OFFICE OF THE COMMISSIONER, CENTRAL EXCISE & SERVICE TAX,

38, M.G. MARG, CIVIL LINES, ALLAHABAD-211001

C. No. VI(ST)Dem(12)-Adj- 216/2012/ Dated:- .03.2014

O.I.O. No. (ST-137/2012 & 06/2013) 86 & 87 of 2014 Dated:- .03.2014

These proceedings are initiated against M/s AGR Automobiles Pvt. Limited, B-38/2-A,
Mahmoorganj, Varanasi (U.P.) – 221010 (hereinafter referred to as the party) in pursuance of show
cause notices issued to the party, details thereof are as under:

Sl.No. Details of Show Cause Notice Period Involved Amount Involved

1. SCN No. 113/Joint Commr./Alld./2012 2007-08 to 2011-12 Rs.3880999.00
dated 19.10.2012 issued by the Joint
Commissioner, CEx & ST, Allahabad.
2. SCN C.No. V(30)Dem /AGR/122/ 12/ 2007-08 to 2011-12 Rs. 234232.00
7562 dated 19.10.2012 issued by the (upto Sept. 11)
Asstt. Commissioner, CEx & ST,
Division – Varanasi

Since one issue with regard to leviability of service tax under “business auxiliary service” on
bank commission/ finance commission received by the party is common in both the above show
cause notices and in exercise of powers conferred upon me vide CBEC Circular No. 362/78/97-CX
dated 09.12.97, I proceed to dispose both the above show cause notices by a common order.

BRIEF FACTS OF THE CASE [ In SCN No. 113/Joint Commr./Alld./2012 dated 19.10.2012
issued by the Joint Commissioner, CEx & ST, Allahabad.] :

M/s AGR Automobiles Pvt. Limited, B-38/2 Mahmoorganj, Varanasi , (herein after referred
to as the “party”) are engaged in providing services to clients under the category of “Authorized
service station’s services / Motor vehicles related services.” Authorized service station’s services /
Motor vehicles related service,” has been defined in the sub-clause (zo) of section 65(105) as
substituted by the Finance Act, 2011 as “any services provided or to be provided to any person, by
any other person, in relation to any service for repair, reconditioning, restoration or decoration or
nay other similar services, of any motor vehicle other than three wheeler scooter autorickshaw and
motor vehicle meant for goods carriage.” The party was registered for said service and is having
Registration No. as AABCB0537FSD002.

On information and intelligence that the party is Authorized Dealer of “Maruti Suzuki Cars”
and is also engaged in providing services, other than the one mentioned above, to its clients under
the category of “Business Auxiliary Services,” which is defined in the clause (19) of section 65 of
Finance Act 1994 as any service in relation to, —
(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or
(ii) promotion or marketing of service provided by the client; or 2[****]
(iii) any customer care service provided on behalf of the client; or
(iv) procurement of goods or services, which are inputs for the client; or
[Explanation.— For the removal of doubts, it is hereby declared that for the purposes of this sub-
clause, “inputs” means all goods or services intended for use by the client;]
4[(v) production or processing of goods for, or on behalf of the client; or]
(vi) provision of service on behalf of the client; or
1
 (vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as
billing, issue or collection or recovery of cheques, payments, maintenance of accounts and
remittance, inventory management, evaluation or development of prospective customer or vendor,
public relation services, management or supervision, and includes services as a commission agent,
5[but does not include any activity that amounts to “manufacture” of excisable goods.]
[Explanation. — For the removal of doubts, it is hereby declared that for the purposes of this clause,
—
(a) ”commission agent” means any person who acts on behalf of another person and causes sale or
purchase of goods, or provision or receipt of services, for a consideration, and includes any person
who, while acting on behalf of another person —
(i) deals with goods or services or documents of title to such goods or services; or
(ii) collects payment of sale price of such goods or services; or
(iii) guarantees for collection or payment for such goods or services; or
(iv) undertakes any activities relating to such sale or purchase of such goods or services;
(b) excisable goods” has the meaning assigned to it in clause (d) of section 2 of the Central Excise
Act, 1944(1 of 1944);
(c) “manufacture” has the meaning assigned to it in clause (f) of section 2 of the Central Excise Act,
1944(1 of 1944)]

The party apparently provided the services of commission agent to the Insurance companies,
Financial Institutions, True value and dealt in purchase or sale of services under extended warranty.
Accordingly an enquiry was initiated by Anti-Evasion Branch of Central Excise Commissionerate
Headquarters Allahabad to detect evasion of Service Tax. Accordingly the premises of the party
were visited by the team of officers on 31-08-2012 under proper orders. The documents of the party
were scrutinized and examined. It was found that the party has not paid service tax on amount of
commission it has received on Insurance, financial institutions, Extended Warranty and true value
scheme of “Maruti Suzuki.”. The party through its Director admitted the non-payment of service tax
in its statement dated 31-8-2012. It further stated that it would deposit the same along with the
interest positively by 01-09-2012.

