Royal Sundaram General Insurance Company Ltd Vs Commissioner of GST & Central Excise (CESTAT Chennai)
CESTAT Chennai held that Royal Sundaram General Insurance Company paying Commission to unapproved dealers in the guise of receipt of ‘data processing and policy servicing and related activities’ service. Accordingly, since such service is not received by the company they are ineligible to avail CENVAT Credit of the same.
Facts- the appellant, M/s. Royal Sundaram Allianz Insurance Company Ltd., public limited company, having Head office at Karappakkam, Chennai is engaged in providing General Insurances in the nature of Motor, Health, Personal Accident and Fire and Burglary insurance services and Miscellaneous policies. They have centralized registration, and are registered for payment of service tax under reverse charge mechanism on commissions paid to insurance agents, etc.
Intelligence was gathered by DGCEI, Chennai zonal unit that the appellant is availing cenvat credit wrongly on the basis of invoices issued by dealers of Motor Vehicles containing description of services which were never actually provided by the automobile dealers to the appellant.
It is noted that the dealers of motor vehicles not being Agents / Brokers / Intermediaries of the Insurance companies are neither permitted to do insurance business nor are they permitted to receive commission. The investigations revealed that the motor vehicle dealers have been soliciting business of insurance of the appellant while selling the vehicles to customers. The appellant actually pays commission to the dealers for soliciting their insurance business. As the dealers / manufacturers are not permitted to do insurance business (as per Insurance Act and IRDA Regulations) and not permitted to receive commission, the invoices are raised describing the services as ‘Data processing, and Policy servicing related activities’. It was thus concluded from the investigations that dealers have actually not provided any services to the appellant, much less the service described in the invoices and these invoices are raised only to pass over the insurance commission to the dealers in the guise of providing services. The dealers pay service tax on the amount collected from the appellant as per the invoices. The appellant has availed cenvat credit of the service tax paid by them. According to department the availment of such credit is irregular for the reason that no services as described in the invoices has been provided by the dealer to the appellant.
Conclusion- Held that during the investigation one of the very senior officials admitted that while making payment to the dealers as payout, they have to give a description of the services as ‘data processing and policy servicing and related activities’ in the invoices. This is because they cannot term such a payment as commission. Commission can only be given to the insurance dealers / brokers / intermediaries, who are duly approved by IRDA (or by insurance companies), that since the dealers are not the approved persons / agencies for selling the insurance polices and hence can’t be officially allowed to sell the insurance policies, they cannot call such payouts as commission as it will be in violation of the IRDA guidelines. That the maximum commission fixed by IRDA is 10% of OD premium and the payout are far more, hence they cannot bill the amount as commission. That the car dealers are not authorized to sell the car insurance policies according to IRDA however there is no separate sale of insurance policies to car customers because it is automatically sold with the sale of the new car as price of insurance is inbuilt in the ‘on road price’ of the car. This statement was recorded while the official was confronted with documentary evidence and cannot be ignored.
Held that the tax liability does not arise due to consent of parties. There has to be a legally valid levy.
As per the general rule in legal proceedings also, he who asserts must prove. The appellant who is asserting the taxability of the activity received by him, if any, should have shown that the activity described in the invoice was indeed received and secondly that it was a taxable service eligible for being claimed as CENVAT credit.
FULL TEXT OF THE CESTAT CHENNAI ORDER
The issues involved in both these appeals being analogous they were heard together and are disposed by this common order.
1. Brief facts are that, the appellant, M/s. Royal Sundaram Allianz Insurance Company Ltd., public limited company, having Head office at Karappakkam, Chennai is engaged in providing General Insurances in the nature of Motor, Health, Personal Accident and Fire and Burglary insurance services and Miscellaneous policies. They have centralized registration, and are registered for payment of service tax under reverse charge mechanism on commissions paid to insurance agents, etc.
2. Intelligence was gathered by DGCEI, Chennai zonal unit that the appellant is availing cenvat credit wrongly on the basis of invoices issued by dealers of Motor Vehicles containing description of services which were never actually provided by the automobile dealers to the appellant. Accordingly, investigation was initiated and documents recovered, statements recorded. The investigations was done as under :
(i) Investigation into the alleged irregular availment of cenvat credit by appellant on the basis of invoices issued by the automobile dealers (excluding the dealer, M/s. TVS Sundaram Motors) and manufacturers (excluding the manufacturer, M/s. Honda Cars India Ltd.)
(ii) Investigation on the irregular availment of credit on the basis of invoices issued by the manufacturer, M/s.Honda Cars India Ltd.
(iii) Investigation into the alleged irregular availment of credit on the basis of invoices issued by the dealer, M/s.TVS Sundaram Motors.
