9) STR 275 (Tri.Del.)
(iv) Sai Service Station Ltd. 2013-TIOL-1436-CESTAT-MUM.
He submits that although the appellant paid service tax on the commission after subvention, the subvention amount is a part of the commission due to the DSA, but which has been passed on to the customer by the bank as an incentive or subsidy in the interest. The service tax is payable on the entire amount of commission charged from the banks irrespective of the fact that the part of the amount was subvented. He relied on Board Circular No. 87/05/2006-ST dt. 6.11.2006 and the case of Chambal Motors Pvt. Ltd. (supra). Ld. AR also states that the appellant had declared only the net commission (gross commission ? discount passed on to the customer) in ST 3 returns.
5.1. As regards Referral Commission received from the insurance company, Ld. AR contended that the commission was paid to the appellant for promoting and marketing of services provided by New India Assurance Company Ltd. Promotion or marketing of service provided the client is covered under Section 65 (9) (ii) of the Finance Act 1994 from 1.7.2003. On the issue of limitation he stated that the appellant did not pay the service tax although they had mentioned the service tax amount on the debit notes raised on HDFC, which was confirmed by Shri Gaurang Shah, Vice President of the appellant. The commission received from New India Assurance Company Ltd. was also not declared. Further, the value of taxable service was not shown correctly as the subvention amount was not indicated in the S.T. 3 Returns. Only a comparison of S.T.3 Returns and information from the Bank revealed that the said value declared in S.T.3 Returns was substantially low. He also stated that the circulars issued by M/s. HMIL regarding inter dealer settlement rates for pre delivery inspection and free services contained information which was not declared to the department. For all these reasons, according to Ld. AR extended time period is applicable. He stated that the case of Pagariya Auto Centre Vs. Commissioner of Central Excise, Aurangabad 2014-TIOL-141-CESTAT-DEL-LB only decided that the identification of the transaction and its appropriate classification would depend on analysis of relevant Larger Bench. On the issue of penalty he relied on the case of BCCI reported in 2014-TIOL-1774-CESTAT-MUM later affirmed by the Mumbai Honble High Court holding that penalties under Sections 76 & 78 are imposable simultaneously.
5.2 As regards the appeal of Revenue he stated that the incentive received under various heads were reflected in the Profit and Loss Account and not under purchase and sale of goods. Therefore, this income falls under BAS and is not trading alone. In support he referred to the Letter of Intent dated 9.9.1999 between HMIL and the appellant which requires the appellant to follow HMIL guidelines in displaying and publicizing the publicity material developed by HMIL. He relied on Tribunal judgment in the case of Automotive Manufacturers Pvt. Ltd. 2013 (32) STR 539 (Tri.Mum.).
6. We have carefully gone through the facts of the case and submissions made by both sides.
6.1 It is an undisputed fact that the appellant were paying service tax on the commission received from other DSAs such as Kotak Mahindra Pvt. Ltd. and ICICI Bank. That they were marketing the financial products of the financial institutions is clear from one such agreement executed by them shown to us which contains clauses as below :
KMPL hereby appoints the Direct Marketing Associate as its marketing associate to market the various financial products and schemes of KMPL relating to vehicle finance..
.. However it is expressly understood that the Direct Marketing Associate shall perform the function of marketing of financial products and schemes introduced by KMPL relating to vehicle finance strictly in accordance with the norms prescribed by KMPL from time to time..
The Direct Marketing Associate shall understand the financial products and schemes of KMPL in order to be in a position to explain and highlight the beneficial aspects of the financial products and schemes to its customers.
.. The Direct Marketing Associate shall collect all pre-disbursement documents and post-disbursement documents from its customers to whom KMPL has either provided finance or agreed to provide finance and submit the same to KMPL without any undue delay Therefore the service provided by the appellant to the financial institutions/banks falls in the ambit of Business Auxiliary Service. The Ld. Counsel argued that the service provided by them falls under Business Support Service. We may refer to the definitions of Business Auxiliary Service and Business Support Service.
Pre 10.09.04 Finance Act, 2003 65(19)Business Auxiliary Service means any service in relation to,
(i) promotion or marketing or sale of goods produced or provided by or belonging to the client: or
(ii) promotion or marketing of service provided by the client; or
(iii) any customer care service provided on behalf of the client; or .
Post 10.09.04 Business Auxiliary Service means any service in relation to-
(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or
(ii) promotion or marketing of service provided by the client; or
(iii) any customer care service provided on behalf of the client; or
(iv) procurement of goods or services, which are inputs for the client; or Explanation :- For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, inputs means all goods or services intended for use by the clients
(v) production or processing of goods for, or on behalf of the client;
(vi) provision of service on behalf of the client; or..
Business Support Service Section 65(104) support service of business or commerce means services provided in relation to business or commerce and includes evaluation of prospective customers, tele-marketing, processing of purchase orders and fulfillment of services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions operational assistance for marketing, formulation of customer care service and pricing policies infrastructural support service and other transactions proceeds.
The contention of Ld. Counsel is that the service would fall under Clause (vi) namely provision of service on behalf of the client which was introduced in the definition of BAS only on 10.9.2004. We find from the above definitions that the service provided by the appellant is directly an activity of marketing of auto loans provided by the banks and they do not provide a service on behalf of the banks. The appellant bring in customers for the banks and the banks provide the financial service to the customers. Undoubtedly, this activity falls under BAS clause (ii) i.e. promotion or marketing of service provided by the client. The matter stands decided in the cases of Roshan Motors (supra) and Bridgestone Financial Services (supra). And quite apparently neither does the activity fall under the coverage of Business Support Service. Therefore, the contention of the appellant is not accepted.