On scrutiny of records in form of ledgers provided by the party it appears that during the
period of 2007-2008 to 2011-2012 the party has received a gross amount of Rs. 3,50,83,036/- for
the services provided as discussed in the preceding paras. Thus the tax liability of the party is
calculated on the gross payments received by it as per Table–I below. The party is liable to pay
service tax of Rs.38,80,999/- (inclusive of Education cess and H & S Education Cess) as per Table I
below. However it is relevant to mention that the party informed on 03-09-2012 that it had
deposited Rs.10,00,000/- vide challan dated 01-09-2012. Again it has informed that it has deposited
an amount of Rs.7,40,250/- vide challan dated 07-09-2012.
Table :1
Table showing amounts received for providing of taxable Services and Service tax liability due and discharged by Party
Period Nature of payment Amount Taxable Amount Service Tax Education Cess Sec.Higher Edu Total Amt. of tax
Received Amount Cess liability
Extended Warranty
713513
Ins. Commission
2007-08 2418827 5045093 605411 12108 6054 623573
Fin. Commission
163581
True Value 1749172
Extended Warranty
1207856
2008-09 Ins. Commission 7937720 952526 19051 9525 981102
2841111
Fin. Commission
248130

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 True Value 3640623
Extended Warranty
1313146
Ins. Commission
3863840
2009-10 5710458 571046 11421 5710 588177
Fin. Commission
364465
True Value 169007
Extended Warranty
734027
Ins. Commission
4220229
2010-11 7615621 761562 15231 7616 784409
Fin. Commission
414722
True Value 2246643
Extended Warranty 637866
Ins. Commission 5343268
2011-12 8774144 877414 17548 8774 903737
Fin. Commission 360110

True Value 2432900

Total     35083036 3767960 75359 37680 3880999

From the foregoing account it appears that the party had provided services, to its clients
under the category of “Business Auxiliary Services,” in terms of definition as in clause (19) of
section 65 of Finance Act 1994 and has received payment.

The Rule 3 of the Service Tax (determination of value rules), 2006, provides for valuation of
taxable services. The said rule provides that value of consideration would be the gross amount
charged inclusive of monetary and non-monetary consideration and where such valuation is not
possible, the gross amount charged would be money equivalent to consideration charged and in no
case it would be less than the cost of provision of service.

Under Section 69(1) of Finance Act 1994 read with rule 4(1) of Service Tax Rules 1994, it
has been stipulated that every person liable to pay Service Tax shall make application to the
jurisdictional Superintendent, Service Tax, in form ST-1 for registration within a period of thirty
days from the date on which the Service Tax under Section 66 of the Act are levied or within a
period of thirty days from the date of commencement of Services by him but the party failed to do
so with in time. The party has taken registration within time for providing services of “Authorized
service station’s services / Motor vehicles related services as defined in the sub-clause (zo) of
section 65(105) of Finance Act 1994 but not for services which it was providing to its clients
under the category of “Business Auxiliary Services,” in terms of definition as in clause (19) of
section 65 of Finance Act 1994 for as required under aforesaid Act & Rules with in time and have
violated the provisions of Section 69 (1) and Rule 4 (1) making themselves liable for penal action
under Section 77 of the Act.

Section 70 of the Act read with Rule 7 of the Rules stipulates that every assessee shall
submit a half yearly return in From ‘ST-3’ or ‘ST-3A’, as the case may be, in triplicate, along with a
copy of the TR-6/GAR-7 challan for the month covered in the half yearly return by the 25th of the
month following the particular half year. Failure to furnish the returns in due time is liable to
imposition of penalty under Section 77 of the Act. The party has not submitted the proper half
yearly return form of ST-3 to the jurisdictional Superintendent, within time and thereby,
contravened the provisions of Section 70 of the Act read with rule 7 of the Rules. Hence, the party
is liable for imposition of penalty under section 77 of the Act.

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 Section 68 of the Act read with rule 6 of the Rules stipulates that every assessee shall pay
Service Tax on the value of taxable services received during any calendar quarter/month, to the
credit of the Central Government by 5th of the month immediately following the said quarter/month
as the case may be. The party has failed to pay Service Tax in due time and is thus liable to
imposition of penalty under section 76 of the Act.

