Whether commission received from banks & insurance companies leviable to service tax under BAS?

PJ/CASE LAW/2015-16/2681

Case:-ATMA RAM AUTO ENTERPRISES VERSUS COMMISSIONER OF C. EX., KANPUR

Citation:-2015(37) S.T.R. 405(Tri.- Del)

Brief Facts:-The appellants were authorised dealers of M/s. Mahindra & Mahindra Ltd. and M/s. Hero Honda Motors Ltd. and registered under the category of Business Auxiliary Service. It was found on scrutiny of their records that during the years 2003-04, 2004-05 and 2005-06 they had received commission from banks as well as insurance companies and also received some payments from M/s. Mahindra & Mahindra Ltd. and M/s. Hero Honda Motors Ltd. It was alleged in the Show Cause Notice dated 28-5-2007 that the said amounts were liable to Service Tax under Business Auxiliary Service and extended period was invocable due to wilful mis-statement/suppression of facts by the appellants. While original adjudicating authority confirmed the demand of Service Tax on the entire amount along with interest and penalties the appellate authority came to a finding that the amounts received from M/s. Mahindra & Mahindra Ltd. and M/s. Hero Honda Motors Ltd. were not liable to Service Tax but the amounts received as commission from banks and insurance companies were liable to Service Tax under Business Auxiliary Service because the same were received for services rendered in relation to marketing of their products as we evident from the facts available on record. The Commissioner (Appeals) also conceded that the appellants were entitled the cum-tax benefit and accordingly confirmed the demand of Service Tax of Rs. 3,98,759/-. The appeal filed by the appellants is against the said confirmation of demand.
The Commissioner (Appeals) also observed that the appellants had already deposited the impugned Service Tax demand along with interest before the issue of Show Cause Notice and that from the facts and circumstances of the case it was clear that there was no mens rea on their part. The Commissioner (Appeals) further observed that there was not intent to evade Service Tax, and extended the benefit of Section 80 of Finance Act 1994 to the appellants with regard to penalties under Sections 76 and 78 although the penalties imposed under Section 77 was upheld as they were levied for the failure to comply with the procedure. The Revenue has also filed appeal against the said Order-in-Appeal.

Appellant’s Contention:-The appellants submit that the commission received by them from banks and insurance companies was not classifiable under Business Auxiliary Service as they had only provided table space to their (i.e. banks’ and insurance companies’) representatives and that there was no suppression or wilful mis-statement on their part and therefore extended period cannot be invoked.

Revenue’s Contention:-The Revenue submit that the appellants did not deposit the impugned Service Tax on their own and did so only after the evasion was detected by the Department and that the penalty under Section 76 doesn’t require mens rea and therefore the benefit of Section 80 should not have been extended to the appellant with regard to penalties under Section 76 and 78 of the Finance Act, 1994.

Reasoning of Judgement:-The Tribunal heard both the parties and considered that the Commissioner (Appeals) has given a clear finding based on documentary evidence that the commission received by the appellants from banks and insurance companies was in relation to marketing of their product. The appellants have not given any evidence to the contrary. The service rendered in relation to marketing of the products of banks and insurance companies is expressly covered under the category of Business Auxiliary Service as seen from the definition thereof given in Section 65(19) of Finance Act, 1994 which includes service in relations to promotion or marketing of service. Further this issue is covered in favour of Revenue in the CESTAT Larger Bench decision in the case of M/s. Pagariya Auto Center v. CCE, Aurangabad - Interim Order No. M/35/14/SMB/LB/C-IV, dated 12-9-2013 [2014-TIOL-141-CESTAT-DEL-LB = 2014 (33)S.T.R.506 (Tri. - LB.)]. In view of above discussion, we find that the appellants’ appeal is not sustainable.

The Tribunal further consider as regards the Revenue’s appeal that it is seen that the Commissioner (Appeals) has categorically observed that there was no mens rea or intention on the part of the appellants to evade Service Tax which they had paid along with interest even before the issue of Show Cause Notice. In these circumstances, when it is held that there was no mens rea on the part of the appellants extending the benefit of Section 80 cannot be said to be illegal, perverse or even unreasonable. The Revenue also seems to be conceding the absence of mens rea when it is contended by them that mens rea is not a pre-requisite for penalty under Section 76. It is pertinent to mention that the impugned order cannot be overruled merely because some other equivalent authority may have come to a different conclusion with regard to extending the benefit of Section 80 in the given circumstances. To set aside the impugned order, Revenue has to show that the said order is illegal, perverse or unreasonable with regard to extending the said benefit in the given circumstances. The Revenue has evidently failed to do so. Consequently the Revenue’s appeal also does not sustain.

Decision:-The appellants’ appeal is dismissed and Revenues appeal is also rejected.

Comment:-This crux of the case is that if the assessee has received commission from banks and insurance companies that is in relation to marketing of their service, then the service tax is liable to be paid under the category of Business Auxiliary Service. In this case, Tribunal has dismissed the appeal of assessee because there is documentary evidence in respect of the commission received by the assessee from banks and insurance companies. The Tribunal also rejected the appeal of Revenue, because revenue has not proved that the OIA is illegal or incorrect and it is also cannot be overruled merely because some other equivalent authority may have come to a different conclusion with regard to extending the benefit of Section 80 in the given circumstances. When the assessee paid service tax along with interest before issuance of show cause notice, mens rea could not be established so as to impose penalties.

Prepared by: Bharat Rathore

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PJ/CASE LAW/2015-16/2681

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