By TIOL News Service

NEW DELHI, AUG 17, 2017: THE appellant is a recovery agent for ICICI Bank and is liable to pay service tax under the category of "Recovery service" with effect from 1.5.2006.

During the period 2006-2007 to 2009-2010, the appellant discharged service tax liability on 20% of commission received by them from ICICI Bank .

It is the claim of the appellant that the rest 80% is towards actual expenses incurred by them on behalf of ICICI Bank and the same is deductible in terms of Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006.

The department did not agree and, therefore, issued a demand notice alleging that service tax was required to be paid on the full value of commission received from ICICI Bank .

The adjudicating authority confirmed the Service Tax demand amounting to Rs.1,53,52,862/- along with interest and penalty of equivalent amount.

The appellant is before the CESTAT and submits that they are entitled to abatement of 80% of the consideration as this was towards expenditure or costs incurred while providing such services; that the demand is barred by limitation inasmuch as the appellant has duly reflected in all ST 3 returns filed the fact of Service tax being paid only on 20% of the service consideration;that they had also entered into communication with jurisdictional authorities on the subject matter and sought confirmation of their stand.

The AR submitted that the annexure indicating payment of service tax only on 20% of the commission earned was annexed to the ST-3 returns; that the same were not part of the actual ST 3 return filed and should not be given any credence; that the correspondence was initiated only on 17.12.2007 whereas the period involved is from 2006-2007 onwards.

After considering the submissions and perusing the clauses of the agreement entered between the appellant and the ICICI Bank, on the question of valuation, the Bench inter alia observed -

" 7. … We find that the agreement nowhere mentions that the appellant was engaging personnel on behalf of ICICI Bank and that payment for these personnel were to be made by ICICI Bank. Rule 5(2) of the Service Tax (Determination of Value) Rules, specifies the conditions which are required to be satisfied for excluding certain expenditures or costs incurred by the service provider as a Pure agent of recipient of service. After going through the agreement, we note that the condition prescribed are not satisfied by the appellant. This is particularly so in view of the fact that the agreement does not suggest that the payments made by the appellant were on behalf of the recipient of service. Further, the same has not been separately indicated in the invoices issued by the appellant. From the record, we see that the appellant has also indicated that 80% is only an estimate and may not be exact. In view of the above, we are of the view that there is no justification for excluding 80% of commission from payment of service tax."

As for the claim of the appellant that the demand is time barred, the CESTAT noted -

"8. … Our attention was drawn to the ST 3 returns filed by the appellant. We find that returns filed, specifically made an endorsement in the form of Note mentioning clearly that the appellant was working as Pure agent of the bank and that service tax was being paid by excluding 80% of the total receipt towards expenses. Further, we find that the appellant has taken up the matter for clarification with the jurisdictional Commissioner vide their letter dated 19.3.2008, mentioning clearly that they are deducting 80% of the charges towards expenses. The Commissioner in the impugned order has not arrived at any finding that such remarks in the ST-3 returns were not there in returns actually filed with the Revenue. Further, from the fact that the appellant wrote several letters explaining their stand and asking for clarification reflects upon the bonafide of the appellant, that they entertained a belief that 80% of the commission can be excluded."

Concluding that the department was not justified in invoking the extended period of limitation, the entire demand was set aside as the SCN was issued on 15.04.2011 and covered the period 2006-07 to 2008-09.

The appeal was allowed.

(See 2017-TIOL-2964-CESTAT-DEL)