Custom, Excise & Service Tax Tribunal
Sbi Life Insurance Co Ltd vs Commissioner Central Goods And Service ... on 8 July, 2022
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL, MUMBAI
REGIONAL BENCH - COURT NO. I
Service Tax Appeal No. 89285 of 2018
(Arising out of Order-in-Original No.108-110/VR/COMMR./2018-19 dated
30.08.2018 passed by the Principal Commissioner of GST & CX, Mumbai)
M/s SBI Life Insurance Co. Ltd. .... Appellant
Natraj M V Road & Western Express Highway
Junction, Andheri (E), Mumbai.
Versus
Principal Commissioner of Central .... Respondent
Goods and Service Tax-Mumbai
9th Floor, Lotus, Parel, Lotus Infocentre,
Near Parel Station, Parel (E)-12.
WITH
Service Tax Appeal No. 89288 of 2018
(Arising out of Order-in-Original No.108-110/VR/COMMR./2018-19 dated
30.08.2018 passed by the Principal Commissioner of GST & CX, Mumbai)
M/s SBI Life Insurance Co. Ltd. .... Appellant
Natraj M V Road & Western Express Highway
Junction, Andheri (E), Mumbai.
Versus
Principal Commissioner of Central .... Respondent
Goods and Service Tax-Mumbai
9th Floor, Lotus, Parel, Lotus Infocentre,
Near Parel Station, Parel (E)-12.
AND
Service Tax Appeal No. 89310 of 2018
(Arising out of Order-in-Original No.108-110/VR/COMMR./2018-19 dated
30.08.2018 passed by the Principal Commissioner of GST & CX, Mumbai)
M/s SBI Life Insurance Co. Ltd. .... Appellant
Natraj M V Road & Western Express Highway
Junction, Andheri (E), Mumbai.
Versus
Principal Commissioner of Central .... Respondent
Goods and Service Tax-Mumbai
9th Floor, Lotus, Parel, Lotus Infocentre,
Near Parel Station, Parel (E)-12.
2
Service Tax Appeal No. 89285 of 2018
Service Tax Appeal No. 89288 of 2018
Service Tax Appeal No. 89310 of 2018
Appearance:
Shri V. Sridharan, along with Shri Sachin Mishra, Advocate for the Appellant
Shri Anand Kumar, Authorized Representative for the Respondent
CORAM:
HON'BLE MR. S.K. MOHANTY, MEMBER (JUDICIAL)
HON'BLE MR. P. ANJANI KUMAR, MEMBER (TECHNICAL)
FINAL ORDER NO. A/85616-85618/2022
Date of Hearing: 21.04.2022
Date of Decision: 08.07.2022
Per: P. ANJANI KUMAR
The appellants M/s SBI Life Insurance Company Ltd. (hereinafter
called as SBILICL) are engaged in providing life insurance services; the
appellants engaged the services of insurance agents and availed "Insurance
Auxiliary Services", as defined under Section 65(55) of the Finance Act 1994.
DGCI initiated investigations against the appellants and it was alleged that
the appellants were not including certain expenses such as business
promotion expenses, pre recruitment training expenses, refreshable training
expenses & sells and other training expenses; and that the appellants have
illegally recovered service tax from the insurance agent and the same is
recoverable under Section 73A (3) of Finance Act, 1994. Three show cause
notices dated 23.09.2013, 22.04.2016 & 11.04.2018 were issued to the
appellants covering the period April 2008 to March 2013, April 2014 to March
2015 & April 2015 to June 2017 respectively demanding service tax of Rs.
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Service Tax Appeal No. 89310 of 2018
3,53,33,07,408/-; 1,82,44,893/- and 8,73,39,908/- respectively. Show cause
notices also proposed to impose penalty on that Section 76, 77 and 78 of
Finance Act, 1994. All the three show cause notices were confirmed by the
impugned order dated 30.08.2018. Accordingly, Appeal Nos. ST/89285/2018,
ST/89288/2018 & ST/89310/2018 were filed by the appellants.