Thus, the party had suppressed the material facts, in as much as by not taking the requisite
registration within time, by not filing the proper statutory returns and by not paying Service Tax,
from the department with mala-fide intention to evade Service Tax and thus failed to discharge his
liabilities of service tax, hence the extended period is invokable in the case. During the period from
01-04-2007 to 31-03-2012, the party has received a gross amount of Rs. 3,50,83,036/- and has
evaded service tax accrued on this amount to the tune of Rs.38,80,999/- (inclusive of Education cess
and H & S Education Cess) for providing taxable service. The said amount of service tax not paid
by them is demandable and recoverable under proviso to section 73 (1) of Finance Act 1994, along
with interest as applicable under Section 75 of the Act ibid. They are also liable to penalty under
Section 70,76, 77 and 78 of the Act for not paying service tax in due time thereby contravening the
provisions of Section 67, 68, 69 of the Act read with Rule 4, 6, 7 of the Service Tax Rules 1994 and
Rules of Service Tax (Determination of Value) Rules, 2006.

In view of the facts narrated above, a notice to Show Cause cum demand No. 113/Joint
Commr./Alld./2012 dated 19.10.2012, was issued to the party through which the party was required
to show cause to the Joint Commissioner, Central Excise & Service Tax Headquarters, Central
Excise 38 M.G.Marg, Civil Lines , Allahabad within thirty (30) days from the date of receipt of the
notice as to why:
(a) Service Tax amounting Rs.38,80,999/- (inclusive of Educatiion cess and H & S Education
Cess) should not be demanded and recovered from them under proviso to sub section (1) of Section
73 of chapter V of the Finance Act, 1994 along with interest as applicable under Section 75 of the
Act, ibid. The amount of Rs. Rs. 10,00,000/- and Rs.7,40,250/- should not be appropriated against
the outstanding demand.
(b) Penalty should not be imposed upon them under Section 70, 76, 77 of Chapter V of the
Finance Act, 1994 for each default for not paying service tax in accordance with the provisions of
Section 66, 67, 68, 69 of Chapter V of the Finance Act, 1994, Rule 4, 6, 7 of the Service Tax Rules
1994 and Rules of Service Tax (Determination of Value) Rules, 2006.
(c) Penalty should not be imposed upon them under Section 78 of Chapter V of the Finance Act,
1994 for not paying service tax in accordance with the provisions of Section 66, 67, 68, 69 and of
Chapter V of the Finance Act, 1994, Rule 4, 6 of the Service Tax Rules 1994 and Rules of Service
Tax (Determination of Value) Rules, 2006 and for their willful mis-declaration and suppression of
facts with intent to evade payment of duty.

Brief facts of the Case [In SCN C.No. V(30)Dem /AGR/122/ 12/ 7562 dated 19.10.2012 issued
by the Asstt. Commissioner, CEx & ST, Division – Varanasi] :

During the course of Audit conducted by the department, it has been revealed/ observed (as
per DAR/FAR No. 133/VNJS/11-12- Para - 5) that the assessee during 2007-08, 2008-09,2009-
10,2010-11 and 2011-12 (up to Sept' 11) had received Rs. 9,13,581/-, Rs. 2,48,130/-, Rs.
3,64,465/-, Rs. 4,14,722/-& Rs. 1,00,858/- respectively as Bank Commission, which falls under the
purview of Business Auxialiary Services but have failed to discharge the Service tax liability to the
tune of Rs. 1,12,919/-, Rs. 30,669/-, Rs.37,540/-, Rs. 42,716/- & Rs.10,388/- respectively totaling to
Rs. 234,232/- along with due interest. On being pointed out the party have partly paid an amount of
Rs. l,41,532/- vide GAR-7 no. 1016 dated 29.03.2012.
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 Vide letters issued by the Superintendent Central Excise & Service Tax, Range South East,
Varanasi, party were asked to deposit the interest applicable on aforesaid Service Tax of Rs.
1,41,532/- and balance/differential amount of Service tax of Rs. 92,700/- along with interest as per
observation of audit team made during the course of Audit. Despite several reminders and
telephonic contacts made with the party to pay the due involved service tax, they have neither
deposited the balance/differential amount of Service Tax amounting to Rs. 92,700/- nor submitted
any clarification/ reply hi this regard to the department.

Under .Section 69(1) of the Act read with rule 4(1) of Service Tax rules 1994 (here -in-after
referred to as the rules) every person liable to pay Service Tax shall make application to the
Superintendent Service Tax hi form ST-1 for registration/ amendment hi registration within a period
of thirty days from the date on which the Service Tax under Section 66 of the Act are levied or
within a period of thirty days from the date of commencement of Services by them.

The party have not applied for amendment in registration for Business Auxiliary Service/as
required under the aforesaid Act & Rules and have violated the provisions making themselves liable
for penal action under Section 77 of the Act.

Section 70 of the Act read with Rule 7 of the Rules stipulates that every assessee shall
submit a half yearly return in Form 'ST-3' or 'ST-3A, as the case may be, in triplicate, along with a
copy of GAR-7 challan for the month covered in the half yearly return by the 25 th of the month
following the particular half year. Failure to furnish the returns in due time is liable to imposition of
penalty under Section 77 of the Act.