3. It is noted that the dealers of motor vehicles not being Agents / Brokers / Intermediaries of the Insurance companies are neither permitted to do insurance business nor are they permitted to receive commission. The investigations revealed that the motor vehicle dealers have been soliciting business of insurance of the appellant while selling the vehicles to customers. The appellant actually pays commission to the dealers for soliciting their insurance business. As the dealers / manufacturers are not permitted to do insurance business (as per Insurance Act and IRDA Regulations) and not permitted to receive commission, the invoices are raised describing the services as ‘Data processing, and Policy servicing related activities’. It was thus concluded from the investigations that dealers have actually not provided any services to the appellant, much less the service described in the invoices and these invoices are raised only to pass over the insurance commission to the dealers in the guise of providing services. The dealers pay service tax on the amount collected from the appellant as per the invoices. The appellant has availed cenvat credit of the service tax paid by them. According to department the availment of such credit is irregular for the reason that no services as described in the invoices has been provided by the dealer to the appellant.
3.1. It was also noted that some of the computer generated invoices did not have all particulars as required under Rule 4A of Service Tax Rules, 1994 as these did not bear the signature of the dealer to evidence as to who has issued the invoice. For this reason also, the credit is ineligible.
3.2 Further the credit availed on invoices issued by M/s. Sundaram Motors showed that there are two sets of invoices. In the invoices issued to appellant, the services were described as ‘data processing and policy servicing services’. Whereas at the end of M/s. Sundaram Motors, the nature of service provided was described as ‘additional incentive’.
4. From the above, it appeared to the department that the appellant has wrongly availed cenvat credit. Show cause notice for the different periods 2010-2011 to 2014 to 2015 and SOD for the period April 2015 to June 2017 was issued to the appellant proposing to disallow the credit and to recover the same along with interest. After due process of law, the adjudicating authority disallowed the credit, and confirmed the demands along with interest and imposed penalties. Aggrieved, the appellants are now before the Tribunal.
5. The Ld. Counsel Shri Raghavan Ramabadran appeared and argued for the appellant. It is submitted that the appellant is engaged in providing general insurance services pertaining to motor insurance, health insurance, property insurance, engineering insurance, liability insurance and other miscellaneous insurances.
5.1 At the time of sale of the automobiles, the automobile manufacturers through their established dealer network assist the vehicle buyers to obtain the insurance. From the view point of the insurance companies, including the Appellant, the dealers of automobile manufacturers are usually the first point of contact with the buyers of motor vehicle and hence for motor insurance too. Accordingly in order to increase its customer base, the Appellant enters into agreement with various automobile manufacturers and their authorized dealers in order to get access to their customers through various dealerships.
5.2 The case of the Department is as follows :
a. Firstly, that the invoices on which credit is taken do not reflect the true description of the services provided by the dealers to the appellant.
b. Secondly, in respect of M/s. Honda Motors India Ltd., that the appellant has availed cenvat credit based on unsigned invoices issued ;
c. Thirdly, that the appellant has availed cenvat credit on invoices issued by one of their car dealers namely, M/s. TVS Sundaram Motors, who had maintained two sets of invoice documents.
5.3 The undisputed facts are that, the automobile dealers have paid service tax to the government on such invoices. The dealers / service providers have stated the description of service to be in the nature of infrastructure support services and have paid service tax accordingly. The department has not issued any show cause notice against these dealers / service providers disputing the nature of service provided by them or disputing the description of services mentioned in the invoices raised by them. So also, there are not even any penalty proceedings initiated against the dealers / service providers for incorrect issuance of invoices. In other words, the department is not disputing the fact of providing the service or the nature of service provided or the remittance of service tax at the dealers’ end.
5.4 The dealers / service providers have always stated the description of service in their tax invoice as per Rule 4A of Service Tax Rules, 1994. The description given is in the nature of infrastructure support services and the dealers / service providers have accordingly remitted service tax. This fact has never been disputed by the Department. No show cause notice was ever issued against the dealers/ service providers for non-compliance of Rule 4A of Service Tax Rules, 1994 and imposing penalty under Section 77 (1) (e) of the Act for any discrepancy in issuing invoice. In other words, at the service provider’s end, the Department has all along acceded to the fact that the description of service in the tax invoice is in accordance with Rule 4A of the Service Tax Rules. Once the nature and description of services as mentioned in the invoice is not disputed at the service providers’ end, the same cannot be questioned at the service recipient’s end. This is for the reason that the assessment based on the returns in the hands of the service provider has become final and the Department has accepted those returns based on the declarations made by the service provider. Having accepted and not disputed it, the Department cannot be allowed to raise the issue at the service recipient’s end.
5.5 To support this argument Ld. Counsel relied on the judgment of the Hon’ble High Court of Madras in M/s.Modular Auto Ltd. CCE Chennai – 2008-VIL-541-MAD-ST. The ratio laid in this case was followed by the Tribunal in the case of M/s.Ford India Pvt. Ltd. Vs Commr. of GST & CCE – 2019-VIL-182 CESTAT CHE-ST.
5.6 The very same issue in this appeal on identical set of facts was considered by the Tribunal in the case of Cholamandalam MS General Insurance Co. Ltd. Vs CCE – 2021 (3) TMI 24 CESTAT CHENNAI [2021 (47) GSTL 263 (Tri.-Chennai)]. The Tribunal in the said case followed the judgment of the Hon’ble jurisdictional High Court in the case of M/s.Modular Auto Ltd. (supra) to hold that when it is not disputed that the dealer has paid service tax on the services described in the invoices, the denial of credit at the recipient’s end cannot be justified without reopening the assessment at the dealer’s end.