Submissions on the includibility of various expenses
2. Shri Shridharan Senior Counsel along with Shri Sachin Mishra appeared
on behalf of the appellant and submits as regards the alleged non inclusion of
expenses that the appellants have entered in to agreements with
individuals/corporate who act as the insurance by the appellants. The
appellants are discharging service tax on reverse charge basis on the
commission amount paid to the insurance agents in terms of Rule 2(1)(d)(iii)
of the Service Tax Rules, 1994. He explains the nature of different expenses
incurred by them as follows:-
2.1 Sales training and other Training Expenses:- The appellants organizes
training programmers for insurance agents at various location to adequately
trained and update them about regulatory changes, the new product launch,
market to be targeted, business strategy, feedback and also to discuss other
issues. He submits that the appellants are not liable to pay service tax on the
expenses incurred on these trainings; training institutes provide training to
the agents, as per the contract with the appellants; the beneficiary of the
services is the appellants and the same is a normal business expenditure in
the hands of the appellants; by no stretch of imagination the same can be
termed to be consideration to the agents.
2.2 Pre-recruitment Training Expenses:- in terms of the IRDA instructions
the potential candidate who aspired to become insurance agents have to
mandatorily undergo the prescribe number of hours of training in order to
obtain the license as insurance agents; the expenses related to such training
and examination are incurred by the appellants. He submits that the appellant
are not liable to pay service tax as the expenses are incurred by the persons
who are yet to be license as insurance agents; Section 65 (105)(zy) seeks to
levy service tax on insurance auxiliary services provided by an "Insurance
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Agents". "Insurance Agents" is defined to be the one who is license under
Section 42 and the one who receives or agrees to receive payment by way of
commission or other remuneration in consideration of procuring insurance
business.
2.3 Business Promotion Expenses:- this expenses are incurred for holding
events to felicitate the excellent performance by the agents; expense are
incurred in the form of traveling cost, accommodation, event management
which are directly paid to the hotels; these are incliner expenses incurred by
such agents for attending the events. He submits that certain expenses such
as local conveyance, boarding, lodging, food etc. which are incidental
expenses incurred by the agents for attending the events are reimbursed to
the agents; as they are not in relation to procuring insurance business the
same cannot be tax at the hands of the appellants.
2.4 Refreshable/ Renewal Training Expenses:- as per IRDA guidelines the
licenses granted are valid only for 3 years; in case the agents wished to
renew their licenses they need to undergo training; for this purpose the
appellants engage the training institute to impart the training.
2.5 He submits that various vendors/training institutes raised the invoices
in the name of the appellants and the appellants have paid for the same. The
show cause notices alleged that an expense incurred by the appellants is on
behalf of the agents and hence the same are includible in the taxable value in
the service provided by the agents to the appellants in terms of Rule 5 & Rule
6 of the Service Tax (determination of value) Rules, 206.
2.6 He submits that in terms of IRDA Regulation 2002 insurance agents
required to get trained before they are license and before their license is
reissue after the expiry of 3 years. Therefore, the expenses incurred by the
agents and reimbursed by the appellants this regards cannot be termed as
commission for procuring insurance business. He further submits that various
kinds of expenditure incurred by the appellant towards the recruitment
trainee etc are normal business expenditure incurred by the appellants and
are paid to the institutes. He submits that just because a third party derives a
benefit out of a particular service, he doesn't mean that the original party
who contracted to receive the service will be denied the benefit. He submits
that this view is supported by the decision of the House of Lords in the
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English case of Customs and Excise Commissioner Vs. Redrow Group Plc.
(1999 AII ER). He submits that the above case was relied upon by Bombay
High Court in the case of Coca Cola India Pvt. Ltd. V CCE, Pune 2009 (242)
E.L.T. 168 (Bom.) and was followed.
3. Learned Senior Counsel submits that the issue involved regarding the
expenses incurred as above is no longer res integra having the settled by the
Tribunal in the following cases:-
(i) Bajaj Aliance Life Insurance Co. vs. Commissioner of C.E. & S.T. 2019-
VIL-322-CESTAT-MUM-ST;
(ii) M/s.Max Life Insurance Company Ltd. Vs. Commissioner of C.E. & S.T.,
2019 (12) TMI 121-CESTAT NEW DELHI; and
(iii) Edelweiss Tokio Life Insurance Company Ltd. Vs. CST, 2021 (3) TMI
614-CESTAT MUMBAI.