It appears that the party have not submitted the half yearly ST-3 return for 'Business
Auxiliary Service' to the Superintendent, Central Excise & Service tax, Range South - East,
Varanasi in duetime for the period 2007-08 to 2010-11 (Up to Sept., 2011), thereby, contravening
the provisions of Section 70 of the Act read with rule 7 of the Rules. Hence, the party appears to be
liable for imposition of penalty under section 77 of the Act.

Section 68 of the Act read with rule 6 of the Rules stipulates that every assessee shall pay
Service Tax on the value of taxable services received during any calendar quarter/month, to the
credit of the Central Government by 5th of the month immediately following the said quarter/month
as the case may be.

From the facts narrated above it appears that the party have suppressed the fact of
providing of taxable service and collecting taxable amount of Rs.20,41,756/- as Bank Commission
during the period 2007-08 to 2010-11 (upto Sept'11) from the department and failed to deposit the
due Service Tax Rs. 2,34,232/- (inclusive of Education Cess and S.H.E.Cess ) to the Govt.
exchequer on the rates applicable at the material time as required under Section 68 of the Act read
with Rule 6 of the Rules.

The party have at no point of time declared or mentioned in any of their returns submitted
with department, that they are receiving or have received the above amount on account of Bank
Commission, which is a taxable service under Business Auxiliary Services. These facts came to the
knowledge/light of the department only during the audit conducted by department under EA 2000.
The party are holders of Service tax registration from past several years under servicing of motor
vehicle and are well aware of the Service Tax Rules, Provisions and formalities to be observed in
case of providing any taxable service. The party has neither taken service tax registration separately
5
for providing such services nor got amended their existing registration either before or after the
said audit objection. The party has knowingly and willingly suppressed the above facts from the
department only to evade payment of service tax and thereby contravening the provisions of
Section 68, 69 & 70 of the Act and relevant rules of the Service Tax Rules 1994.

The party appears to have contravened the provision of the Section 68 of the Act by not
discharging the due Service Tax on taxable value earned as Bank Commission during the financial
year 2007-08 to 2011-12 (upto September, 2011) in due time and thus, have knowingly and
willingly suppressed the material facts from the department with intend to evade payment of actual
Service tax leviable thereupon and default the government exchequer. This fact came into
knowledge of the department only during scrutiny and audit of the records of the party. Thus, in the
instant case, the proviso to the Section 73(1) read with sub Section (4) of the Act for the demand
and recovery of service Tax amounting to Rs. 2,34,232/- (inclusive of Education Cess and
S.H.E.Cess ) along with interest as applicable, the extended period provisions is invokable and
made themselves liable for penal action under Section 78 of the Act.

Therefore, the above Service Tax of Rs. 2,34,232/- (inclusive of Education Cess and
S.HE.Cess) along with interest as applicable is demandable and recoverable under proviso to
Section 73(1) readwith sub section (4) of the Act along with due interest under Section 75 of the
Act. The party is also liable to pay penalty under Section 78 of the Act for suppression of material
facts with the department with intent to evade payment of service Tax and violation of Section
68,69 & 70 of the Act and Rule 4, 6 & 7 of the Service Tax Rules 1994.

Therefore, the party, M/S AGR Automobiles (P) Ltd. B-38/2A, Mahmoorganj, Varanasi-
221010 U.P. is called upon to show cause to the Assistant Commissioner, Central Excise & Service
Tax,Division, 9 Maqbool Alam road Varanasi, within 30 days of receipt of this notice as to why:
(i) Service Tax amounting to Rs. 2,34,232/- (inclusive of Education Cess and S.H.E.Cess),
should not be recovered from them under proviso to Section 73(1) read with sub section (4) of the
Act along with interest under Section 75 of the Act. However, the amount of Rs. 1,41,532/- has
already deposited by the party vide GAR-7 no. 1016 dated 29.03.2012 should not be
appropriated in the above demandable/recoverable amount of Service Tax.
(ii) Penalty should not be imposed upon them under section 77 of the Act for violation of
Section 68, 69 and 70 of the Act read with Rule 4,6 and 7 of the Rules ibid for each default.
(iii) Penalty should not be imposed upon them under Section 78 of the Act ibid for suppression
of taxable service & value with intent to evade payment of Service tax and the contraventions
mentioned supra.

Case for the Party:

In reply to the above show cause notices, the party have submitted their defence reply,
interalia, stating therein as under:

(i) that the noticee are paying service tax on servicing of motor vehicles and renting of
immovable property services, as per ST-2 granted by the Department.

