P. Karthikeyan, Member (T)

1. These appeals filed by M/s Popular Automobiles, Cochin (Also, Popular Automobiles or PAC henceforth) seek to vacate the Orders in Appeal No. 62/07 and 64/07 passed by the Commissioner (Appeals). The impugned orders sustained demands of service tax and interest confirmed against Popular Automobiles and penalties imposed on it for having rendered Business Auxiliary Service (BAS) to clients without following statutory formalities including payment of service tax due. The details are as follows.

Sl. No.

Appeal No.

Order-in-Appeal No.

Order-in-Original No.

Period of Dispute

Duty (Rs. )

Penalty (Rs. )

1

92/08

64/2007 dtd. 30.11.07

4/06 dtd. 17.02.06

01.07.03 to 30.06.04

32,60,994/-

32,60,994/- Under Section 78 of Finance Act, 1994 (the Act), 125/- per day Under Section 76 1000/- Under Section 77

2

95/08

62/2007 dtd. 30.10.07

16/2006 dtd. 07.06.2006

01.04.05 to 30.09.05

32,74,870/-

32,74,870/- Under Section 78 150/- per day Under Section 76 1000/- Under Section 77

2. Facts in brief are that the Superintendent of Central Excise, Service Tax Division, Ernakulam had gathered that the appellants, a dealer in maruti vehicles registered as an authorized service station, were also engaged in promoting the business of (i) M/s. Maruti Insurance Brokers Ltd. (MIBL) a fully owned subsidiary of M/s. Maruti Udyog Ltd (MUL) and (ii) grant of loans to buyers of maruti vehicles by select finance companies /banks through M/s Maruthi Finance. MIBL is an agent for issuing insurance policies of M/s. National Insurance Co. Ltd (NIC) to buyers of maruti vehicles. MUL had institutionalized the facilitation in respect of vehicle insurance (called maruthi insurance) and loans (maruti finance) by entering into agreements with NIC and banks/finance companies respectively. MIBL received commission from NIC and MUL received commission from finance companies for the business facilitation carried out and paid applicable service tax under insurance auxiliary service (IAS) and business auxiliary service (BAS) respectively. MUL paid remuneration to PAC for recommending NIC and finance companies, for availing their respective services, to buyers of vehicles sold by it. Appellants did paper work needed for obtaining insurance and finance. It was tentatively found by the authorities that PAC was engaged in promotion or marketing of service i.e. issue of insurance policies by M/s. National Insurance Co. Ltd on behalf of M/s. MBIL and grant of loans to purchasers of maruti brand vehicles from select finance companies. These activities constituted Business Auxiliary Service as per Clause 105(zzb) of Section 65 of the Act. The assessee had engaged in the above activities without following the statutory formalities under the Act including payment of service tax. Therefore, notices were issued proposing to recover appropriate service tax for the above services rendered by the assessee during the material period. It was also proposed to penalize the assessee under different sections of the Act. After due process of law, the original authority decided Show Cause Notice No. 12/06 dtd. 10.03.06 and demanded service tax of Rs. 32,74,870/- (including education cess) along with applicable interest and imposed equal penalty on the appellant under Section 78 and penalties under Section 76 and Section 77 of the Act vide Order No. 16/2006 dated 07.06.2006. Disposing Show Cause Notice No. 24/05 dtd. 13.04.05, the original authority demanded service tax of Rs. 32,60,994/- along with applicable interest and imposed equal penalty under Section 78 and other penalties under Section 76 and Section 77 of the Act vide Order No. 4/2006 dated 17.02.2006. Vide the impugned orders, the Commissioner (Appeals) sustained the orders of the original authority.

3. In the appeals filed before us, the appellants have taken the following common grounds against the impugned orders, Orders-in-Appeal No. 62/2007 and 64/2007.

A. Order of the Commissioner of Central Excise (Appeals) is opposed to the law, facts and circumstances of the case. The order, if allowed to stand, would occasion a travesty of justice and cause irreparable loss and hardship to the appellant company.

B. The lower authorities ought to have found that there was no service provided by the appellant to MIBL and much less a taxable service under the head of Business Auxiliary services. The service if any provided under the scheme evolved by Maruti Udyog Limited was by MIBL to the National Insurance Company and in respect of the said service National Insurance Company had already paid the service tax under Rule 2(1)(d)(iii) of the Service Tax Rules, 1994, as amended. The confirmation of the demand of service tax against the appellant was therefore wholly illegal.

