2026-VIL-82-SC-ST
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SERVICE TAX Supreme Court Cases

Service Tax – Taxability of Referral Charges under Business Auxiliary Service - Appellant automobile dealer obtained referral charges from banks and insurance company for customer loans and insurance policies through referral arrangement with appellant's dealers and service centres. Department Show Cause Notice contending referral charges are taxable as BAS under Section 65(105)(zzb) of Finance Act 1994 and assessee had suppressed income - Whether referral charges received by automobile dealer for referring customers to banks and insurance companies for availing loans and insurance policies constitute taxable BAS - HELD – The referral charges received by automobile dealer from banks and insurance companies constitute taxable BAS as they represent payment received for promoting and marketing services of banking and financial institutions. The agreements reveal close association of assessee with banks and financial institutions. Assessee is required to inform its dealers and authorized service centres about arrangements with financial institutions and ensure customers are informed of availability of financial facilities. Dealers and service centres are required to sensitise customers about lending facilities. On analysis of transactional documents and agreements, assessee is link in economic activity carried on by banks and insurance companies and is providing taxable BAS. However, where tax liability is satisfied by deposit prior to issuance of Show Cause Notice, penalty cannot be imposed - The section 73(3) of Finance Act 1994 mandates that if tax liability is satisfied before notice is issued, department must desist from issuing Show Cause Notice – The penalty under Section 76 was set aside by Tribunal. Penalty under Section 78 also directed to be set aside – The appeal is partly allowed
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