4. Learned Senior Counsel submits that Rule 5 and Rule 6 of the Service
Tax (determination of value) Rules, 2006 read with Section 67 of the Finance
Act, 1994 are not applicable in this case. The appellants have discharge
service tax on the gross amount charge by the insurance agent under reverse
charge mechanism; in terms of Rule 5 all expenses incurred by the service
provider are includable in the taxable value; the instance case the appellants
are service recipients and not service providers; it is not also the case that
the insurance agents, who are providing the service are spending the
amounts and seeking reimbursement; the expenses involved are the
expenditure incurred by the appellant in the running of their business.
5. Learned Senior Counsel further submits that in terms of Rule 6 any
commission, fee are any other some received by the insurance agents shall
form part of the valuable taxable service; the value of taxable services
rendered by the insurance agents includes commission/ incentives on which
the appellants have already discharge the applicable tax. He further submits
that without prejudice the above Rule 5 of the Valuation Rules has been
stroked down, by the Hon'ble High Court, whole in the same to be ultra wires
and unconstitutional in the case of International Consultants & Technocrats
Pvt. Ltd. V/s UOI 2013- (29) S.T.R. 9 (Del.) (upheld by Supreme Court 2018-
TIOL-76-SC-ST); Hon'ble Apex Court has held the same in the case of CST
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Vs. Bhayana Builders (P) Ltd. -2018 (10) GSTL 118 SC. He further submits
that Apex Court in the case of Devi Dass Gopal Krishnan and others Vs. State
of Punjab & Ors. (1967) 20 STC 430 held that the phrase 'other valuable
consideration' would take color from the expression 'cash or deferred
payment' and unless transfer is made for money consideration, such transfer
will not be sale and is not liable to levy of tax under the provision of the Act.
6. Learned Senior Counsel also submits that the principle of noscitur a
sociis is applicable with the case; clause 6 has expression like 'amount of
premium charge', 'adjustment of deposit', 'any amount received' etc.; these
clauses also suggest that what is liable to service tax his money consideration
and nothing more. He relies on H. H. Sri. Rama Verma vs. CIT, (1991) 187
ITR 308 (SC) and Vijaipat Singhania vs. CIT, (1992) 193 ITR 274 (SC).
7. Learned Senior Counsel further submits that the extended period is not
evocable as the appellants did not suppress or misstate any fact with intent to
evade payment of service tax; they have been in-continuous correspondent
with the department in 2009-2010 the department is well aware of the facts.
He submits that for this reason no penalty also is impossible.
Submissions on the applicability of Section 73 A (2) and 73 A (3)
8. Learned Senior Counsel submits that the appellant have entered into
agreements with individual/ corporate who act as insurance agents of the
appellants; the appellants are discharging service tax on reverse charge
mechanism on the commission paid to the insurance agents in term of Rule 2
(1) (d) (iii) of the Service Tax Rule, 1994; in terms of the applicant the
commission paid to the insurance agents is inclusive of service tax paid on
such commission; appellants had deducted 100 percent of the amount
representing as service tax from the insurance commission paid to the
agents; appellants were thus, paying the net amount arrived at after
deducting service tax and TDS from the insurance commission. He submits
the department alleges that in terms of Section 73 A (2), 1994 the appellants
recovered the amount as service tax from the insurance agents without
authority of law and did not deposit the same with the government. He
submit that the issue is no longer res integra as it is squarely covered by the
decision of the evidence as follows:-
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(i) Bajaj Alliance Life Insurance Co. vs. Commissioner of C.E. & S.T.
2019-VIL-322-CeSTAt-MUM-ST;
(ii) M/s. Max Life Insurance Company ltd. Vs. Commissioner of C.E. & S.T.,
2019 (12) TMI 121-CESTAT NEW DELHI;
(iii) Edelweiss Tokio Life Insurance Company ltd. Vs. CST, 2021 (3) TMI
614-CESTAT MUMBAI; and
(iv) CCGST Vs. Birla Sunlife Insurance Co. Ltd., 2022 (1) TMI 969-CESTAT
MUMBAI
9. Learned Senior Counsel submits that the appellant have not collected
any amount form the insurance agents representing as service tax and
therefore, the question of payment of such so called amount of service tax
under Section 73 A (2) of the Finance Act, 1994; in terms of the agreement
commission paid to insurance agent is inclusive of service tax paid; the
appellants had deducted 100 percent of the amount representing that service
tax from the insurance commission being paid to the agents; therefore, the
appellants were paying the net amount arrived at after deducting service tax
and TDS; it is a method of computing the commission amount' the appellants
have not violated any provision of law; Hon'ble Apex Court has gone into the
issue of agreement between parties which provided for the burden of taxes to
be borne by the service provider in the case of Rashtriya Ispat Nigam Ltd vs.