C. The lower authorities ought to have found that merely because MIBL had paid the appellant a share of the tax suffered commission received by it from National Insurance Company as its share of the Commission received, it could not be said that the appellant was providing any taxable service to MIBL. Insofar as the appellant was not promoting or marketing any service, which was provided by MIBL, there was no justification for holding that the appellant is liable to tax under the head of business auxiliary services.

D. The lower authorities ought to have found that MIBL was floated as a company solely to formulate and provide a customized insurance package for the customers of Maruti vehicles after entering into an agreement with National Insurance Company. The service provider in the whole arrangement was MIBL who was providing insurance auxiliary services to promote the insurance business of National Insurance Company. There was no service being provided by MIBL to customers which service could be promoted by the appellant company and hence there was no justification whatsoever for charging service tax on the amount received by the appellant from MIBL towards its share of the commission received from the insurance company.

E. The lower authorities ought to have found that with regard to the commission received by Maruti Udyog Limited from the various finance companies in connection with arranging finance for the Maruti customer through the said companies, Maruti Udyog Limited had already paid service tax under the head of Business Auxiliary Services and hence there was no justification for a further imposition of Service Tax on the appellant to the extent of the share of the tax suffered commission paid to it by Maruti Udyog Limited.

F. The lower authorities ought to have found that merely because Maruti Udyog Limited had paid the appellant a share of the tax suffered commission received by it from the various finance companies to whom it had introduced customers, it could not be said that the appellant was providing any taxable services to Maruti Udyog Limited. Insofar as the appellant was not promoting or marketing any service which was provided by Maruti Udyog Limited, there was no scope for levying any tax on the appellant under the head of business auxiliary services in respect of the amounts received from Maruti Udyog Limited.

G. The appellant would submit that there was no justification whatsoever for imposing a penalty equal to the tax amount confirmed on the appellant company. While there was no positive act of suppression or willful misstatement justifying the invocation of the penal provisions against the appellant company, it was also not open to the appellant to mechanically impose a penalty equal to the tax amount confirmed on the appellant company. It is trite that under Section 78 of the Finance Act, 1994 as amended only the penalty is mandatory, the quantum being discretionary. There was also no justification for the imposition of separate penalties under Sections 76 and 77 of the Act.

4. We have heard both sides.

5. We have carefully considered the case records and the rival submissions. Appellants are dealers of maruti brand vehicles. MUL had floated a subsidiary company by name Maruti Insurance Brokers Ltd. which acted as an agent of National Insurance Company and provided customized maruti insurance to buyers of maruti vehicles. MIBL acted as an insurance agent for selling insurance policy of NIC to the customers of maruti vehicles; NIC paid commission to MIBL for the service (IAS) it rendered. MIBL discharged service tax on the above commission received from NIC under the heading "Insurance Auxiliary services" (IAS). MIBL paid a commission to the dealer who sold the vehicle and facilitated sale of insurance policy to the buyer. At the dealers end, the paper work in connection with the insurance policy would be undertaken by the dealer himself and forwarded directly to NIC.

5.1 MUL had devised a concept known as maruti finance whereby MUL would liaise with the buyers of maruti vehicles and introduce the said buyers to select finance companies for arranging loan for purchase of vehicles by such finance companies. The agreement to this effect had been entered into between MUL and the bank/finance company concerned. For the introductory service of MUL, the finance company concerned would pay MUL, certain amount as commission. MUL discharged service tax on the commission received from the bank/finance company. MUL paid a commission amount to the particular dealer who sold the vehicle.

6. The appellants have taken the ground that MIBL and MUL had discharged service tax due on the commission received by them under the relevant entry. MIBL had paid a portion of the commission received by it from NIC on which amount MIBL had discharged the service tax liability. The appellant had received from MIBL a portion of the commission which had suffered service tax. Therefore, the appellant was not liable to pay tax. Moreover, the appellant was not promoting or marketing any service provided by MIBL. Appellant received from MUL, share of similar commission it received from banks/finance companies. No further tax was payable by the appellants as it had not rendered any separate service.

