By TIOL News Service

MUMBAI, JULY 31, 2015: BOTH, the service provider and the Revenue are in appeal against the O-in-O passed by the CCE, Thane-II.

The appellant is 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 to 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-ST (for commission agents).

The service provider is in appeal against the demand of service tax confirmed against S. Nos. (i), (iii) and (iv) above whereas Revenue is in appeal against the setting aside of demand in respect of (ii) above.

Out of the total demand of Rs. 1.03 crores raised for the period July 03 to March 06, the CCE, Thane-II 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 SCN. Penalties and interest were also imposed.

As mentioned, both sides are before the CESTAT.

After considering the elaborate submissions made by both sides with the support of a host of case laws the Bench observed as under -

(i) Service provided by the appellant to the financial institutions/banks - Revenue alleges that ST payable under BAS whereas appellant submission is that 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; service provided by them falls under Business Support Service.

Held: 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 appellants 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. And quite apparently neither does the activity fall under the coverage of Business Support Service. Therefore, the contention of the appellant is not accepted.

Quantum of commission actually received by the appellant from HDFC . The appellant disputes the amount indicated by HDFC in their letters to the department and submits that the amount received was less &they should have been allowed to cross examine officials of the bank.

Held: Cross-examination of bank officials 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 was 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.

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 dealer's 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.

Limitation:

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. There is clear suppression of facts and penalties are imposable both under Sections 76 and 78.

(ii) Incentives received from M/s. Hyundai Motors India Ltd.

Held: Relationship between the appellant and HMIL 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 - 2013-TIOL-1436-CESTAT-MUM. Appeal of the department is rejected.

(iii) Referral Commission received from the insurance company

Held: 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 FA, 1994 which came into effect form 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.

(iv) Pre-delivery inspection charges received from HMIL:

Held: 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.

Appeal rejected of authorised service station/dealer regarding duty demands except for demand of tax on inter dealer claim. Interest u/s 75 and penalties u/ss 76 and 78 are ordered to be paid appropriately. Penalty u/s 77 is upheld.

Revenue appeal is rejected.