5.7 In regard to the second issue of denial of cenvat credit on unsigned computer generated invoices issued by M/s.Honda Motors India Ltd. to the appellant, the Ld. Counsel submitted that there is no dispute that the service provider is registered with the service tax department and that the service tax as mentioned in the invoices is deposited with government. The credit cannot be denied only because there was no signature in the invoices. There is no allegation that the invoices are fake or bogus. When the tax paid is not in dispute, the credit cannot be denied on such technical grounds. To support this argument, the Ld. Counsel relied on the decisions in the case of Poorna Info Vision Vs CCE Cochin – 2019 (365) ELT 592 (Tri.-Bang.) and CCE Cochin Vs A.B. Maruthi India Pvt. Ltd. – 2018 (8) GSTL 209 (Tri.-Bang.). The decision in the case of Automax Vs CCE Delhi – 2018 (363) ELT 1121 (Tri.-Chan.) was relied to argue that when the duty paid nature of the goods and the actual receipt of the goods in the recipients’ factory is not disputed, the credit cannot be denied on the mere ground that description of goods in the invoice is incorrect. It was also held therein that as no investigation was initiated at the hands of the transporter or supplier, and therefore credit cannot be denied at the recipients’ end.
5.8 The third issue is the denial of credit for the reason that the invoices issued by M/s.TVS Sundaram Motors reflects the existence of two sets of invoices. The allegation is that in the invoices issued to the appellant, the services are described as ‘Data processing and Policy Servicing Services’. The invoices at the dealer’s end shows ‘additional incentive’. The Ld. Counsel explained that only one invoice describing the service as ‘data processing and policy servicing services’ was issued to the appellant. They are not aware of a second set maintained by the dealer. The appellant cannot be penalized by denying credit for the invoice maintained by the service provider, on their own volition.
5.9 The Ld. Counsel adverted to the allegations in appeal No.40198/2020 (for the period 2015-2017) and submitted that the demand along with interest has been confirmed on the very same grounds. It is alleged and concluded that no services as described in the invoices have been provided by the dealers to the appellant. Though there is no whisper in the Statement of Demand (SOD) No.14/2018 dated 13.04.2018 issued for the period April 2015 to 2017, that the service provided by the dealer is liable for payment of service tax under Reverse Charge Mechanism (RCM) in terms of notification 30/2012-ST, the adjudicating authority in para 13 of the OIO has made discussions in this regard. So also, there is no mention in the SOD that the activities cover reimbursable expenditure. However, in para 14.2 the adjudicating authority has held that the amounts paid by appellant to dealer are reimbursements and therefore no service tax is payable by dealer on such amounts, and therefore appellant is not eligible for credit. The Ld. Counsel argued that by considering the notfn no.30/2012 and the amount as reimbursements, the adjudicating authority has travelled beyond the SCN.
6. The Ld. Counsel adverted to the decision of the Tribunal in the case of Karur Vysya Bank Ltd. VS CCE Trichy – 2019 (22) GSTL 63 (Tri.-Chennai). It is pointed out that in the said case, the department had issued SCN demanding service tax under “Business Support Service” (BSS) on infrastructure support services provided to insurance companies by the bank. The Tribunal upheld the confirmation of demand. It was thus argued that when service tax is not paid by an assessee (Bank) for Business Support Services, demand has been raised for providing infrastructure facilities and supports to the insurance company. That therefore the dealers have rightly paid the tax for the services provided to the appellant. The credit availed by the appellant on such tax is eligible.
7. The Ld. Counsel has put forward arguments on the ground of limitation also. It is prayed that the appeals may be allowed.
8. The Ld. Special Representative appointed by the department Sri R. Subramanian appeared and argued for the department. The Ld. Special Counsel has submitted lengthy written submissions. Bereft of the unnecessary details, repetitions, the crux of the arguments are as under :
It is submitted by the Ld. Special Representative of the department that the investigations brought to light that the issuance of invoice is a tool employed by the dealer / manufacturer to claim their undue payment (commission) under the garb of providing services. It was detected that actually there is no receipt of any service by the appellant so as to avail the credit. The Ld. Special Representative adverted to the relevant provisions of Insurance Act, 1938 and IRDA Regulations to argue that dealers / manufactures of motor vehicles not being insurance agents / brokers / intermediaries of the Insurance companies, are not permitted to do insurance business. So they are not allowed to receive insurance commission. However, the dealers / manufacturers have been soliciting insurance business of the appellant. As they cannot receive commission from the insurance company (appellant), the dealers and manufactures raise invoice on the instructions given by the appellant describing that they have provided ‘Data processing & policy servicing related activities’ to the appellant. These invoices are raised in the guise of providing services to the appellant so that the commission for promoting insurance business can be paid to the dealers / manufacturers.
