CESTAT, CHENNAI BENCH
TVS Motor Co. Ltd.
Commissioner of Central Excise
Final Order No. 65 Of 2012
Appeal No. St/476/2009
Date of Pronouncement – June 13, 2012
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Being aggrieved by the order of adjudication dated 30.6.2009 imposing service tax of Rs. 1,18,13,760/- for the period 2003 to 2006-07 followed by interest and imposition of penalty of Rs. 1,18,13,760/- under Section 78 of the Finance Act, 1944 (hereinafter referred to the Act) as well as penalty of Rs. 100/- per day under Section 76 till 17.4.2006 and penalty of Rs. 200/- per day thereafter for the period of default subject to the ceiling of 2% of the demand of tax under Section 76 holding the appellant had provided Business Auxiliary Service, it came in appeal to Tribunal.
2. In adjudication, the issue involved was as to whether the services rendered by TVS (appellant) to ICICI Bank, HDFC Bank and Oriental Insurance Company was in relation to promotion and marketing of services and such service taxable as Business Auxiliary Service under section 65 (zzb) read with Section 16 (19) of the Act (Ref: Para 19 of impugned order). “Referral charges” which was the consideration received by appellant from those banks for promoting and marketing their services were subject matter of taxation and Adjudicating authority found that agreements were entered into by the appellant with ICICI Bank, HDFC Bank and Oriental Insurance Company to provide them infrastructural facility by its dealers and authorized service centres to promote their business extending the credit facility and insurance service to the prospective customers identified by appellant. While above two banks sanctioned loan to the prospective customers identified by the appellant for buying vehicles of appellant company, insurance of those vehicles were done by Oriental Insurance Company. Appellant and its dealers as well as authorized service centres were promoters of business of the bank and insurance company. The service so provided by appellant to the banks and insurance company were input service of the latter to provide output service of banking and financial services by banks and insurance service by insurance company. Identification of prospective customers for banks and insurance company with recommendation for lending to them was the object of agreement between parties and there was flow of consideration from banks to the appellant for the promotion and marketing services provided by the latter to the former. The consideration so flown was termed as ‘referral fees’ by banks and reimbursement of share of advertisement cost of appellant flowing from insurance company was consideration for appellant for the marketing promotion service provided by it to the insurance company.
3. Pleadings of the appellant were considered by ld. adjudicating authority to adjudicate the matter. The appellant submitted before that authority that there was no promotion or marketing of service provided to the banks nor to the insurance company and receipt of publicity expenses incurred was towards joint promotion of advertisement which was not liable to service tax. The authority examined the agreement between the appellant and aforesaid banks as well as insurance company along with evidence and modus operandi of the appellant and came to the conclusion that role of the appellant was to promote and market the service provided by the banks as well as insurance company making advertisement for them and providing them infrastructure facility at the door step of dealers and Authorised Service Centres of the appellant as well as to connect the identified customers to the business chain of the banks and insurance company. He noticed that buyers of vehicles were the beneficiaries of single window service provided by banks and insurance company using the input service provided by appellant.
4. Arguing the appeal, ld. Counsel submits that there was no liability incurred by the appellant since banks and insurance company were doing their own business under an agreement with the appellant. It had also not promoted the business of insurance company as was pleaded in para-13 (iii) of the adjudication order (Ref. page 11 of OIO). Similarly, in para-13 (iv), it was pleaded that referral charges were not received for providing facilities. Reimbursement of share of advertisement expenses by the insurance company was not liable to be taxed as business auxiliary service provided. There was joint promotion of their sales. Receipt from bank and reimbursement of advertisement expenses should not be treated as value of taxable service provided. Ld. Counsel further submitted that entire tax was paid before adjudication and there shall not be any levy of penalty following the decision of the Tribunal in the case of Roshan Motors Ltd. v. CCE  18 STT 418 (New Delhi – CESTAT). The liability determined for the reimbursement of share of advertisement expenses is to the tune of Rs. 19 lakhs. If there is liability, cum tax benefit is also admissible. The appellant having been discharging its tax liability regularly, adjudication proceedings should not have been initiated and under Section 73 (3) of the Act and no notice should have been issued.
5. Per contra, ld. JCDR reiterated the grounds of appeal to support the case of the Revenue.
6. Heard both sides and perused the records including the respective parts of the adjudication order as well as the agreement to which attention was drawn in the course of hearing.
7. The SCN dt. 2.4.2008 indicates that an amount of Rs.3,88,19,999/- was received by appellant as referral fees by it which was disclosed as miscellaneous income in its Profit& Loss Account for the financial year ended 31st March 2005. The agreement dt. 7.2.2003 entered into by the appellant and ICICI Bank Limited under the title “Preferred Financier Agreement” (page 15 of Vol-I of Paper Book) was to promote and market the service provided by the bank, identify potential customers by the appellant for the said bank to provide banking and financial services by the former. To carry out its customer identification process through advertisements, one of the modus operandi was that logo of the bank was permitted to be used in advertisements in print media holding out to public that the appellant was promoter business of bank for extending banking and financial services to the prospective buyers of the vehicles of appellant. Similar such agreement was also entered into by the appellant with HDFC Bank Ltd. on 9.5.2003 (Ref. page 29-46 of Vol I of Paper Book). Revenue examined the MOU between these two parties and found that the understanding of the parties was in the same line as that of ICICI Bank with the appellant. Common methodology followed by the appellant to promote and market service of these banks was extending infrastructural facility at the doorstep of its dealers and authorized service centres to promote such activity.
