Auto Dealers Must Pay Service Tax On Referral Charges From Banks, Insurers: SC

New Delhi, Aug 24 (KNN) The Supreme Court has held that referral charges received by automobile dealers from banks and insurance companies for facilitating vehicle loans and insurance policies are taxable as ‘Business Auxiliary Service’ under the Finance Act, 1994.

A bench of Justices J.B. Pardiwala and K. Vinod Chandran delivered the ruling in a case involving TVS Motor Company Ltd., which received referral charges from banks and insurers for connecting customers with vehicle loans and insurance policies.

Referral Charges Taxable

The court upheld the finding of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) that such charges are taxable under Section 65(105)(zzb) of the Finance Act, 1994.

The court noted that the dealer was promoting the business of banks and insurance companies by referring customers and received payments under agreements for the service.

The judgment also endorsed the CESTAT’s earlier ruling in M/s Pagaria Auto Center v Commissioner of Central Excise, Aurangabad (2014), which held that similar referral charges received by automobile dealers were taxable as Business Auxiliary Service.

Penalty Set Aside

The dealer had paid the entire service tax liability before the Department issued a show-cause notice on April 2, 2008, covering the period from 2003-04 to 2006-07.

While upholding the tax liability, the Supreme Court set aside the penalty imposed under Section 78 of the Finance Act. It noted that there had been some confusion over the taxability of referral charges and that the liability had been discharged before the notice was issued.

The court also noted that the CESTAT had already set aside the penalty under Section 76 and directed that the Section 78 penalty be set aside as well.

(KNN Bureau)