M/s. Dewan Chand Ram saran, 2012- TIOL-37-SC-ST and held that " The
provisions concerning service tax are relevant only as between the appellant
as an assesse under the statute and the tax authorities. This statutory
provision can be no relevance to determine the rights and liabilities between
the appellant and the respondent as agreed in the contract between two of
them. Thus, he submits that there is no bar under the law for deducting the
amount of service tax from the commission payable to the agents. The above
case was relied upon by CESTAT in the case of Bajaj Life Insurance Company
and Max Life Insurance Company (both supra).
10. Learned Senior Counsel submits that a close reading of Section 73 A of
the Finance Act, 1994 makes it clear that sub section (1) covers a situation
where a person liable to pay service tax is involved where as sub-section (2)
covers a situation where any person otherwise not liable to pay service tax is
involved; both the sections are mutually exclusive; in instant case only sub-
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section (1) is involved as the appellants are liable to pay service tax on the
commission paid to the insurance agents; the show cause notice however,
involves Section 73 A (2) of the Finance Act, 1994. He submits that Section
73 A (1) can also be not revoked in the present case as the appellant
correctly discharged service tax on the commission paid by the insurance
agents; the collection of said service tax from such agents is merely the
contractual arrangement; Rule 2 (1) (d) of Service Tax Rules, 1994 does not
contained a provision fastening the service tax on the service recipient which
is actually to be paid by the service provider; it is only through the reverse
mechanism the appellants are paying tax.
11. Learned Senior Counsel submits that prior to 18.04.2006, Section 83 of
the Finance Act, 1994 read with Section 11 D of the Central Excise Act 1994,
was relevant; Apex Court in the case of Mafatlal Industries Ltd. -1997 (89)
ELT_247 (S.C.), dealing with the subject held that there is no bar in the
statute saying that the prayer of the duty/tax cannot recover it from their
clients and they cannot be any double jeo pardy. This is was relied upon by
the Larger Bench in the case of Unison Metals Ltd.-2006 (4) STR 491 and
Bajaj Alliance Life Insurance Co. Ltd. Case (Supra), Max Life Insurance
Company Ltd. Case (supra). He further submits that Section 73 A is
introduced in order to prevent unjust enrichment of the assessee- it cannot
be interpreted to unjustly impoverish the assessee.
12. Learned Authorized Representative for the Departments reiterates
findings of Order-in-Original.
13. Heard both sides and peruse the record of the case. Brief questions
that require to be answered herein are that as to whether
(i) Whether the appellants are required to pay service tax on the amount
representing the service tax paid by them and deducted by them from the
commission payable to their life insurance agents.
(ii) Whether the appellants are liable to pay service tax on various
expenses incurred in training, business promotion expenses, pre-recruitment
etc.
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14. Coming to the first issue as to whether the appellants are liable to pay
service tax on the amounts, representing service tax and TDS, deducted by
them from the commission payable to their agents. The appellants have
engaged the services of various agents for procuring life insurance business;
the agents or require to pay service tax under Section 65 (105) (zy) of the
Finance Act, 1994 on the insurance auxiliary services; however, the
appellants are paying such service tax on the basis of reverse charge
mechanism. While paying the commission due to the agents the appellant
have deducted the service tax paid by them and TDS amount from the
commission; it is this amount representing the service tax recovered from the
appellants, is sought to be recovered as service tax by the Revenue under
provision of Section 73 (2) and Section 73 (3) of the Finance Act, 1994. It is
alleged in the SCN that while paying the Commission to the Insurance Agents.