7. We note that MUL has conceptualized the insurance and finance schemes for its customers and has entered into agreements with insurance company and finance companies/banks for the purpose. Through the dealers of maruti vehicles, the buyers of such vehicles are persuaded to avail the services of entities with whom MUL has an arrangement. MIBL/MUL receives commission for sale of policy by NIC and promotion of grant of loans by finance companies. MIBL/MUL renders IAS to NIC and BAS to select finance companies. Unless the dealers suggest to its customers to approach these companies, the purchasers of cars may avail the same services from any of the several providers of such services in the market. Apart from this the appellant does not do anything to promote the service provided by MIBL/MUL to NIC and finance companies. MUL alone has evolved an arrangement for provision of service to the insurance company and the finance companies. MUL receives commission for these services and pays tax on the same under IAS and BAS. The agreements involved are not discussed by the authorities. We take that the activities of PAC are outside these agreements. We hold that the appellant incidentally assisted the provision of IAS by MIBL and BAS by MUL and did not render any taxable service.

8. MUL received commission from finance companies and discharged service tax liability under Business Auxiliary Service. Appellant received a part of this amount, which had suffered service tax. It is argued that the appellant was not liable to pay service tax under BAS. The penalty imposed was not justified, since there was no positive act of suppression or willful misstatement justifying the invocation of the penal provision against the appellant company. We find that the impugned demands have been raised under the head BAS. The relevant part of the entry BAS reads as follows:

Business Auxiliary Service means any service in relation to "Promotion or marketing or sale of goods Produced by the client Provided by the client Belonging to the client Promotion or marketing of service provided by the client (including promoting and marketing game of chance) Any customer care service provided on behalf of the client; or Procurement of goods or services, which are inputs (all goods or services that are intended for use) for the client or Production or processing of goods for or on behalf the client; or Provision of service on behalf of the client; or A service incidental or auxiliary to any activity specified in the above clauses such as Billing, Issue or collection or recovery of cheques, Payments, Maintenance of accounts and remittance, Inventory management, Evaluation or development of prospective customer or vendor, Public relation services, Management or supervision, It also includes a Commission Agent.

8.1. There is no dispute that the appellants received a commission from MIBL/MUL whenever it facilitated sale of insurance policy by MIBL or sanction of loan by a finance company to a buyer of maruti brand vehicles. The insurance policy issued by the National Insurance Company is customized for buyers of maruti vehicles and is called maruti insurance. Loan sanctioned by select finance companies to buyers of maruti vehicles is also similar as regards the facilitation rendered by the appellants. In both the cases, the appellants earned the commission obviously for its role in MIBL/MUL providing their respective services. We find that it was the clients of MIBL/MUL that received those services which promoted the sale of insurance by NIC and sanction of loans by finance companies. The appellants or MIBL/MUL did not render any other service which promoted sale of insurance by NIC and sanction of loans by finance companies. MIBL paid tax on commission received under IAS. MUL paid tax on commission received for enabling banks/finance companies grant loans to customers of the appellants under BAS. MIBL/MUF paid a part of their commission to the appellants. The impugned activities did not yield any outcome different from those brought about by the services of MIBL/MUL. Once commission is paid for the respective services under IAS and BAS by MIBL/MUL, no liability survives on account of the impugned sales promotion received from PAC. The total liability under IAS and BAS for promoting provision of these services by MIBL/MUL cannot exceed the tax due on the commission paid by NIC and banks/finance companies.

8.2 In the case of JR Communications & Power Controls v. ComMr. of CCE, Trichy : 2009 (14) STR 379 (Tri-Chennai) cited by the Ld Counsel for Popular Automobiles, BSNL had paid sales tax on sale of sim cards and recharge coupons on the value charged from the ultimate customer. As the entire sales tax liability was discharged, it was held that no tax need be collected from an intermediary like the appellant therein who had received discount from BSNL from the ultimate sale price at which the appellant had sold the sim cards and recharge coupons. No liability survived on account of sale of the same sim cards and recharge coupons by the appellants on the discount it had received from BSNL. The tax paid on commission paid by NIC and banks/finance companies is similar to the sales tax paid by BSNL on the consumer price of sim card and recharge coupons.

8.3. We find that in the case on hand, tax was paid on the commission paid by the insurance company and by the banks/finance companies. Once service tax is paid by MIBL/MUL on commission paid by their clients for provision of the respective services, no liability survives under BAS on any work carried out by an intermediary which contributed to the same outcome. Moreover, if any service tax is paid by the appellants on commission received, MIBL/MUL will be eligible for credit of such tax paid, thereby rendering the impugned demand a revenue neutral exercise. In the circumstances, there cannot be demand of any service tax under BAS for the share of commission received by MIBL/MUL and paid to the dealers. The impugned orders are therefore not sustainable. They are set aside to the extent they affirmed orders-in-original No. 4/2006 and 16/2006 and these appeals are allowed.

(Pronounced in open Court on 1.2.2010)