On the basis of nature of activities undertaken by the appellant, we reject the contention that they had provided only infrastructural space to the Bank. We also do not agree with the reliance placed on the case of Pagariya (supra). This case had only decided that no uniform principal emerges as would guide determination of whether a particular transaction involving an interface between an automobile dealer and bank or financial institution would per se amount to BAS. In the present case we have delineated the activities of the appellant which clearly point to those covered under the BAS.
6.2 The question that remains to be examined is the quantum of commission actually received by the appellant from HDFC. The appellant disputes the amount indicated by HDFC in their letters to the department. The appellant insist that the amount received by them was less. The Ld. Counsel argued that they should have been allowed to cross examine officials of the bank. We are of the view that cross-examination of bank official is not necessary for such a simple factual matter. The bank has clearly indicated in their replies to the department the details of commission passed on by the bank. We find no reason to discard the information given by the bank. If appellant wanted to dispute the same, the appellant were free to get a clarification from the bank during last 7 years from 2006 when the Bank gave the details to the Department. But the appellant chose not to do so. Once the department produces a letter from the bank the onus shifts to the appellant to dis-prove the same. Therefore, we hold that the amount of commission paid by the bank for promotion of their financial products by the appellant to customers is subject to payment of Service Tax. The amount of commission declared by the appellant in their Service Tax Returns was less than the amount of commission declared by HDFC to the department. Even if some part of the commission was given by the bank to the customers directly on behalf of the appellant, the fact remains that the bank has shown full amount of commission as paid to the appellant. Board circular 87/05/2006 ST dt 6-11-2006 supports this view while stating that if part of the dealers commission is shared with the customers, that is an independent transaction between the dealer and the purchaser of the vehicle, and does not involve the service rendered by the dealer to the bank. Tax payable by the dealer would be the gross amount paid by the bank. Reliance is placed on the case of Chambal Motors(supra) which held thatFrom the nature of agreements on record including the franchisee agreement in the third appeal, it is clear that the assessees were, under an agreement with the bank had undertaken to provide service in relation to promotion or marketing of the Banking and Financial Services provided by the banks. The banks were providing services under the category Banking and Other financial services falling in clause (12) of Section 65. In relation to those services, the respondent - assessees were providing services for promotion or marketing of the banking and other financial services provided by the banks. The banks were, therefore, their clients being recipient of such services from the respondents. It has come in evidence that the respondents were required to obtain loan applications from their customers who desired to avail loans from the banks. The respondents had undertaken to process those applications and after scrutiny forward them to the bank. Admittedly, for such services, they were paid commission by the bank, which was reflected in their account. Once consideration accrued to them, as against the services provided by them to the bank, by way of commission, it was hardly of any consequence how a portion of that commission, which as per the particulars provided by the Bank was given as pay out to assessees in respect of which even the TDS was deducted, was spent by them. If they chose to give some amount from that gross commission amount to their customers either directly or through the bank, it would not change the nature of the receipts in their hand. 6.3 It is also seen that the service tax was being paid by the appellant on identical service provided to other financial institutions such as Kotak and ICICI. The Vice President of the appellant admitted that in the case of HDFC bank they had raised debit notes for Service Tax but the bank did not pay them the tax. This is no excuse for not paying tax to the Government. Therefore extended time period is invokable because the appellant knowingly did not pay the tax. Further, for not declaring the total commission received by them and the suppression of this fact also, the extended period of limitation would apply. The reliance on various judgements by the Ld Counsel regarding extended time period does not help the appellants case because, as we have mentioned above, the appellant was paying service tax for providing similar services to other banks. And the appellant were aware of their liability to pay tax as they had raised debit notes on HDFC bank in respect of service tax. There is clear suppression of facts and penalties are imposable both under Sections 76 and 78 as held in the case of BCCI (supra).
6.4. As regards the Referral Commission received by the appellant from the insurance company, we agree with the Ld. AR that the commission is not received as a commission agent because the promotion and marketing of the insurance service is also covered under Section 65(19) (ii) of the Finance Act, 1994 which came into effect from 1.7.2003. The fact of receiving commission was not declared to the Department and this suppression of facts warrants invocation of extended time period for demanding the tax.
6.5 On the appeal by Revenue on the issue of incentives received by the appellant from the car dealer, we find that the relationship between the appellant and the dealer is on a principal to principal basis. Only because some incentives/discounts are received by the appellant under various schemes of the manufacturer cannot lead to the conclusion that the incentive is received for promotion and marketing of goods. It is not material under what head the incentives are shown in the Ledgers, what is relevant is the nature of the transaction which is of sale. All manufacturers provide discount schemes to dealers. Such transactions cannot fall under the service category of Business Auxiliary Service when it is a normal market practice to offer discounts/institutions to the dealers. The issue is settled in the case of Sai Service Station (supra). Therefore, we reject the appeal of the department.
6.6. As regards the issue of tax on pre delivery inspections we find that there is no difference whether the services are provided by one dealer or another and therefore service tax cannot be levied in respect of inter dealer claims.
6.7. In view of the above discussion, appeal of M/s. Jaybharat Automobiles Ltd. regarding duty demands except for demand of tax on inter dealer claim, is rejected. Interest under Section 75 and penalties under Sections 76 and 78 are ordered to be paid appropriately in accordance with the amount of demand confirmed by us. Penalty under Section 77 is upheld. The appeal of Revenue is rejected.
7. Appeals are disposed in above terms.
(Pronounced in court on /2015)
(Anil Choudhary)
Member (Judicial)
(P. S. Pruthi)
Member (Technical)
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