(ii) that the impugned Show Cause Notice has given the relevant provision of section 65 Clause
(19) of Finance Act 1994 but in Demand cum Show Cause Notice, it is no where mentioned that in
which Clause of proviso of Clause (19) of section 65 of Finance Act 1994 our services are to be
classified. There is general mention of definition of Business Auxiliary Services which are devided
in 7 classes but it is not mentioned in the Show Cause Notice that which clause will be applicable
6
in our case. Similarly, definition of Commission Agent has been given but it is not specifically
mentioned as to how and where the alleged services (l)true value and (2) dealing in purchase or
sale of services under Extended Warranty will fall.

(iii) that the word true value used in the Show Cause Notice has neither been explained nor
shown as how it will be under the Business Auxiliary Service. Noticee are using word true value in
their Profit & Loss Account in relation to following transaction:

M/s AGR Automobile Pvt. Ltd. are purchasing four wheeler from the person who are using
and have used the vehicle of M/s Maruti Udyog Ltd. After purchase and use they are in
position to sell it as it is not of their desired standard. M/s AGR Automobiles Pvt. Ltd.
Purchase from them, issue Purchase Invoice and make payments to them. Thereafter doing
the needful repairing and maintenance, sell it to other customers on some profit. The margin
in sale and purchase of the vehicle is shown in our Profit & Loss Account as a true value.
At the time of sale, sale invoice is also issued by M/s AGR Automobiles (P) Ltd. Thus it is
not covered under the definition of service. It is a purchase and sell of motor vehicle on own
cost by the Noticee and sell thereof is also made on their own descrimination. The Profit
earned in the transaction is shown in the Profit & Loss Account as true value. It is a trading
and the trading is not covered under Finance Act 1994 or Service Tax Rules 1994 and no
Service Tax is payable on the same.

(iv) that warranty charges are part of value under section 4 of the Central Excise Act 1994 and it
is added in related to sale of vehicle, the word warranty is not service under the Service Tax. There
is a difference in warranty and extended warranty. Warranty is given with sale of the vehicle
where extended warranty is not a condition of sale with the car, but it is a transaction after sale.
Extended warranty if any is provided or sold, it is after sale of the car. Since warranty is treated as
goods, the extended warranty will also fall in the same category and if any tax is payable, either as
Central Excise or Service Tax, it will be originated from owner M/s Maruti Udyog Ltd. and not by
the dealer. This issue has already been settled vide Tribiunal Judgement in case of Maruti Udyog
Ltd. Vs. Commissioner of Central Excise, Delhi III, Gurgaon reported in 2006 (199) E.L.T482
(Tri.-Del.) Extended Warranty is sold by us and only dealers margin is allowed to us by M/s Maruti
Udyog Ltd.

(v) that M/s AGR Automobiles Pvt. Ltd. have paid Service Tax leviable on Commission Agent
without going into any litigation. The deposit challans have already been submitted to the
Department. Therefore, this issue may please be dropped. Similar commission received from
Financial Institution, Insurance Companies have also been taken for payment of Service Tax and the
payments made on commission on this account have also been deposited and details submitted to
the Department. The interest if any thereon have also been paid. Therefore, matter relating to
commission from Bank and Insurance Company has already been complied with without making
any litigation in the matter. M/s AGR Automobiles Pvt. Ltd. have been sincere in deposit of Service
Tax as and when it was pointed out by the Department. There has been no any intention to avoid or
evade the Service Tax. It was only due to misconception of the levy of Service Tax on us as a
Commission Agent. Levy of Service Tax is a new conception and we were not aware and still not
aware any detail fully about the taxation law and levy of the Service Tax on all services. In Show
Cause Notice, we have been treated as Commission Agent in matter of true value and sale of
extended warranty, whereas we are not Commission Agent in above cases. In this regard, we put
reliance on judgement reported in 2007 (5) STR 389 in the case of Pratap Singh & Sons Vs. C.C.E.
in which it has been held that as owner of goods, it is in dealers own interest to promote sales
activities and it cannot be treated as service rendered to principal namely the manufacturers.
7
The Tribunal further held that any special relationship are additional consideration leading to
charging of lower price by the manufacturer cannot be taken as a service charger.

Personal hearing in both the cases was held on 17.12.2013 when Shri R.N.Tiwari,
Consultant, appeared on behalf of the party. He, interalia, reiterated the submissions made in the
defence reply. He further stated that a major amount of more than Rs. 17 lakhs have already been
deposited for insurance and bank commission. The dispute is over service tax on extended warranty.
The warranty is included in the value of car on which VAT is paid. There is judgement of Tribunal
which says warranty is liable to Central Excise duty at factory. We are dealing only in cars made by
M/s. Maruti Udyog Ltd. and the above judgement referred is squarely applicable. The true value
transaction of old cars and sale thereof after maintenance. On sale, VAT is paid. For maintenance
and servicing, we are registered under Service Tax Rules and paying service tax regularly.
Therefore, no service tax is payable on warranty and True Value transactions.