8. Revenue also thoroughly examined the agreement dt. 22.3.2004 entered into by the appellant with M/s. Oriental Insurance Company Ltd. (Ref. pages 59-71 and 72-83 of Vol-I of the Paper Book). That indicated that the appellant through identification process of prospective buyers promoted marketing of insurance service by the said insurance company. The vehicles sold by the appellants were insured by Oriental insurance and expeditious settlement of the claims, if any, made by the customers were agreed to be attended by that insurance company in terms of such agreement. Such a facility was also provided at the doorstep of dealers and authorized service centres of appellant providing infrastructural facility bringing live link between the appellant and the insurance company to serve the object of promoting market for providing insurance service by the insurance company. It was also agreed between the appellant and the insurance company to use logo of the latter to hold out to the public through advertisement that there was a tie-up between the appellant and the insurance company concerned to provide facility of insurance of the vehicle, renewal of the policy and settlement of the claims. Cost incurred by such advertisement by appellant was reimbursed by insurance company to the extent of 5% of the premium for 12 months in respect of comprehensive policy issued or renewed.
9. The Preferred Financier Agreement dt. 7.2.2003 brought out close association of appellant with banks for promotion and marketing of banking and financial services by banks under section 65 (105) (zm) of the Act. Identification of prospective buyers of two wheelers in terms of the agreement at page 16 of the paper book brought nexus of service provided by the appellant as input for providing the output of banking and financial services by the bank. In terms of para 2.1 of the agreement, it was the obligation of the appellant to inform its dealers and authorized service centre about the arrangement of the appellant with the funding bank and whenever financial assistance was intended to be availed by the purchasers that was to be done from ICICI bank and they shall keep the buyers informed about such financial facility. In terms of para 3.1 of the agreement dated 7.2.2003 with ICICI bank, the dealers and authorized service centre of the appellant were required to recommend about the lending facility by ICICI bank. All these arrangements between the parties resulted in promotion and marketing of service of the bank by appellant. Monthly commission was paid to appellant by bank in terms of the agreement from time to time except in case of customers identified by the bank and its agents directly. It was thus a proved case of promotion and marketing of services of bank by appellant. Similarly, the agreement dt. 9.5.2003 entered into by the appellant with HDFC Bank Ltd. (Page 29-46 of the Paper Book) under the title “Preferred Financier Agreement” was also in the same terms as that of the ICICI Bank and that has also resulted in promotion and marketing of banking and financial service of that bank by the appellant.
10. The MOU dt. 22.3.2004 made by the appellant with Oriental Insurance Co. brought out their association at page 60 of the Vol-I of paper book. The purpose of the MoU was to identify customers by the appellant for insurance company. The appellant made available of infrastructural facility by its dealers and authorized service stations to the insurance agents to serve the identified customers as per para 7 of the Agreement. Software with hardware facility was provided by the insurance company for issuance of the new/renewal of the policy (Para 3.21 of the Vol I of the paper book) by the appellant. In terms of para-6 of the agreement, the appellant was permitted to use the logo and name of the insurance company in the advertisement in the print media, banners, displays in the sales campaign, souvenirs, sponsorships etc. The cost of advertisement of appellant was shared between the appellant and the insurance company according to the approval of the Publicity Committee of the insurance company. The share of cost of advertisement of appellant to the tune of 5% of the premium of 12 months in respect of policy issued or renewed under conditions of IRDA was borne by the insurance company. In terms of para 8 of the agreement, sharing of data base between the two was agreed. Meeting the cost of advertisement of appellant by the insurance company by the mechanism of reimbursement was payment of consideration in disguise for promoting and marketing of service provided by the insurance company by the appellant. The consideration so paid in kind formed measure of value for taxable service provided by appellant to the insurance company. The service so provided by the appellant was input service intended to be used by bank and insurance company to provide their output services.
11. Aforesaid modus operandi followed by the appellant proved that it was promoter and marketer of services of banks as well as insurance company, and was auxiliary in the chain of economic activity carried on by them. It has accordingly provided “Business Auxiliary Service” to the banks as well as insurance company for which adjudication was rightly made.
12. Facts and evidence aforesaid when tested on the touch stone of Section 65 (105) (zzb) read with Section 65 (19) of the Act that warrants taxation of the consideration received by the appellant from banks and insurance company as business auxiliary service provider and the service so provided becomes input service for banks to provide the output service of banking and financial service as well as insurance service by insurance company. Thus, the business auxiliary service provided by the appellant during the impugned period was liable to be taxed and that has rightly been done in adjudication without calling for interference in this appeal.
13. So far as ground of no penalty advanced by learned counsel is concerned, there is nothing on record to show that the appellant avoided its liability bonafide when it is an established business concern with vast experience in application of provisions of finance Act, 1994. Its returns did not disclose bonafide omission. Rather facts suggest that knowable breach of law made the appellant to suffer adjudication. Accordingly, no immunity from penalty is possible to be granted on the plea of tax compliances made which was found to be a case no payment of tax on the impugned services provided during the relevant period. However, the penalty under Section 78 will meet the ends of justice and hence separate penalty under Section 76 is set aside.
14. Further, the claim of cum-tax benefit made by the appellant merits consideration and the same is allowed. Consequently, the tax amount is to be re-computed by the original authority and intimated to the appellant within a month of receipt of this order. Penalty under Section 78 will also consequently change being equal to the tax amount. The original authority may also give the option of paying 25% within a month as provide under the law.
15. In the result, appeal is dismissed except for allowing the cum-tax benefit, and setting aside penalty under Section 76.