Department is of the view that as per provisions of Section 68(2) of the Act
read with Rule 2(1)(d)(ii) and Rule 2(1)(d)(i)(A) of the ST Rules read with
Notification No. 36/2004 ST and 30/2012-St respectively, the Noticee is the
person liable to pay service tax and they are not authorized to collect the
service tax element from Agents. Since, the Noticee have recovered the
Service Tax element from the Agents by way of deduction in Commission paid
to the Agents, it is alleged that the said amount is recoverable from the
Noticee under the provisions of Section 73A(2) of the Act. The Noticee claims
that such collection is as per the contract /agreement between the Noticee
and the Agents, wherein it is agreed that the Commission is inclusive of
Service Tax element and the tax elements are to be borne by the Agents.
15. For ease of reference, the relevant statutory provisions are reproduced
as under
(i). Section 68 of the Finance Act, 1994, reads as under:
(1) Every person providing taxable service to any person shall pay
service tax at the rate specified in section 66 in such manner and within
such period as may be prescribed.
(2) Notwithstanding anything contained in sub-section (1), in respect of
[such taxable services as may be notified] by the Central Government
in the Official Gazette, the service tax thereon shall be paid by such
person and in such manner as may be prescribed at the rate specified
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in section 66 and all the provisions of this Chapter shall apply to such
person as if he is the person liable for paying the service tax in relation
to such service:
[Provided that the Central Government may notify the service and the
extent of service tax which shall be payable by such person and the
provisions of this Chapter shall apply to such person to the extent so
specified and the remaining part of the service tax shall be paid by the
service provider].
(ii). The Rule 2 (1)(d) of Service Tax Rules, 1994 (as existed till
30.06.2012), reads as "person liable for paying service tax" means,
(1) In relation to telecommunication service,
(a)....
(b)..
(c)
(ii) In relation to general insurance business.........
(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.
(iv)....
(iv)
(iv)..
(iii). The Rule 2 (1)(d)(1)(A) of the Service Tax Rules, 1994, with effect from
01.07.2012, reads as "person liable for paying service tax",
(i) In respect of the taxable services notified under sub-section (2) of
section 68 of the Act, means,
(A) In relation to service provided or agreed to be provided by an
insurance agent to any person carrying on the insurance business, the
recipient of the service.
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(iv). Section 73A of the Act, reads as 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 there under, and has collected any
amount in excess of the service tax assessed or determined and paid on
any taxable service under the provisions of this Chapter or the rules
made there under 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 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.
16. A plain reading of the provisions, of Section 73A (2) and (3), which
have been invoked by the Revenue, it is clear that 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, shall forthwith pay the
amount so collected to the credit of the Central Government. A correct
reading of the provisions indicates that the amount representing service Tax
would necessarily mean the service Tax not paid. There is no provision to say
that service Tax which has already paid should not be recovered from anyone.
Such an understanding is contrary to the principles of indirect taxation. It is
not the case of the department that service tax has not been paid by the
appellants. The provisions would apply only in cases where service tax is
recovered, by the person liable to pay Tax from their Customers and is not
paid to the Government. An indirect Tax is bound to be passed on. If the
person liable to pay Tax, having paid the Tax liable, has an
understanding/agreement with his Customers to recover such Tax from them,
the provisions of the Section cannot be invoked. This principle has been
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clearly enunciated by the Apex Court in the case of Rashtriya Ispat Nigam Ltd
(Supra). Hon'ble Apex Court held that
26. As far as the submission of shifting of tax liability is concerned, as
observed in paragraph 9 of Laghu Udyog Bharati (supra), service tax is an
indirect tax, and it is possible that it may be passed on. Therefore, an assessee
can certainly enter into a contract to shift its liability of service tax. Though the
appellant became the assessee due to amendment of 2000, his position is exactly
the same as in respect of Sales Tax, where the seller is the assessee, and is liable
to pay Sales Tax to the tax authorities, but it is open to the seller, under his
contract with the buyer, to recover the Sales Tax from the buyer, and to pass on
the tax burden to him. Therefore, though there is no difficulty in accepting that
after the amendment of 2000 the liability to pay the service tax is on the
appellant as the assessee, the liability arose out of the services rendered by the
respondent to the appellant, and that too prior to this amendment when the
liability was on the service provider. The provisions concerning service tax are
relevant only as between the appellant as an assessee under the statute and the
tax authorities. This statutory provision can be of no relevance to determine the
rights and liabilities between the appellant and the respondent as agreed in the
contract between two of them. There was nothing in law to prevent the appellant
from entering into an agreement with the respondent handling contractor that
the burden of any tax arising out of obligations of the respondent under the
contract would be borne by the respondent.