Discussion and Findings

I have gone carefully through the records, the written defence reply submitted by the party
and also heard the Counsel of the party, at the time of Personal Hearing. Firstly, I proceed to
examine the issues involved in the SCN No. 113/Joint Commr./Alld./2012 dated 19.10.2012 issued
by the Joint Commissioner, CEx & ST, Allahabad.

The basic issue of the case is Non-payment/ Short-payment of service tax on the amount
received as Insurance Commission, Finance Commission, Sale of Extended Warranty coupon and
True Value receipts, during the period 2007-08 to 2011-12, amounting to Rs. 3,50,83,036/-.

In the Show Cause Notice, it has been alleged that the party was engaged in providing four
services under the category of Business auxiliary Services, for which they have received payments,
during the period 2007-08 to 2011-12, on which either service tax was not paid or service tax was
paid short. The four type of services for which payments were received by the party are
Commission for Insurance, Commission for Finance, Commission for sale of Extended Warranty
coupons and commission earned from True Value operations of Maruti Suzuki. As alleged in the
show cause notice, the payments received by the party under these four categories, during the period
2007-08 to 2011-12 amounted Rs.3,50,83,036/- on which service tax amount of Rs. 38,80,999/-
(including cesses) was payable but the party had only paid Rs. 17,40,250/-, and thus there was a
short payment of service tax of Rs. 21,40,749/-, under the Business Auxiliary Services. The party
have not contested their liability with regard to leviability of service tax on commission for
Insurance and commission for finance. Only question which remains to be examined is with regard
to levy of service tax under “business auxiliary service” on commission received for sale of
Extended Warranty coupons and commission received from True Value operations of Maruti
Suzuki India Ltd.

The party have contested the leviability of service tax on the ground that the amount received /
retained by them was their profit margin / discount and does not fall under the definition of commission.

Considering the ambit of services covered under the Business Auxiliary Services, the
Business Auxiliary Service is defined under clause (19) of section 65 of Finance Act 1994 as any
service in relation to, —
(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or
(ii) promotion or marketing of service provided by the client; or
(iii) any customer care service provided on behalf of the client; or
8
(iv) procurement of goods or services, which are inputs for the client; or
(v) production or processing of goods for, or on behalf of the client; or
(vi) provision of service on behalf of the client; or
(vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as
billing, issue or collection or recovery of cheques, payments, maintenance of accounts and
remittance, inventory management, evaluation or development of prospective customer or vendor,
public relation services, management or supervision, and includes services as a commission agent,
but does not include any activity that amounts to “manufacture” of excisable goods.
Explanation. — For the removal of doubts, it is hereby declared that for the purposes of this
clause,
(a) ”commission agent” means any person who acts on behalf of another person and causes sale or
purchase of goods, or provision or receipt of services, for a consideration, and includes any person
who, while acting on behalf of another person —
(i) deals with goods or services or documents of title to such goods or services; or
(ii) collects payment of sale price of such goods or services; or
(iii) guarantees for collection or payment for such goods or services; or
(iv) undertakes any activities relating to such sale or purchase of such goods or services;
(b) excisable goods” has the meaning assigned to it in clause (d) of section 2 of the Central Excise
Act, 1944(1 of 1944);
(c) “manufacture” has the meaning assigned to it in clause (f) of section 2 of the Central
Excise Act, 1944(1 of 1944)

The party in the instant case is engaged in marketing of Extended Warranty Coupons /
Policies provided by Maruti to their customers and also promotion of “True Value” products of
Maruti Suzuki India Ltd. The party is a dealer of Maruti and are also an Authorised Service Station
of Maruti for which they are registered with the Department. Maruti have provided a scheme to
their customers under which a separate policy is issued for Extended warranty of the vehicles sold
by them, through their Dealers. Maruti Suzuki India Ltd. also have a business format in the name of
“True Value”, through which old pre-used Maruti brand cars are purchased and after repair/
refurbish/ reconditioning, sold to prospective buyers. This format is operated through Maruti
authorized dealers and the dealers get commission on such business operation.

From the consideration of entire facts, it emerges that the Extended warranty coupons /
policy is a promise of service, provided to the customers, for such periods as covered under the
contract, during which the party is bound by their Principal to provide, privileged services to their
customers. Same is the case of promotion of “True Value” products of Maruti Suzuki India Ltd.
Thus the party is only providing certain pre-specified services to the customers of Maruti, when
they execute the Extended warranty contracts. Similarly, when the party engages in promotion or
marketing of the Extended warranty coupons / policies to the customers as well as promotion of
“True Value” products, they are only promoting or marketing certain privileged services of Maruti
provided to their customers, in connection with the sale of the vehicle.

The clause (ii) of the definition of Business Auxiliary Services specifies that services
provided in relation to promotion or marketing of service provided by the client are liable to service
tax. Thus the amounts retained / received by the party in context to marketing of Extended warranty
coupons / policies and promotion of “True Value” products are squarely covered under the
category, and hence service tax is liable to be paid on this amount.

