M/S T vs. MOTOR COMPANY LIMITED

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C.A. No.-007947-007947 - 2013Supreme Court2026 INSC 89219 August 2026Bench: HON'BLE MR. JUSTICE J.B. PARDIWALA HON'BLE MR. JUSTICE K. VINOD CHANDRANAuthor: HON'BLE MR. JUSTICE K. VINOD CHANDRAN5 pages
For Petitioner: R. PARTHASARATHY- 1523
AI SummaryPartly Allowed

What did the Supreme Court hold?

The Supreme Court held that the referral charges obtained by the appellant from banks (HDFC Bank & ICICI Bank) and the Oriental Insurance Company, for customers availing motor vehicle loans and insurance policies, are indeed taxable as Business Auxiliary Service. The Court noted the agreements with these institutions, which showed the appellant promoting and marketing their services. The appellant acted as a link in the economic activity of the banks and insurance companies. Regarding the penalty, the Court observed that the tax liability was satisfied by the appellant prior to the issuance of the show cause notice. Citing Section 73(3) of the Finance Act, which mandates that if tax liability is satisfied before notice, the department should desist from issuing a show cause notice, the Court found that the penalty imposed under Section 78 should be set aside. The Tribunal had already set aside the penalty under Section 76. Therefore, the appeal was partly allowed, with penalties set aside.

What were the facts?

The appellant, M/s TVS Motor Company Limited, a dealer in automobiles, is in appeal before the Supreme Court against the order of the Tribunal. The dispute concerns the taxability of 'referral charges' received by the appellant for facilitating loans and insurance policies for its customers. The revenue also questioned the appellant's conduct in not disclosing these charges, leading to a demand for extended limitation. The appellant had paid the entire tax liability before the issuance of the show cause notice. The assessment years under consideration were 2003-2004 to 2006-2007. The Tribunal had previously set aside the penalty under Section 76.

What were the issues?

1. Whether the 'referral charges' obtained by the appellant are taxable under Section 65(105)(zzb) of the Finance Act, 1994, as Business Auxiliary Service (BAS)? Assessee's contention: The appellant argued that the entire liability was paid prior to the notice, which absolves them from penalty under Section 73(3) of the Finance Act. They also pointed to differing tribunal rulings on similar matters, which were later settled in cases like M/s. Pagaria Auto Center v. Commissioner of Central Excise, Aurangabad. Revenue's contention: The revenue contended that the appellant had deliberately shown referral charges as 'miscellaneous income', constituting suppression of turnover. They argued that the appellant was aware of the Finance Act provisions and was receiving commission in the form of referral charges for referring clients to banks and insurance companies, making the income taxable.

Which sections of the Income-tax Act were involved?

Section 65(105)(zzb),Section 73(3),Section 76,Section 78

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
2026 INSC 892 Page 1 of 5 CA No.7947 of 2013 Non-Reportable IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION Civil Appeal No.7947 of 2013 M/S TVS MOTOR COMPANY LIMITED …. APPELLANT Versus COMMISSIONER OF CENTRAL EXCISE, CHENNAI-III …. RESPONDENT

J U D G M E N T

K. VINOD CHANDRAN, J.

Two questions arise in this appeal, first, whether the ‘referral charges’; obtained by the appellant, a dealer in automobiles, are taxable under Section 65 (105) (zzb) of Chapter V of the Finance Act, 1994 as Business Auxiliary Service. The appellant obtains these charges, for the loans availed and the insurance policies taken out, with the junction of the appellant. The second question is as to whether in the facts and circumstances of the case, the appellant had suppressed the turnover, thus enabling the Department to invoke the extended limitation period for issuing notice.

2.

Ms. Charanya Lakshmikumaran, learned Counsel appearing on behalf of the appellant argued that the assessee/appellant had paid up the entire liability prior to issuance of notice, which absolves them from penalty as provided under sub-section (3) of Section 73 of the Finance Act. There was confusion insofar as determination of the taxable services, the various Tribunals having held differently, which matter was settled finally in M/s. Pagaria Auto Center v. Commissioner of Central Excise, Aurangabad1. 3. Ms. Nisha Bagchi learned Senior Counsel appearing for the Department, on the other hand, pointed out that the assessee had purposefully shown the referral charges received by it as ‘miscellaneous income’, which was a clear act of suppression. The provisions of the Finance Act, 1994 was known to them and there is no escape from the taxable income, especially since they were taking commission in the form of referral charges, for the clients they referred to the banks and the insurance company, from whom loans were availed and insurance policy

1 2014 (33) S.T.R. 506 (Tri. – LB) taken out. The penalty imposed is quite in tune with the provisions of the Act.

4.

The Tribunal has dealt with issue of taxability elaborately in the impugned judgment. Looking at the agreements entered into with the banks; namely HDFC Bank & ICICI Bank, and the Oriental Insurance Company, the referral charges obtained from the banks and the insurance company, on the customers of the assessee taking out insurance policies and availing motor vehicle loans from the said institutions definitely is a Business Auxiliary Service. The assessee is promoting the business of the banks and the insurance company for which they receive an amount as stipulated in the agreement.

5.

We specifically notice the larger bench of the Tribunal having found so with respect to the assessee:

“16. In TVS Motor Co. Ltd. (supra), the analysis of facts revealed that the assessee was providing services to banks and insurance companies and was receiving referral charges for the same. On analysis of the relevant transactional documents on record the Tribunal concluded that the agreements revealed close association of the assessee with banks/financial institutions for promotion and marketing of banking and financial services; that a nexus of the service provided by the assessees as input for providing the output of banking and financial services is also revealed; that under the agreements, the assessee was required to inform its dealers and authorized service centres about the arrangement with the financial institutions and the buyers of vehicles must also be informed about availability of financial facilities. The dealers and authorized service centres of the assessee were also required to sensitise customers about the lending facilities offered by financial institutions. On a conspectus of the revealed factual situation, the Tribunal concluded that the assessee was promoting and marketing the services of banks and insurance companies, was a link in the economic activity carried on by them and was therefore providing the taxable BAS.”

6.

Insofar as penalty is concerned, the show cause notice was issued on 02.04.2008 before which the tax liability was satisfied by deposit of Rs.1,81,560/- on 31.03.2005, Rs.1,02,07,017/- on 04.11.2006, Rs.19,27,172/- on 21.02.2007 and Rs.23,86,085/- on 30.03.2007, before the issuance of show cause notice. Sub-section (3) of Section 73 mandates that if there is short levy or a short payment of tax, then if prior to notice issued, the tax liability is satisfied, the department would desist from issuing a show cause notice. There was some confusion insofar as liability and hence the assessee had not disclosed the income generated from the referral charges as Business Auxiliary Service in the service tax returns filed. The period under consideration was 2003-2004 to 2006-2007 and even if the notice can be issued within the extended period, the satisfaction of the liability prior to issuance of notice would commend us to set aside the penalty imposed. We see from the order of the Tribunal that penalty under Section 76 imposed was set aside by the Tribunal and we direct that the penalty under Section 78 also be set aside.

7.

The appeal stands partly allowed.

8.

Pending application(s), if any, shall stand disposed of.

.……………………………... J. (J. B. PARDIWALA)

..………….…………………. J. (K. VINOD CHANDRAN)

NEW DELHI; AUGUST 19, 2026.

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