17. Moreover, we find that as submitted by the Senior Counsel for the
appellants, the issue is no longer Res Integra. This Tribunal has gone in to the
case, with identical facts, in respect of HDFC Standard Life Insurance Co 2017
(49) S.T.R. 301 (Tri. - Mumbai), and held relying on Rashtriya Ispat Nigam
Ltd (Supra) that such Tax which is paid and recovered is not again Taxable.
Tribunal held that
9. In service tax levy, too, the person liable to pay the tax is required to
deposit the tax amount irrespective of the quantum or stage of recovery from the
person who bears the burden of tax. There is a distinct dichotomy, in both
Central Excise Act, 1944 and Finance Act, 1994, of the obligation to credit the
tax with Central Government and the recovery of the amount from the other
person. And that is a dichotomy that does not brook any latitude whatsoever and
its acceptance by Revenue is amply evidenced by Circular No. 870/8/2008-CX,
dated 16th May, 2008 which clarifies that Section 11D of Central Excise Act,
1944 is not liable to be invoked even if the mandated payment for availing
Cenvat credit on inputs used in exempt goods is recovered from the buyers of
the output goods. That this ratio applies to service tax levy and that recovery of
amount already paid would be tantamount to double deposit is enunciated by
the Tribunal in Sangam India Ltd. v. Commissioner of Central Excise, Jaipur-II
[2012 (28) S.T.R. 627 (Tri.-Del.)].
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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.
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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.
18. The Tribunal has consistently held as above in the cases of Bajaj Alliance Life Insurance Co; M/s. Max Life Insurance Company ltd; Edelweiss Tokio Life Insurance Company ltd and Birla Sun life Insurance Co. Ltd (all supra). In addition we find that it is not the case of the department that the amounts in question are not paid to the insurance agents of the appellants (the service providers) to be viewed as a consideration liable to be taxed, at the hands of the service providers, for the services rendered, notwithstanding the fact that in the instant case the appellants have discharged the duty on reverse charge mechanism. On this count also, such amounts recovered by the appellants, who are service recipients, cannot be taxed in the scheme of service Tax. Therefore, we hold that on both these counts the demand on amount of service tax recovered by the appellants from their agents cannot be sustained. Thus, the demand of Rs 344, 39, 75,575 is liable to be set aside. As the demand itself is held not sustainable, the question of Interest and penalty does not arise at all.
19. Coming to the various expenses incurred by the appellant for training of the insurance agents and business promotion expenses, the appellants have submitted that these are business related expenses and have no connection with the consideration paid/payable to the insurance agents by the appellants for the services availed; Rule 5 and 6 of the Valuation Rules are not applicable as the appellants have been discharging service tax on the commission paid to the insurance agents by way of reverse charge mechanism and that without prejudice to the above Rule 5 of the Service Tax Valuation Rule has been held ultra wires by the Apex Court in the case of intercontinental consultants and Technocrat Pvt. Ltd. (supra). We also find that the appellants have relied upon Bajaj Alliance Life Insurance Co; M/s. Max Life Insurance Company 14 Service Tax Appeal No. 89285 of 2018 Service Tax Appeal No. 89288 of 2018 Service Tax Appeal No. 89310 of 2018 ltd; Edelweiss Tokio Life Insurance Company ltd all (supra) and stated that the issue is no longer res-integra. We find that Tribunal in the case of Bajaj Alliance Life Insurance Co. (supra) held that
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 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 15 Service Tax Appeal No. 89285 of 2018 Service Tax Appeal No. 89288 of 2018 Service Tax Appeal No. 89310 of 2018 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 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 16 Service Tax Appeal No. 89285 of 2018 Service Tax Appeal No. 89288 of 2018 Service Tax Appeal No. 89310 of 2018 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 "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'.17
Service Tax Appeal No. 89285 of 2018 Service Tax Appeal No. 89288 of 2018 Service Tax Appeal No. 89310 of 2018 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 18 Service Tax Appeal No. 89285 of 2018 Service Tax Appeal No. 89288 of 2018 Service Tax Appeal No. 89310 of 2018 expenditure or cost incurred by the service provider and charged in the course of Bajaj Allianz & Ors-38867114 etc resd-30.5 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.
