Service Tax on Transit Insurance Unsustainable When Already Included in Excise Duty: CESTAT [Read Order]

The Delhi bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) held that service tax on transit insurance was unsustainable when already included in excise duty.

In this case, the assessee, M/s. Balajee Loha Pvt. Ltd., had appealed against the order passed by the Commissioner (Appeals), which upheld the order passed by the Assistant Commissioner. In the order in the original, the Assistant Commissioner had confirmed a demand of service tax of Rs. 2,21,045 and Rs. 1,75,155 on the appellant under the proviso to section 73(1) of the Finance Act, 1994, along with interest and penalties.

The appellant is registered with the service tax department and offers taxable services such as insurance, transportation, and weigh bridge. The department found that the appellant had earned ‘other income’ from delayed payment charges, which they considered taxable as a declared service under Section 66E(e) of the Finance Act from July 1, 2012.

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A show cause notice (SCN) dated 30-8-2016 was issued to the assessee by invoking the extended period of limitation under the proviso to section 73(1) of the Finance Act, demanding service tax with interest and proposing the imposition of penalties.

It is to be noted that the appellant delivered goods to buyers and charged them for transport and transit insurance. However, the insurance premium it actually paid was lower than what it collected, and the excess amount was shown as ‘insurance income’ in its books. According to the department, the above amount received by the appellant falls under the category of ‘Business auxiliary service’ (BAS) till 30.6.2012 and will be a service not being under negative list with effect from 1.7.2012.

The assessee contended that the insurance income is the difference between what it paid to the insurance companies and what it collected from its buyers towards insurance. The assesee submitted that this amount was profit and is not an income on business auxiliary service.

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The appellant explained that it sold goods on a FOR basis, meaning delivery was up to the buyer’s premises, and had already paid Central Excise duty on the total amount, including insurance, and thus submitted that the same amount shouldn’t be taxed again as a service.

The department’s counsel strongly relied on the impugned order.

The CESTAT observed that the same amount collected by the appellant (as representing transit insurance) cannot be charged twice, once under Central Excise and again as a service.

The tribunal set aside the impugned order.

Delhi CESTAT, comprising Rachna Gupta (Judicial Member) and P.V. Subba Rao (Technical Member), allowed the assessee’s appeal.

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