By TIOL News Service

MUMBAI, DECEMBER 03, 2018: THE appellants are engaged in providing "General Insurance Business and Business Auxiliary Service".

The period involved in the dispute is January 2008 to March 2012.

They had chalked out a marketing plan where under the person joining as Sales Officer was required to deposit Rs.3,000/- (Jan 2008 to June 2010) and Rs.4,000/- (July 2010 to March 2012) as Field Care Plan Incentive Deposit (FCP deposit).

The breakup of the said deposit is as follows:

(i) Rs.3,000/-:: Rs.500/- as registration fee, Rs.500/- for membership fee and Rs.2,000/- as field care plan incentive deposit.

(ii) Rs.4,000/- :: Rs.500/- as registration fee, Rs.1,500/- for membership fee and Rs.2,000/- as field care plan incentive deposit.

The appellant paid service tax on the registration fees as well as on the membership fees but did not pay any service tax on incentive deposit of Rs.2,000/- (as per the break-up indicated above).

The conditions/rules for such sales officers prescribed were that the sales officer (SO) would get promotion as field officer (FO)/deputy marketing officer (DMO)/marketing officer (MO) provided he fulfills the condition of getting 25 people/persons joining the appellant as SO.

However, a sales officer who could not get even a single sales officer recruited under him, was not entitled to get any amount including the amount of Rs.2,000/- deposited by him as FC deposit.

Alleging that the appellant was rendering Business Support Services, a SCN was issued to the appellant for recovery of service tax amount of Rs.1,58,06,132/- on the said amount of incentive deposit. On adjudication, the said demand was confirmed with equal amount of penalty under Sections 76 and 78 of the Finance Act, 1994.

The appellant is before the CESTAT.

It is submitted that they are engaged in providing taxable services of general insurance business and business auxiliary service; that they were doing the business of coordination between the General Insurance Company and policy holders; that they were providing the above taxable services for selling life care facility cards; that life care facility cards sold by them were valued at prices ranging from Rs.200/- to Rs.11,000/-; that the holder or purchaser of this card was entitled for getting insurance and discount facility against cash purchase from the recognized shops and establishments; that out of the said card value, a portion was spent for purchasing insurance policy from Oriental Insurance Co./New India Insurance Co./Life Insurance Corporation of India and some portion was retained for the purposes of administrative cost/expenses; that the remaining amount was paid towards commission, incentive and development of the business. Inasmuch as on the entire amount received from card purchasers/policy holders against the life care facility card, they have discharged service tax.

Insofar as the field care plan incentive deposit (FCP deposit) collected by the appellant from the sales officers in selling their cards, it is wrongly held to be business support service and accordingly not sustainable in law since the sales officers were not doing business of selling insurance policies and business cards in their individual capacity, which has been wrongly alleged in the show cause notice. That under the Insurance Act, 1938 read with the Insurance Regulatory and Development Authority Act, 1999, for selling insurance policies, a person should be registered as an insurance agent or actuary or intermediary or insurance intermediary and the sales officers appointed for selling the life care cards were not having any such type of qualification.

Under the circumstances, there was no question of the sales officers doing their own business of selling insurance policies and business cards. The sales officers were appointed by the appellant as members/agents of their company for selling their life care cards after they were registered with the appellant-company by submitting a proper application. The application form would reveal that the sales officers were nothing but members of their business of Life Line Life Care Co. in selling life care cards devised by the appellant. Thus, in any circumstances, the sales officers in question cannot be treated as insurance agents for selling insurance policies.

Furthermore, the sales officers cannot carry out the business of insurance policies in their individual capacity and hence there was no question of promoting the business of the sales officers by collecting the FCP deposits. On the contrary, the sales officers were providing support to their business by way of selling the business cards.

So also, although at the time of joining (of the sales officers), they have collected Rs.2,000/- and Rs.3,000/- as deposit and the condition prescribed for refund of the said deposit even if not complied with, the FCP deposits of the sales officers were returned to them by the appellant, which has been reflected in their balance sheet. The appellant was discharging service tax on registration fees and membership fees collected from the sales officers whereas no service tax was paid on FCP deposit being returnable deposit to the sales officers, which is reflected in their balance sheet under the head "Current Liabilities". In support of the fact that the FCP deposits had been refunded/paid to the sales officers, necessary CA certificate is enclosed.

The CESTAT considered the submissions and inter alia observed -

++ The reasoning given by the Commissioner is that the appellant has provided necessary support to the business of the recruited Sales Officers and the deposit collected is in consideration for that service. In our opinion, the said reasoning is fallacious and to be discarded at the first reading itself.

++ The unemployed persons approach the appellant to undertake sales of insurance policies and for which they make certain deposits with the appellant, which are later refunded to the appellant on successful enrolment of further 25 Sales Officers for the said job.

++ Even if the Sales Officers fail to bring further 25 numbers of Sales Officers, the FCP amount collected from each of the Sales Officers are refunded to them.

++ On a plain reading of the said definition (of ‘Support of Business or Commerce Service' given in clause (104)(c) of Section 65 of the Finance Act, 1994) and considering the facts and circumstances of the case, we do not find any justification on the part of the department in alleging that the appellant had promoted the business of the unemployed persons who joined the Appellant as Sales Officers.

++ Even though the FC deposit of Rs.2000/- was collected from the prospective sales officers, but it was refunded later to them irrespective of enrolment of further 25 persons as sales officers or otherwise. No contrary evidence is placed by the Revenue to rebut the plea of the appellant that the deposits were refunded to the concerned sales officers, which is supported by Chartered Accountant's certificate.

The impugned order was set aside and the appeal was allowed.

(See 2018-TIOL-3643-CESTAT-MUM)