8.1. Section 40 (1) of Insurance Act, 1938 reads as under :
“3.2 As per Section 40 (1) of the Insurance Act, 1938, No person shall after the expiry of six months from the commencement of this Act, pay or construct to pay any remuneration or reward whether by way of commission or otherwise for soliciting or procuring insurance business in India to any person except an insurance agent or an intermediary or insurance intermediary.”
8.1.1 As per IRDA Circular Ref: 011/IRDA/Broke-Com/August/2008 dated 25/08-2008 issued under Section 14 of IRDA Act, 1999, which limits the payment of Commission or brokerage to 10%. The circular specifically state, “No payment of any kind including “administrative or servicing charges” is permitted to be made to the agent or broker in respect of the business of which he is paid agency commission or brokerage.”
8.2. The appellant maintains business connection with automobile dealers for procuring insurance policy from the vehicle buyers. The tie up with manufacturer brings out the mechanism for rendering such insurance services and they inform the dealer the rate of commission for rendering such services. The appellant is not authorized to outsource such insurance services. As per Section 40 of Insurance Act, 1938, only licensed Brokers are permitted to do insurance business and entitled to receive commission. For the purpose of receiving the commission, the dealers have raised the invoices describing the services as ‘data processing and policy servicing activities’. In reality, the dealers do not provide any such service and only provide insurance services. The taxable value and the service tax is calculated as a percentage of own damage (OD) premium and intimated by appellant to the dealers through e-mail.
8.3 The Ld. Special Representative of the department relied upon the various statements recorded during investigation to argue that these facts have been brought out from such statements which have not been retracted. In para 39 of OIO, the adjudicating authority has considered the statement of Sri Venkatachalam Sekar who is a representative of the appellant. It is stated by him that appellant has entered into service provider agreements for ‘Data Processing and Policy servicing and related activities services’. The rates for the services have not been specified in the agreement. The appellant gives a specific percentage of value of the insurance policy as payout to the dealers. The statements of other persons are also on similar lines. It is argued that the adjudicating authority is correct in making the following findings :-
(i) the payment made by the appellant to the dealers of motor vehicles is a percentage of OD premium collected and the said payout details are calculated by the Head office of the appellant and communicated to the dealers.
(ii) Since, the appellant cannot term such payout as commission, which will be violative of IRDA guidelines, the dealers were given prescribed format to raise invoices as if they provided ‘Data processing and policy servicing related activities’.
(iii) the dealers accordingly raised invoices on the insurance companies in the format provided to them.
(iv) dealers have not provided the services as mentioned in the invoices.
8.3.1. The Ld. Spl. Counsel urged that the invoices are issued to create an illusion as though the dealers have provided services, wherein, the entire web of activities was formulated by the appellant to capture the customers at the time of buying vehicles itself. The appellant therefore cannot avail credit of the service tax paid on these invoices and the adjudicating authority has rightly confirmed the demand.
8.3.2. The Ld. Special Representative submitted that the decisions in the case of Modular Auto Ltd. (supra) and Cholamandalam MS General Insurance Co. (supra) are not applicable as the facts are different.
8.4 The arguments of the appellant on the second issue as to the credit disallowed on computer generated unsigned invoices was countered by referring to the discussion made by adjudicating authority in para – 40 of OIO dt. 23.12.2016. It is argued that the Board vide F.No.224/44/2014-CX.6 dt. 06.07.2015 had issued instructions for option to issue invoices in electronic form and authentication of digital signature. This came into effect only on 6.7.2015. So the credit availed by appellant on unsigned invoices issued by e-mail from M/s. Honda Cars is not valid and the demand has been correctly confirmed by the impugned order.
8.5 The third issue is regarding two sets of invoices showing different description of services. The description of service in the invoice of the account maintained by the dealer (TVS Sundaram Motors) is shown as ‘additional incentive’. The description of the service in the corresponding invoice of the appellant shows as ‘Data processing and Policy related activities’. The appellant has not been able to explain the discrepancy. The credit has been righty denied by the adjudicating authority.
9. It is asserted by the Ld. Counsel that the credit has been denied not because of incorrect description of service in the invoice, but because the dealers and manufacturers did not provide any service to the appellant and the invoices have been raised to pay the commission on insurance services to the dealers. The Ld. Special Representative prayed that the appeal may be dismissed.
10. Heard both sides.
11. The issue to be decided is whether the appellant is eligible to avail credit of the service tax paid by them on the invoices issued by automobile dealers.
12. The main argument advanced on behalf of the department is that the dealers have not provided any service to the appellant and that the invoices are raised for the purpose of paying the commission to the dealers by the appellant. It is thus the case of the department that the dealers have been providing insurance services to the appellants illegally against the provisions of Insurance Act,1938 and IRDA Regulations. To coverup this, and to facilitate the payment of commission for the insurance services provided by dealers, the invoices have been issued. On his ground, the credit availed by the appellant of the service tax paid by them on these invoice is held to be not eligible. Let us proceed to examine the rival contentions.
13. It is not disputed that the dealers have paid the service tax collected from the appellant to the government. So also, the payment of service tax by the dealers on these impugned invoices is not objected to by the department. The department has issued show cause notice only to the appellant proposing to deny the credit availed of the tax paid by them.
