TVS Motor Company Limited Vs Commissioner of Central Excise (Supreme Court of India)
Referral Income Is Taxable, but No Penalty After Tax Is Paid Before Notice: Supreme Court Grants Partial Relief to TVS Motor
In TVS Motor Company Ltd. v. Commissioner of Central Excise, the Supreme Court considered whether referral charges received by an automobile dealer from banks and an insurance company constituted taxable Business Auxiliary Services, and whether penalty could be imposed when the service tax was paid before issuance of the show-cause notice.
TVS Motor had arrangements with HDFC Bank, ICICI Bank and Oriental Insurance Company. It informed dealers, service centres and vehicle buyers about the loan and insurance facilities offered by these institutions and received referral charges when customers availed such services.
The Supreme Court held that these activities promoted and marketed the services of the banks and insurance company. TVS Motor acted as a link in their commercial activities and, therefore, the referral charges were taxable as Business Auxiliary Services under section 65(105)(zzb) of the Finance Act, 1994. Merely accounting for the receipts as “miscellaneous income” did not alter their true character.
On penalty, however, the Court noted that TVS Motor had discharged the entire service-tax liability before the show-cause notice dated 2 April 2008. There was also genuine uncertainty during the relevant period—2003-04 to 2006-07—due to conflicting Tribunal decisions regarding the taxability of such services.
