By TIOL News Service

MUMBAI, NOV 09, 2016: APPELLANTIS registered as assessee for discharge of tax on 'Insurance Auxiliary service'.

Service tax authorities proceeded on the premise that non-corporate agents of the appellant were, under agreement, compelled to remit 60.3% of the tax liability on agent's commission to the appellant; thatsuch reimbursements were collection of tax in excess that, under section 73A of Finance Act, 1994,is required to be credited to the Central Government.

The impugned order by the CCE held that Rs.93,83,99,657/- reimbursed by agents of the appellant towards the service tax liability that devolved on the appellant between April 2006 and September 2013 was to be recovered.

The appellant is before the CESTAT and after considering the submissions made by both sides, the Member (Technical) writing for the Bench observed –

+ That the appellant has received the taxable 'insurance auxiliary service' from its agents in the pursuit of its objective of rendering output 'life insurance service' and discharges tax liability as provider of service as well as on 'reverse charge basis' on the value of input services is not in dispute. The appellant who pays commission to its agents, under agreement, also withholds 60.3% of the tax so paid on 'reverse charge' basis and, thus, in effect recovers a portion of the tax liability from the service provider.

+ In service tax levy, too, the person liable to pay the tax is required to deposit the tax amount irrespective of the quantum or stage of recovery from the person who bears the burden of tax. There is a distinct dichotomy, in both Central Excise Act, 1944 and Finance Act, 1994, of the obligation to credit the tax with Central Government and the recovery of the amount from the other person.

+ And that is a dichotomy that does not brook any latitude whatsoever and its acceptance by Revenue is amply evidenced by circular no. 870/8/2008-CX dated 16th May 2008 which clarifies that section 11D of Central Excise Act, 1944 is not liable to be invoked even if the mandated payment for availing CENVAT credit on inputs used in exempt goods is recovered from the buyers of the output goods. That this ratio applies to service tax levy and that recovery of amount already paid would be tantamount to double deposit is enunciated by the Tribunal in Sangam India Ltd v. Commissioner of Central Excise, Jaipur - 2014-TIOL-1957-CESTAT-DEL.

+ The contractual obligation to reimburse the tax paid by the person designated to do so by law is, thus, not tax collected in any manner warranting recourse to section 73A of Finance Act, 1994.

+ The appellant has paid the tax on commission paid to agents on 'reverse charge' basis and appellant is, under CENVAT Credit Rules, 2004, entitled to take credit of such tax paid. Contribution, partial or entire, to the tax liability in an agreement with the provider of the service is not forbidden by law. To the extent that the contributor has not ventured to avail credit of such contributions, there is no detriment to public revenue. And to the extent that the appellant has not deprived the provider of the service of any amount in excess of the tax deposited by the appellant, there can be no substance to the allegation that appellant has contravened section 73A of Finance Act, 1994.

The impugned order was set aside and the appeal was allowed.

Pellucid, in passing: Some intricate verbosity this…

(See 2016-TIOL-2912-CESTAT-MUM)