Thus the total tax service tax liability of the party under Business Auxiliary Services,
provided during the period 2007-08 to 2011-12, for Insurance Commission, Finance Commission,
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Sale of Extended Warranty Coupons and True Value comes to Rs. 38,80,999/-. Out of this liability
the party had already paid service tax amount of Rs. 17,40,250/-, which also needs to be
appropriated against their said liability.

With regard to the applicability of extended period of limitation envisaged in proviso to Sec.
73(1) of the Act, it is revealed that under Section 69(1) of Finance Act 1994 read with rule 4(1) of
Service Tax Rules 1994, it has been stipulated that every person liable to pay Service Tax shall
make application to the jurisdictional Superintendent, Service Tax, in form ST-1 for registration
within a period of thirty days from the date on which the Service Tax under Section 66 of the Act
are levied or within a period of thirty days from the date of commencement of Services by him but
the party failed to do so with in time. The party has taken registration within time for providing
services of “Authorized service station’s services / Motor vehicles related services as defined in the
sub-clause (zo) of section 65(105) of Finance Act 1994 but not for services which it was
providing to its clients under the category of “Business Auxiliary Services,” in terms of definition
as in clause (19) of section 65 of Finance Act 1994 for as required under aforesaid Act & Rules with
in time and have violated the provisions of Section 69 (1) and Rule 4 (1) making themselves liable
for penal action under Section 77 of the Act. The party have not shown the gross value of taxable
service provided by them in any of the ST-3 returns. The party have suppressed and mis-declared
the actual gross value with intent to evade payment of service tax. The party have thereby
contravened the provisions contained in Sec. 68 of the Act read with Rule 6 of the Rules.

Now I take up the proposal for imposition of penalty under Section 76, 77 and 78 of the
Finance Act, 1994.

As regards imposition of penalty under Section 76 and 78 of the said Act is concerned, I
observe that Section 78 has been amended and proviso has been inserted in the said Section 78 to
the effect, that the provision of Section 76 shall not apply, if penalty is payable under Section 78. I
also observe that the amended provisions of Section 78 shall apply to the subject notice issued
earlier as per explanation. I therefore, do not impose any penalty under Section 76.

As regards imposition of penalty under Section 77 of the said Act for failure to comply with
the statutory provisions of the Service Tax Act and Rules made thereunder, I find that the party has
failed to comply with the provisions and therefore for their act of omission and commission, I hold
the penalty under Section 77 of the Finance Act, 1994.

As regards imposition of penalty under Section 78, I observe that the party has consciously
and deliberately suppressed the value of taxable service and never disclosed the payment received
or services rendered by them. As I have observed herein above, in this case the party was conscious
that the Services being provided by them are Taxable Services liable to Service Tax but did not
deposit in clear disregard to the law. Hon’ble Tribunal in the case of Suhita Ethnic Marketing
Services Pvt Ltd. Vs. CCE [2005] 2 STT 222 (Mumbai-CESTAT), Mett MacDonald Ltd. Vs.
CCE [1994-2006] STT 239 (New Delhi-CEGAT) and ACME Tele Power Pvt. Ltd. Vs. CCE,
Chandigarh AIT-2008-13 (CESTAT) it has been held that when the amount of service tax has
been determined by the department during the course of investigation then the levy of penalty is
justified. In view of the facts and circumstances of the case the proposal for imposition under
Section 78 of the Finance Act, 1994 is justified.

Save as what has been held above, I proceed to examine the issues involved in the SCN
C.No. V(30)Dem /AGR/122/ 12/ 7562 dated 19.10.2012 issued by the Asstt. Commissioner, CEx &
ST, Division – Varanasi. The said SCN has been issued on a limited question of short payment of
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service tax accrued on bank Commission/ finance commission issued by the party during the period
2007-08 to 2011-12 (upto Sept.11). I find that the broad issue of leviabilty of service tax on bank
Commission/ finance commission received by the party, has been adequately covered under SCN
No. 113/Joint Commr./Alld./2012 dated 19.10.2012 issued by the Joint Commissioner, CEx & ST,
Allahabad and there can be no two show cause notices against the same party, on the same issue
involving identical periods. However, I find that there is some inconsistency with regard to the
computation of demand with regard to bank Commission/ finance commission. Details thereof are
as under:

Sl.No. Period Gross Value of Taxable Services received by the party on account of bank commission/ finance
Involved commission (Rs.)
As per SCN No. 113/Joint Commr./Alld./2012 As per SCN C.No. V(30)Dem /AGR/122/ 12/ 7562
dated 19.10.2012 issued by the Joint dated 19.10.2012 issued by the Asstt.
Commissioner, CEx & ST, Allahabad Commissioner, CEx & ST, Division – Varanasi
1. 2007-08 163581 913581
2. 2008-09 248130 248130
3. 2009-10 364465 364465
4. 2010-11 414722 414722
5. 2011-12 360110 100858
(full year) (upto Sept.11)

As evident from the above, there is difference in the gross value received by the party in the
FY.2007-08 and 2011-12. For the FY. 2011-12, the figures in the SCN issued by the Joint
Commissioner are correct, inasmuch as, the figures have been taken for the full year against the
figures taken in the SCN issued by the Asstt. Commissioner, Varanasi, which are only for six
months ie upto Sept. 2011.