14. The Ld. Special counsel has relied upon various statements recorded during the investigation to argue that it has been unearthed by the department that no services were provided by the dealers to the appellant. These witnesses have been subjected to cross examination. The Ld. counsel appearing for the appellant has referred to the cross examinations and argued that it has been clarified during cross examination that services were indeed provided. The allegation in the SCN that no services were provided is mainly based on the statements recorded during investigation. The cross examination of Sri. Venkatachalam Sekar, Financial controller of appellant is as under:
Cross by representative of appellant/assessee
Q: Do you agree that Khiviraj Motors (KM) was promoting Royal Sundaram Alliance General Insurance Co. Ltd (RS) as one of the preferred insurers to car buyers?
A: Yes
Q: Do you agree that if a customer agreed to take insurance fresh or renewal from RS, that KM processed and issued the policy?
A: Yes
Do you agree that for the above service KM was paid service charges at a % of the OD premium?
A: Yes
Q: Do you agree that KM rendered the services mentioned in Schedule A of the agreement of the service provider agreement dated 15.11.2013?
A: Yes, they provided Policy servicing and Data processing services.
Q: Do you therefore agree that your answer to question no. 18, 19 20, 25 (questions by department while recording statement) are incorrect?
A: Yes it is incorrect
{four separate questions and answers are made into one here}
Q : why were there such four incorrect replies?
A: I was forced to give such answer.
Q: In question no. 34, is the description in the invoices-data processing and policy servicing-absolutely false?
A: No. They are providing data processing and policy related activities services.
Q: Do you agree that you received from KM, Chennai Ford, Honda Cars India Ltd, SM etc, the service of promoting RS as one of the preferred insurers and wherever they are successful they processed and issued the insurance policies etc using data processing at their site?
A: Yes.
Q: If you were forced to give reply, why did you not retract the statement.
A: I did not retract because I was not aware of the process.
The cross examination of other witnesses is also on similar lines. The cross examination of Sri S. Shanmugam Sundaram, General Manager, Finance of Chennai Auto Agencies (dealer) is as under; –
Q: Do you agree that Chennai Auto Agencies was promoting RS as one of the preferred insurers to car buyers?
A: Yes
Q: Do you agree that if a customer decided to take insurance from RS,
you were processing and issuing the policy, remitting insurance premium collected to RS?
A: Yes
Q: Do you agree for rendering the above services, you had employed staff, computers, other infrastructure etc?
A: We are using our staff and computer to generate the policies
Q: Do you agree that for the above services you were paid charges at a % of the OD premium?
A: Yes, we were getting the service charges.
Q: Do you agree that you rendered a service to RS and received payment for that?
A: Yes of course, we are rendering services towards insurance policies and getting payment for that.
15. During cross examination, the witnesses have denied the statement given before the officers. It can be seen that the evidence brought forth in cross examination is that the motor vehicle dealers have indeed provided services to the appellants and collected charges for the same along with service tax from the appellant. The Ld. Special Representative of the Department has made efforts to argue that the statements recorded during investigations have not been retracted and therefore such statements recorded during investigation alone must be relied on, and that the deposition made during cross examination is after-thought and that has to be disregarded in toto. The argument is not tenable. It is the right of an assessee to cross examine witnesses whose statements the assessee would like to discredit. The intention of cross examination is to bring out clarity and truth of the statements given before the officers of the department. The appellant has contested the truthfulness of these statements and requested for cross examination. The courts have always emphasized the importance and need to permit cross-examination of witnesses.
16. Section 9D of the Central Excise Act,1944 provides as to how the statements recorded during investigation can be admitted in evidence. The said Section has been adopted in Finance Act, 1994 as provided in Section 83 of the Finance Act, 1994.The Hon’ble High Court of Punjab and Haryana in the case of G-Tech Industries Vs Union of India – 2016 (339) ELT 209 (P&H) had occasion to consider the compliance of the provisions of Section 9D of the Central excise Act, 1944. It was held that the statements recorded during an inquiry or investigation cannot be merely accepted in evidence. For admitting such statements summons has to be issued to the witness and examined. The witness can be cross examined by the assessee. The relevant para reads as under:
“16. Clearly, therefore, the stage of relevance, in adjudication proceedings, of the statement, recorded before a Gazetted Central Excise officer during inquiry or investigation, would arise only after the statement is admitted in evidence in accordance with the procedure prescribed in clause (b) of Section 9D(1). The rigour of this procedure is exempted only in a case in which one or more of the handicaps referred to in clause (a) of Section 9D(1) of the Act would apply. In view of this express stipulation in the Act, it is not open to any adjudicating authority to straightaway rely on the statement recorded during investigation/inquiry before the Gazetted Central Excise officer, unless and until he can legitimately invoke clause (a) of Section 9D(1). In all other cases, if he wants to rely on the said statement as relevant, for proving the truth of the contents thereof, he has to first admit the statement in evidence in accordance with clause (b) of Section 9D(1). For this, he has to summon the person who had made the statement, examine him as witness before him in the adjudication proceeding, and arrive at an opinion that, having regard to the circumstances of the case, the statement should be admitted in the interests of justice.