20. We find that CESTAT in the case of Max Life Insurance Co (Supra) followed the above judgment and held that
17. Further, reliance is placed on Bajaj Allianz Life Insurance Co. Ltd. v. Commissioner of C.E. & S.T., Pune-III, Final Order No. A/86013-86023/2019 wherein Hon'ble CESTAT held that expenses incurred in pre-recruitment training and post license 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.
21. It was also held in Edelweiss Tokio Life Insurance Company Ltd (Supra) that
9. As far as the first issue is concerned, the expenses incurred by the insurance agents are proposed to be included and under Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 which was in force during the relevant time. The said Rule 5(1) has been struck down by the Hon'ble Delhi High Court as ultra vires to Section 66 and 67 of Finance Act, 1994 and the said judgment has been upheld by the Hon'ble Supreme Court in Intercontinental Consultants and Technocrats Pvt Ltd case (supra).
22. In view of the above, we have no doubt whatsoever expenditure incurred for training/refresher Training and other cost /expenses incurred by the appellants cannot be including in the value of the Taxable service prior to 14.05.2015. In respect of the period post 14.05.2015, the appellants submits that the explanation inserted by the amendment vide Finance Act, 2015 in Section 67 of the Finance Act, 1994 clearly states that consideration includes any reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing are agree into provide a taxable service. He submits that for this explanation to apply the insurance agents bring a service provider in the present case 19 Service Tax Appeal No. 89285 of 2018 Service Tax Appeal No. 89288 of 2018 Service Tax Appeal No. 89310 of 2018 ought to have incurred this expenses and claimed reimbursement from the appellants; in the present case the expenses have been incurred by the appellants being the service recipient on their own account and non of the cost is even getting reimbursed to the agents.
23. We find that the explanation inserted under Section 67 as above, with effect from 14.05.2015 reads as under:-
"a) Consideration includes-
i) any amount that is payable for the taxable services provided or to be provided;
ii) any reimbursable expenditure or cost incurred by the service provider and charged, in the course of proiding or agreeing to provide a taxable service, except in such circumstances, and subject to such conditions, as may be prescribed;
iii) any amount retained by the lottery distributor or selling agent from gross sale amount of lottery ticket in addition to the fee or commission, if any, or, as the case may be, the discount received, that is to say, the difference in the face value of lottery ticket and the price at which the distributor or selling agent gets such ticket.
b) ****
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."
24. A perusal of the above provisions indicate that the "consideration" for the purposes of levy of service tax include any amount that is payable for the taxable services provided or to be provided and any reimbursable expenditure are cost incurred by this service provider and charged. In the instant case it is not the case of the Revenue that the expenses in question were incurred by the service provider i.e. the insurance agents and charged to the appellants. It is the appellants that have incurred the expenditure. though, it can be argue, that the expenses on pre- recruitment training/ re-furbisher training should have been born by the 20 Service Tax Appeal No. 89285 of 2018 Service Tax Appeal No. 89288 of 2018 Service Tax Appeal No. 89310 of 2018 agents themselves in order to obtain a license from the Regulatory Authority, the explanation to Section 67 as above does not provide for inclusion of any expenditure that could have been borne by the service providers. The only condition under which such expenditure shall be includable for the purposes of levy of service tax is that the expenditure should be borne by the service provider and the same should be charged to the service recipient. Therefore, in the facts and circumstances of the case, we find that the expenses incurred by the appellants are not goes required to be included in terms of the explanation under Section 67 D. Therefore, we find that demands confirmed on the various expenses incurred by the appellants are not sustainable. Accordingly, they need to be set aside. When the demands are liable to set aside various penalty imposed are also not sustainable.
25. In view of the above, the impugned order is set aside and the appeals are allowed with consequential relief, if any, as per law.
(Order pronounced in the open court on .................... ) S. K. Mohanty) Member(Judicial) (P. Anjani Kumar) Member (Technical) ys