In regard to the gross value received by the party in the FY. 2007-08, necessary verification
was caused from the office of the Asstt. Commissioner, Varanasi vide letter C.No. VI(ST)Dem(12)
Adj-216/2012/3126 dated 28.02.2014. The Asstt. Commissioner, Central Excise & Service Tax
Division, Varanasi, vide letter C.No. V(30)ST/Dem/Vns/IAR-AGR/118/12/2169 dated 10.03.2014,
has reported as under:
“ On query regarding gross value of taxable service on account of bank commission/
finance commission received during FY 2007-08, the party vide letter dated clarified that the
figure of Rs. 9,13,581/- shown against other commission under the hear of other income
(schedule N) pertains to Rs. 1,63,581/- as finance/ bank commission and Rs.7,50,000/- as
profit earned from DUPONT India (P) ltd during 2007-08. The party has also furnished copy
of P/L account for 2007-08 and ledger of Other Commission head in support of their
version.

On perusal of the ledger of Other Commission head as furnished by the party it

appears that during 01.04.07 to 31.03.08 they have received the amount Rs. 1,63,581/- under
Commission (Finance) head.”

In view of the above verification of figures by the Asstt. Commissioner, Central Excise &
Service Tax Division, Varanasi, I hold that the gross value of Taxable Services received by the
party on account of bank commission/ finance commission during the period 2007-08 is Rs.
163581/- and the figures taken in the SCN No. 113/Joint Commr./Alld./2012 dated 19.10.2012
issued by the Joint Commissioner, CEx & ST, Allahabad, are correct.

In view of the above discussion and finding, I pass the following order:

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 ORDER

1. I confirm the demand of service tax amounting to Rs. 38,80,999/- (including Ed. Cess and
SHE Cess) under the proviso to Section 73(1) of the Act alongwith appropriate interest
under Section 75 of the Act. Since the party had deposited Rs. 17,40,250/- as Service Tax
(including Ed. Cess and SHE Cess) vide challans against their liabilities, I order for
appropriation of deposited amount against their outstanding Service Tax liabilities.
2. I order for appropriation of the amount Rs. 1,41,532/- deposited by the party vide GAR-7
no. 1016 dated 29.03.2012 as mentioned in SCN C.No. V(30)Dem /AGR/122/ 12/ 7562
dated 19.10.2012 issued by the Asstt. Commissioner, CEx & ST, Division – Varanasi,
against the confirmed demand.
3. For their failure to file ST-3 returns up to 10.05.2008, I impose a penalty of Rs.1,000/- (Rupees One
Thousand Only) on the party under Section 77 of the Finance Act 1994. I impose a further penalty
of Rs. 5000/- (Five Thousand Only) under Section 77 (2) of the Finance Act, 1994 on them for their
failure to file ST-3 Returns for the subsequent period.
4. For their failure to obtain service tax registration under “business auxiliary service”, I impose a
penalty of Rs.5000/- (Five Thousand Only) or @ of Rupees Two Hundred per day for every day
during which such failure continues, whichever is higher starting with the first day after the due date,
till the date of actual compliance, under the provisions of Section 77 (1) (a) of the Act, on the party.
5. I impose a penalty of Rs. 38,80,999/- upon the party under section 78 of the Finance Act, 1994 .
The party are directed to deposit the said amounts forthwith.

(SOMESH TIWARI)
ADDITIONAL COMMISSIONER
CENTRAL EXCISE & SERVICE TAX
ALLAHABAD

To,
M/s AGR Automobiles Pvt. Limited,
B-38/2-A, Mahmoorganj, Varanasi (U.P.) – 221010.

OFFICE OF THE COMMISSIONER OF CENTRAL EXCISE & SERVICE TAX

38, M.G.MARG CIVIL LINES, ALLAHABAD
C;No. VI(ST)Dem-12 (Adj)-216/2012 Date: .03.2014
Copy forwarded for information and necessary action to :-
1. The Commissioner, Central Excise & Service Tax, Allahabad.
2. The Assistant Commissioner, Central Excise Division, Varanasi.
3. The Superintendent, Central Excise & Service Tax Range-South East, Varanasi.
4. Guard File

SUPERINTENDENT (Adj.)
CENTRAL EXCISE & SERVICE TAX
ALLAHABAD

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