17. In fact, Section 138 of the Indian Evidence Act, 1872, clearly sets out the sequence of evidence, in which evidence-in-chief has to precede cross-examination, and cross-examination has to precede re-examination.
.. .. …
20. Reliance may also usefully be placed on Para 16 of the judgment of the Allahabad High Court in C.E. v. Parmarth Iron Pvt Ltd., 2010 (260) E.L.T. 514 (All.), which, too, unequivocally expound the law thus :
“If the Revenue choose (sic chose?) not to examine any witnesses in adjudication, their statements cannot be considered as evidence.”
21. That adjudicating authorities are bound by the general principles of evidence, stands affirmed in the judgment of the Supreme Court in C. v. Bussa Overseas Properties Ltd., 2007 (216) E.L.T. 659 (S.C.), which upheld the decision of the Tribunal in Bussa Overseas Properties Ltd. v. C.C., 2001 (137) E.L.T. 637 (T).
22. It is clear, from a reading of the Order-in-Original dated 4-4-2016 supra, that Respondents No. 2 has, in the said Orders-in-Original, placed extensive reliance on the statements, recorded during investigation under Section 14 of the Act. He has not invoked clause (a) of sub-section (1) of Section 9D of the Act, by holding that attendance of the makers of the said statements could not be obtained for any of the reasons contemplated by the said clause. That being so, it was not open to Respondent No. 2 to rely on the said statements, without following the mandatory procedure contemplated by clause (b) of the said subsection. The Orders-in-Original, dated 4-4-2016, having been passed in blatant violation of the mandatory procedure prescribed by Section 9D of the Act, it has to be held that said Orders-in-Original stand vitiated thereby.”
17. The Hon’ble Jurisdictional High Court in the case of Sri Bala Ganeshan Spinners – 2021 (377) ELT 510 (Mad.) has emphasised the requirement of cross examination. The Tribunal in the case of Swift Institutes of Engineering Technology Vs Commissioner – 2020 (34) GSTL 502 (Tri-Chand) had occasion to consider the applicability of Section 9D of Central Excise Act 1944, to the investigations conducted for short payment of service Tax.
18. During cross-examination the witnesses have categorically stated that the dealers provided services to the appellant in the nature of ‘data processing and insurance related activities’. The dealers have also collected charges from the appellant for such services along with service tax. In the SCN it is alleged that the cenvat credit is not eligible to the appellant as the description of services in the invoices is incorrect. At times, in the SCN as well as OIO it is alleged that the credit is inadmissible as no services at all were provided by the dealers to the appellants. For better appreciation a sample of the invoice is noticed as under:
19. From the above document, it can be seen that the dealers have raised the invoice collecting charges for the services provided by them. There is nothing in these documents to indicate that no services were provided. At the cost of repetition, it needs to be stated that though department alleges that no services have been provided vide these invoices they do not dispute the payment of service tax made as per these invoices on the services provided. Further, the appellant has accounted such payments in their income tax returns and service tax returns. The oral evidence and documentary evidences in the nature of invoices and agreements establish that dealers have provided services to the appellant.
20. It is seen that these services are provided as per the agreements entered into by the appellant with the dealer/ manufacturer. The agreement dated 01.10.2013 entered between M/s.Honda Cars India Ltd. and the appellant reads as under
OBJECT
WHEREAS
a) HCIL is engaged in the business of manufacture of automobiles/Vehicles and providing incidental services to Customers through its network of Dealerships including servicing, repairs and the like;
b) Insurer is engaged in general insurance business in India being duly licensed and authorized by IRDA;
c) Insurer has offered to himself provide to Customers certain Insurance Services under brand Honda Assure which includes the facility of availing/renewing Policies and convenient handling of claims on a non-exclusive basis through Dealerships for convenience of customers or in such manner as contemplated hereunder;
d) HCIL has agreed to facilitate on non-exclusive basis the offer of Insurance Services by Insurer to Customers at Dealerships through utilizing the Infrastructure established and provided by Dealership together with IT Support maintained and provided by HICIL in terms hereof;
NOW THIS AGREEMENT WITNESSETH AS FOLLOWS :
ROLE OF HCIL
During the term of this agreement HCIL shall, Facilitate and provide to the extent feasible and deemed expedient :
a. Establish, maintain and make available the same to Insurer the necessary IT Support to enable the Insurer’s provision of various Insurance Services at Dealerships to Customers.
b. Facilitate availability of infrastructure of Dealers and also facilitate the relationship between Insurer and Dealerships for insurer making available insurance Services to customers in terms of this MOU:
CONSIDERATION
In consideration of the services provided in pursuance of this Agreement Insurer agrees to pay
a) HCIL, a fee, mutually agreed for utilization of the IT support established; maintained and provided by HCIL that would be available to the Insurer for its providing the Insurance Services.
b) Dealerships a fee/service charge for utilization the infrastructure provided by Dealers at Dealerships.
c) The nominated Brokers such reasonable brokerage (subject to IRDA norms) for the brokerage services to be provided by them.
