By TIOL News Service

MUMBAI, JAN 07, 2019: THIS is a Revenue appeal against the order of CST, Mumbai dropping the proceedings initiated against the respondent, i.e. M/s. Reliance Nippon Life Insurance Co. Ltd..

The facts are that the respondent had paid commission to the 'Lead generators' but had allegedly not discharged service tax (on reverse charge basis) on the same. Period involved is from October 2008 to March 2011.

Accordingly, demand notice was issued and the adjudicating authority held that the tax liability would arise only on services rendered by such persons as were 'licensed' in accordance with section 42 of Insurance Act, 1938 which the 'Lead generators' were not.

The AR, in his submission before the CESTAT, contended that 'Lead generators' are nothing but insurance agents and they were imparted with training and technical knowledge in the field of life insurance distribution by the respondent; that they were actually canvassing and soliciting insurance business from prospective customers and short-listing, for the attention of the respondent, such persons who showed interest in the products of the respondent. It is further submitted that the adjudicating authority had erred in ignoring the general doctrine that an asseseee cannot be permitted to take advantage of a law to contravene any other law; that in the present case, the respondent has deliberately attempted escape from coverage under the Insurance Act, 1938 and, by such contravention, cannot claim benefits under the provisions of Finance Act, 1994 thus offering justification for invoking of the extended period in section 73 of Finance Act, 1994.

The respondent assessee inter alia submitted that though the tax is levied on services rendered by other entities like actuary, intermediary and insurance intermediary, the legislature was specific in prescribing 'reverse charge mechanism' for services rendered by insurance agent alone; that the 'lead generators' were appointed by the respondent under Clause (vi) of Sub Regulation (1) of Regulation 10 of Insurance Regulatory and Development Authority (Insurance Advertisement and Disclosure) Regulation, 2000 which was in effect during the period in dispute, but stood amended vide order dated 12.08.2012 of IRDA, which led to discontinuance of resort to such a channel from July 2012.

The Bench considered the submissions and observed -

++ We are not convinced by the suggestion that the regularization of a policy serviced by a person who was not licenced under the Insurance Act, 1938 through levy of penalty would permit us to apply the logic backwardly to bring canvassers, not designated as agents, of regular policies within the meaning of 'agent'.

++ The extract of a sample agreement entered into between the respondent and the 'lead generator' makes it amply clear that their function is limited to marketing of the product whereas an 'insurance agent' acts in place of the insurance company in so far as the policyholder is concerned.

++ To the extent that the burden to discharge the tax liability is not specifically transferred to the present respondent as recipient under any other taxable services, the show cause notice would fail as rightly held in the impugned order.

++ The transfer of burden of discharge to the service recipient within section 68 of Finance Act, 1994 is specific and limited without scope for extending beyond the few transactions listed in rule 2(d)(i) of Service Tax Rules, 1994.

++ The Central Board of Excise and Customs, vide instruction no. 137/21/2011-ST dated 15 April 2013, has clarified, in the context of certain levies under Finance Act, 1994, which had a reference to some other laws for the purpose of definition that the scope of such indirect definitions would not extend beyond the specific content of those definitions.

++ Service rendered by 'lead generator' is not that of an 'insurance agent' and, consequently, the commission paid by respondent to such entities are not liable to be included in the assessable value of the respondent for discharge of tax liability under Finance Act, 1994.

The Revenue appeal was dismissed.

(See 2019-TIOL-67-CESTAT-MUM )