Whether service tax liability arise on Referral Charges received by authorized service stations from Banks and Insurance Company to promote the business of extending credit facility and insurance service to the prospective customers ?

PJ/Case Laws/2012-13/1321

Case:- TVS MOTORS COMPANY LTD Vs COMMISSIONER OF CENTRAL EXCISE, CHENNAI

Citation:- 2012-TIOL-1569-CESTAT-MAD

Brief Facts:- The appellant had provided promotion and marketing services to Banks and Insurance Company. Banks sanctioned loan to the prospective customers identified by the appellant for buying vehicles of appellant company, insurance of those vehicles were done by Insurance Company. Appellant and its dealers as well as authorized service centres were promoters of business of the bank and insurance company. The appellant collect consideration from bank and insurance company for joint promotion of advertisement. The service provided by the appellant to the Banks and Insurance Company were input service of the latter to provide the output service of Banking and Financial Services by banks and Insurance Services by Insurance company. As per revenue it is business auxiliary service and so the adjudicating authority demanded service tax and interest along with penalty under section 78 of Finance act, 1944. As well as imposed penalty under Section 76. The appellant filed appeal against order in original but it was dismissed by the Commissioner (appeals). Thereafter, appellant filed appeal before tribunal against order in appeal. The issue involved before the Tribunal was that whether the services rendered by the appellant to ICICI Bank, HDFC Bank and Oriental Insurance Company was in relation to promotion and marketing of services and whether such service was taxable as Business Auxiliary Service.

Appellant Contentions:- The appellant submitted that there was no promotion or marketing of service provided to the banks and the insurance company and receipt of publicity expenses incurred was towards joint promotion of advertisement which was not liable to service tax. There was no liability incurred by the appellant since banks and insurance company were doing their own business under an agreement with the appellant. It was pleaded that the referral charges were not received for providing services. Reimbursement of share of advertisement expenses by the insurance company was not liable to be taxed as business auxiliary service provided. There was joint promotion of their sales. Receipt from bank and reimbursement of advertisement expenses should not be treated as value of taxable service provided. The entire tax was paid before adjudication and there shall not be any levy of penalty following the decision in the case of Roshan Motors Ltd. Vs CCE Meerut. If there is liability, cum tax benefit is also admissible. The appellant having been discharging its tax liability regularly, adjudication proceedings should not have been initiated under section 73 (3) of the Act and no notice should have been issued.

Respondent Contentions:- The Respondent reiterates MOU between insurance company, banks and appellant and found the appellant to promote and market service of these banks by extending infrastructural facility at the doorstep of its dealers and authorized service centres to promote such activity. He also submits the agreement with Insurance Company and found that appellant promoted marketing of insurance service by the said insurance company. The appellant sold vehicles and insured by Oriental insurance and such a facility was also provided at the doorstep of dealers and authorized service centres of appellant. The use of logo of the latter was done to hold out to the public through advertisement that the appellant had tie-up with the insurance company concerned to provide facility of insurance of the vehicle, renewal of the policy and settlement of the claims. Cost incurred by such advertisement by appellant was reimbursed by insurance company. All these arrangements between the parties resulted in promotion and marketing of service of the bank by appellant. Monthly commission was paid to appellant by bank in terms of the agreement from time to time except in case of customers identified by the bank and its agents directly. It was thus a proved case of promotion and marketing of services of bank by appellant. As per discussion of insurance company tie up with appellant, the appellant reimbursed the advertisement expenses of tune of 5% of the premium of 12 months in respect of policy issued or renewed under conditions of IRDA was borne by the insurance company and the mechanism of reimbursement was payment of consideration in disguise for promoting and marketing of service provided by the insurance company by the appellant. The consideration so paid in kind formed measure of value for taxable service provided by appellant to the insurance company. The service so provided by the appellant was input service intended to be used by bank and insurance company to provide their output services. As per the above clarification, it was proved that appellant was promoter and marketer of services of banks as well as insurance company, and was auxiliary in the chain of economic activity carried on by them. It has accordingly provided "Business Auxiliary Service" to the banks as well as insurance company for which adjudication was rightly made.

Reasoning of Judgment:- We have considered arguments on both the sides. The agreement entered into by the appellant with Banks under the title "Preferred Financier Agreement" was to promote and market the service provided by the bank, identify potential customers by the appellant for the said bank to provide banking and financial services by the former. To carry out its customer identification process through advertisements, one of the modus operandi was that the loge of the bank was permitted to be used in advertisements in print media holding out to the public that the appellant was promoter business of bank for extending banking and financial services to the prospective buyers of the vehicles of the appellant. Section 65 (105) (zzb) and Section 65 (19) of the Act, warrants taxation of the consideration received by the appellant from banks, and insurance company as business auxiliary service provider and the service so provided becomes input service for banks to provide the output service of banking and financial service as well as insurance service by insurance company. Thus, the business auxiliary service provided by the appellant during the impugned period was liable to be taxed. So far as ground of there is nothing on record to show that the appellant avoided its liability bonafidely, accordingly no immunity from penalty is possible to be granted on the plea of tax compliances made which was found to be a case of no payment of tax on the impugned services provided during the relevant period. However, the penalty under section 78 will meet the ends of justice and hence separate penalty under section 76 is set aside. Further, the claim of cum-tax benefit made by the appellant merits consideration and the same is allowed. Consequently, the tax amount is to be re-computed by the original authority and intimated to the appellant within a month of receipt of this order. Penalty will also consequently change being equal to the tax amount. The original authority may also give the option of paying 25% within a month as provide under the law. In the result, appeal is dismissed except for allowing the cum-tax benefit, and setting aside penalty under section 76.

Decision: -Appeal Disposed of.

Comment: The analogy drawn from this case is that the authorized service stations allowing the banks and insurance companies to extend their financial and insurance services for consideration are in the sense promoting and marketing their business of financial and insurance services and are liable for service tax under BAS.

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PJ/Case Laws/2012-13/1321

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