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Services of a re-insurance broker involves more than mere receiving and transmitting the premium to the re-insurer.
Facts:
The Appellant, an Insurance broker as well as a reinsurance broker paid service tax under “Insurance Auxiliary service” in respect of broking activity. However no service tax was paid for brokerage retained from the net premium remitted to the overseas re-insurer on evidencing it as export of service. The revenue demanded service tax on the said brokerage retained. The demand was confirmed holding that the services were rendered to the Indian insurance company by way of identifying re-insurer rendering consultancy and risk management services for re-insurance negotiation on behalf of the insurance company. The only service rendered to the overseas reinsurer is remittance of premia for reinsurance for which the commission is retained. So the service is rendered and consumed in India and not exported. It was further held that retention of brokerage cannot be termed as payment received in convertible foreign exchange. The Tribunal restricting the demand to the normal period of limitation confirmed the demand. Accordingly, the present appeal is filed.
Held:
The High Court relying on the decision of JB Boda and Co. Pvt. Ltd. vs. Central Board of Direct Taxes [1997- 223-ITR-271 (SC)] held that the Appellant is not merely receiving and transmitting the amounts to the overseas insurer but much more is done by the Insurance broker even as per the IRDA (Insurance Brokers) Regulations. He is required to furnish all the details about the risk involved, the premium payable, the period of coverage and the portion of the risk which is sought to be reinsured and thus serves the overseas insurer in the course of business. Accordingly it was held that the services are exported. Further, the Court noted the CBEC circular No. 56/5/2003 dated 25/04/2003 which clarified that service tax is a destination based consumption tax and is not applicable to export of service. Further, even under the Export of Service Rules, 2005, the proviso of receipt in foreign exchange applies only in respect of a recipient having a commercial or a business establishment in India and thus does not apply to the present case. Accordingly, it was held that the question of receiving the payment in convertible foreign exchange does not arise and thus the appeal is allowed.
[Note: Readers may note that sub-rule 3(2) of the Export of Service Rules, 2005 inserted with effect from 19/04/2006 provides that any service will be treated as export only if the amount is received in convertible foreign exchange. Further with effect from 01/07/2012, Rule 6A of the Service Tax Rules mandates receipt in foreign exchange to qualify as an export of service. However, the Apex Court in the case of JB Boda (supra) has held that retention of the amount would qualify as a receipt in foreign exchange to avoid the unnecessary two-way traffic which is an empty formality and a meaningless ritual. Accordingly post the amendment in the Rules, the retention of amounts from the payments to be remitted in foreign currency should qualify as a receipt in foreign exchange.]
