Unreported Decisions – ST – December 2019

By Vinay Jain & Sachin Mishra, Advocates

1. Whether amount of commission received by Air Travel Agent from General Sales Agents (GSAs) for the bookings done through them is taxable under “Business Auxiliary Service”? Whether the commission amount received by one branch of the Air Travel Agent from another branch, for bookings done through them is taxable under “Business Auxiliary Service?

Facts and Pleading: M/s. Riya Travel & Tours (India) Pvt. Ltd. (hereinafter referred to as “Appellant”) is inter alia, engaged in rendering services as an air travel agent. For booking of air tickets, the airlines appoint General Sales Agents (GSAs), entrusted with the task of soliciting, promoting and selling the tickets for the airlines; the tickets are issued by the GSAs only and other travel agents are not allowed to sell the tickets of such airlines. Any customer intending to book a ticket, approaches the agent i.e., Appellant (other than GSA), who obtains the details such as name of the passenger, etc. and approaches the GSA of the particular airline for booking of ticket, which is issued directly in the name of the passenger. In certain cases, the Appellant is also receiving service tax on the commission amount from the branch offices under “Business Auxiliary Services.”

The department alleged that Appellant is liable to pay service tax on the commission amount received by it from the GSAs under the taxable head of “Business Auxiliary Service” (‘BAS’) as they are promoting the business of the GSA’s. Further, the Department also alleged that the appellant was liable to pay service tax on the commission amount received from the branch offices under BAS.

The appellant submitted that the services provided are in connection with the booking of passage by air, taxable under the category of “Air Travel Agent Service” and not under a general category of BAS. The activities undertaken by the Appellant cannot be equated with the term “promotion” or “marketing” of General Sales Agents. The appellants further submitted commission amount received by one branch from another branch of the same company cannot be subjected to levy of service tax in as much as the branch offices and the head office are belonging to one corporate entity and there is no involvement of two separate persons in the transactions.

Judgment: On the first issue, the Hon’ble CESTAT held that, in order to be classifiable under the head of BAS, all three parties involved in the contract namely GSA, the appellant and the customer must be known to each other. Thus, in absence of any connection between them, the activities cannot be considered as a “Business Auxiliary Service”. It held that both the appellants and the GSAs are classifiable under air travel service on the basis of nature of service provided by them that is booking of tickets for the benefit of both airlines and customers. On the second issue, it further held that the head office and the branch offices of the appellant run their business under one umbrella i.e., the appellant’s. Thus, they cannot be termed as separate persons, one as the service provider and the other as the service receiver. Hence, in absence of any provider-receiver of service relationship, the commission amount shared by the branch office with the head office cannot be subjected to tax under such category of BAS.

M/s. Riya Travel & Tours (I) vs. Commissioner of Service Tax, CESTAT, Mumbai, decided 19-11-2018 in the final order no. A/88533-88534/2018..

M/s. Riya Travel & Tours (I)

2. Whether the service tax paid on commission paid to insurance agents under “Insurance Auxiliary Service” under reverse charge mechanism and then recovered from insurance agents is required to be deposited to the government as per Section 73A(2) of Finance Act, 1994? Whether pre-recruitment training and post-recruitment training expenses should be included in the taxable value of commission paid to the insurance agents for the purposes of discharging service tax?

Facts and Pleading: (i) Max Life Insurance Co. Ltd. (herein referred to as “appellants”) are inter-alia engaged in the business of providing life insurance. The appellants have entered into agreements with individuals/corporates who act as the insurance agents of the appellants for a fixed commission. The appellants are discharging service tax on the same under RCM. As per an understanding with all the agents, the agents are entitled to only net commission (net of service tax) or the aforesaid service tax is recovered from them. (ii) The appellants incur certain business expenditure in relation to its insurance agents such as pre-recruitment training expenses, sales training & other training, refresher/renewal training expenses and business promotion Expenses.

(i) The department alleged that appellants have wrongly collected the said service tax from the insurance agents and have not deposited the same with government exchequer. Thus, appellants are liable to deposit the said amount to government exchequer under Section 73A(2) of the Finance Act, 1994. (ii) Further, the department alleged that the aforesaid pre-recruitment training and post-license training expenses incurred by appellants on the insurance agents should be included in the gross taxable value of the services rendered by such insurance agents.

1. The appellants argued that Section 73A(2) of the Finance Act, 1994 will apply only in cases wherein the person is not liable to pay service tax. When the person is liable to pay service tax, the same is covered under Section 73A(1) of the Finance Act, 1994. The appellants are covered under Section 73A(1) and not under Section 73A(2). However, present demand is under Section 73A(2) and therefore, not sustainable. Otherwise also, whatever amount was collected from the insurance agents the same has been paid to the government exchequer. Therefore, the second recovery will not lie. Reliance was also placed upon Mafatlal Industries Ltd. & Ors. vs. UOI, (1997)5 SCC 536 to contend that that once the excise duty is paid on clearance, it will not be payable again on collection from the buyers. Further, the appellants contended that contractually tax liability can be shifted from one person to another and relied upon decision of Supreme Court in the case of Rashtriya Ispat Nigam Limited vs. Dewan Chand Ram Saran, 2012 (26) STR 289 (SC).

2. Further, the appellants argued that the pre-recruitment expenses were not liable to be included in the taxable value of the services rendered by the insurance agents on the count that the persons who received such pre-recruitment training were not registered as insurance agents under Insurance Act. Further, on post-licence training expenses, the appellants submitted that these expenses incurred by the appellant in providing training facilities to the insurance agents are in fact used by the appellant itself in furtherance of their own routine insurance business.

Judgment: (i) The Hon’ble Appellate Tribunal accepted the submissions of the appellants and relied upon the decision of HDFC Standard Life Insurance Co. Ltd. vs. Commr. C.E., Mumbai-II 2017 (49) STR 301(Tri-Mum.) and Bajaj Alliance Life Insurance Co. Ltd. vs. CCE & ST, 2019-VIL-322-CESTAT-MUM-ST to grant relief to assessee. The Appellate Tribunal after extensive analysis of Section 73A(1) and (2) of the Finance Act, 1994 held in favour of assessee that once the tax has been discharged, no further liability will arise. (ii) Further, the Hon’ble Appellate Tribunal agreed with the submission of the appellant that expenses incurred in pre-recruitment training and post-license training of insurance agents by the appellants cannot form part of the gross taxable value of commission paid to the insurance agents in determining the service tax liability as reimbursement of expenditure cannot form part of taxable value

M/s. Max Life Insurance Company Ltd. vs. Commissioner of C.E. & S.T., CESTAT, New Delhi, decided on 15-11-2019 in the final order no. A/51498/2019.

M/s. Max Life Insurance Company Ltd.