The rates of the fee or charges may be mutually agreed upon from time to time in writing.
21. Similar agreements have been entered with M/s.Tata Motors, M/s.Ford etc. From such agreements it can be seen that the dealers have provided services to the appellant. Further, the transactions are not hidden or suppressed in any manner. The department alleges these are illegal and in contravention of Insurance Act and IRDA Regulations. The guide lines on outsourcing of activities by Insurance companies issued by IRDA produced by the appellant shows that the non-core activities and activities supporting core activities can be out sourced. It is not disputed that the dealers have paid the service tax to the government which was collected from the appellant.
22. The Ld. Counsel for appellant has referred to the decision in the case of Karur Vyshya Bank Vs Ltd Vs CCE, Trichy – 2019 (22) GSTL 63 (Tri Chennai). In the said case the SCN was raised demanding service tax on the bank on the amounts received from Insurance companies for providing infrastructural support in the nature of office space, electricity, network etc. The decision makes it clear that such services when provided to Insurance Companies are indeed taxable, under BSS.
23. In the case on hand, the department does not dispute the payment of tax. The department has not initiated any proceedings against the dealers alleging that there are no services provided and that no tax has to be paid by them. The SCN is issued to the appellant alleging that the credit availed on such services is ineligible. The Cenvat Credit Rules,2004 provide for a mechanism to the service provider to avail and utilize credit of the tax paid on input services used for providing output services. This credit scheme ensures smooth flow of duties , eliminating the cascading effect of duties /taxes.
24. The department has opted to retain the tax collected, but has sought to deny the credit to the appellant without questioning or disturbing the assessment of the dealers. By alleging that no services have been provided, the department is actually denying the legality of the tax paid. However, no proceedings are initiated against the service provider who has collected the tax from the appellant and paid it to the government. The SCN is issued only to the appellant, who is the service recipient.
25. The very same issue came up for consideration before the Tribunal in the case of Cholamandalam MS General Insurance Company Ltd. (Supra). The facts and allegations are identical. The Tribunal followed the decision of the Jurisdictional High court in the case of Modular Auto Ltd. (supra). The relevant para of the discussion of the Tribunal is as under :
“6.1 The allegation of the Department is that no services have been provided by the dealers to the appellant as per the invoices and therefore, the appellant is not eligible to avail credit of the Service Tax reflected in this invoices. In paragraph 31 of the Order-in-Original dated 30-1-2017, the crux of the allegations of the Department has been recorded by the Original Authority, as under :
“31. On careful consideration of the statements of personnel of M/s. Chola and Dealers, I find that
(i) The payment made by M/s. Chola to M/s. Hyundai/Dealers of Motor Vehicles is only a percentage of OD premium collected and the said payout details are calculated by the Head Office of M/s. Chola and communicated to the Dealers;
(ii) M/s. Chola could not term such payout as commission (which would be in violation of IRDA guidelines) and hence the Dealers were given prescribed format to raise invoices as if they provided “computing network connectivity through extranet, internet space, furniture and fixtures, consumables, salary of staff, computers, printers, electronics and electricity”;
(iii) the Dealers accordingly raised invoices on the insurance companies in the format provided to them and
(iv) the Dealers have not provided the services as mentioned in the description of the invoices. In other words, the description of the services contained in the invoices used for availing Cenvat Credit do not reflect the true description of the services.”
6.2. From the above, it can be seen that the case of the Department is that the payout paid by the appellant to the dealers on the OD premium collected by the dealers from the customers is camouflaged as service provided by the dealers to the appellant; that therefore, the services contained in the invoices have actually not been provided by the dealers to the appellant and thus, Cenvat credit is not eligible.
7.1 Though in the Show Cause Notice the main allegation is that the description of services in the documents on which credit has been availed is not correct, at the time of adjudication, the main finding is that no services have been provided by the dealers to the appellant and that therefore credit is not eligible. At this juncture, it needs to be pointed out that the Department has no dispute with the Service Tax collected from the appellant by the dealer and remitted to the Government. The assessment of Service Tax paid at the dealer’s end has not been disturbed/questioned by the Department; only the credit availed at the service recipient’s end has been questioned by issuing the present Show Cause Notice.
7.2 If the Department contends that no service has been provided, the crucial question arises as to why Service Tax was collected from the dealer. The discussion by the Original Authority at paragraph 37 countering this argument is as under :
“37. As regards their contention in Para N.1 to N.7 that if no service is provided by the Dealer there is no requirement to pay service tax; that at the time of accepting service tax from the dealer, the department chooses to look at the form of transaction and accept service tax. In this regard, I find that the issue involved is not about the service tax payable by the Dealer. It is about the mentioning of true description of services in the invoice and the services mentioned in the invoices in the instant case admittedly were not provided by the Dealers. Only after the in-depth investigation conducted with the Dealers, the fact of Dealers issuing invoice with the description suggested by the Taxpayer have come to light. Hence their contention that department cannot approbate and reprobate in the same case is not valid.”
7.3 It is not disputed that the dealer has paid Service Tax on the services described in the invoices. If that be so, the denial of credit at the recipient’s end cannot be justified by the Department without reopening the assessment at the dealer’s end.
.. .. …
8.1 A similar issue came up for consideration in the case of M/s. Modular Auto Ltd. (supra). The substantial questions of law considered in the above case are as under :
“2. The above appeals are admitted on the following substantial questions of law;
(a) When the service provider was not before the Tribunal, whether the Tribunal can go into the question as to whether the said service provider had provided service to the appellant or not, more so when the said service provider has been assessed to service tax under Business Support Service for the service rendered by them to the appellant.
(b) Is the Tribunal not in error in refusing credit to the appellant for service tax paid by them to service provider when payment of service tax by the appellant for the service rendered by service provider is not in dispute and that it is settled, the assessment to tax at the hands of the service provider end cannot be questioned in the hand of service receiver (appellant in this case)?”
.. .. …
10. From the foregoing, after appreciation of the facts and following the decision of the Hon’ble High Court in M/s. Modular Auto Ltd. (supra), we hold that the impugned order cannot sustain and requires to be set aside, which we hereby do.”
(emphasis supplied)
26. It needs to be stated that the allegations raised are the same as seen in para 39 of the order impugned in this appeal. Similar view was taken by the Tribunal in the case of ICICI Lombard General Insurance Company Vs CCE, Mumbai Central – 2023 (2) TMI 2023. We therefore hold that after appreciating the facts and evidence, and by applying the ratio in the above decisions the denial of edit cannot be justified.
27. The second ground for rejecting the credit is that computer generated invoices are not signed. In para 40 of the impugned OIO dt. 23.12.2016, the adjudicating authority has noted that in regard to the invoices raised by M/s.Honda Cars India Ltd., the credit to the tune of Rs.6,93,203/- is ineligible for the reason that the invoices do not bear signature. It is further stated that the Board has issued instructions only w.e.f 06.07.2015 that invoices in electronic forms and authentication with digital signature is permissible. It is concluded by the original authority that the invoices are not in the prescribed format as required under Rule 4A of the Service Tax Rules, 1994. Rule 9 of CCR 2004 deals with the documents on which credit can be availed. The second proviso to the Rule 9 states that if the document does not contain all the particulars, but contains the details of duty or service tax payable, the description of goods or taxable service, service tax registration number, person issuing the invoice etc., the Deputy Commissioner or the Assistant Commissioner of Central Excise can verify the same and if satisfied can allow the credit. This means, when the tax paid is in order, the credit has to be allowed even though the invoice may be technically deficient for want of some particulars. In the present case, it is not disputed that the tax has been paid by the appellant. Merely because the computer generated invoice does not contain the signature, it cannot be said that the credit is ineligible. Further, for the period after 2015, the Board has clarified that signatures are not required in the case of computer generated format.
28. The third issue is rejection of credit on the ground that the invoices issued by M/s.TVS Sundaram Motors (service provider) contains a different description of the service. It is alleged in the SCN that invoice maintained by dealer mentions the description of service tax as ‘additional incentives’ whereas the invoice with the same serial number maintained by the assessee has the description as ‘data processing and policy related services’. Again, it is not disputed that the tax has been paid as per the invoices. Appellant who is the service recipient cannot be found fault for the description mentioned in the invoice maintained by the service provider. Appellant has no control over the accounts maintained by the service provider (dealer). The credit at the recipient’s end cannot be denied for this reason. We hold that the denial of credit on this reason is not justified.
29. Appeal No.ST/40198/2020 covers the period from April 2015 to June 2017. The facts and allegations are the same. Based on the very same investigation, the SOD dated 13.04.2018 has been issued proposing to deny the credit availed on the invoices issued by dealers, proposing to recover the amount along with interest and for imposing penalties. Interestingly, in para 13.2 it is held by the adjudicating authority that the commission charges paid by appellant to the dealers will be liable to service tax under Reverse Charge Mechanism in terms of notification 30/2012. Again, in para 14.1, it is concluded that there is no consideration received for the services provided by the dealers to appellant and that the chares paid by appellant to dealers along with service tax are nothing but reimbursable expenses. Para 14.2 of the OIO observes as under ;
“In view of the above, I find that the reimbursements made to automobile manufacturers are not ‘service’ and no service tax is payable on the same. Hence such credit is not admissible as input service credit.”
30. The Ld. Counsel has pointed out that there is no whisper in the SOD that the appellant is liable to pay service tax on such charges under RCM. Again, there is no such allegation in the SCN that the charges are reimbursable expenses. The SOD is issued to consider the same set of facts of earlier SCN. Moreover, the reimbursable expenses have to be included in the taxable value after the amendment brought forth in Section 67 of Finance Act, 1994 w.e.f. 14.05.2015. So the said finding is legally incorrect. Being the same set of facts and issue, we find that the demand for the period involved in Appeal St/40198/2020 is also covered by the decision in the case of Cholamandalam MS General Insurance Co. (supra).
31. From the discussions made above, we find that denial of credit is not justified. The impugned orders are set aside. The appeals are allowed with consequential relief, if any.
