The Supreme Court has ruled that referral charges earned by TVS Motor Company Limited from banks and an insurance company qualify as a taxable "Business Auxiliary Service" under the Finance Act, 1994. However, the bench spared the company from penalty since it had cleared the entire tax dues well before the department issued any show cause notice.
Background Of The Case
TVS Motor, a well-known automobile dealer, had tie-ups with HDFC Bank, ICICI Bank and Oriental Insurance Company. Whenever a customer bought a vehicle through a loan or took an insurance policy via these referrals, TVS earned a commission. The company recorded this income under "miscellaneous income" in its books rather than declaring it as a taxable service.
The tax department took the view that this amounted to suppression of turnover and issued a show cause notice on 2 April 2008, invoking the extended limitation period, along with a demand and penalty.
Arguments In Court
Appearing for TVS Motor, counsel Charanya Lakshmikumaran argued that the company had already deposited the entire tax liability before the notice was issued, which should exempt it from penalty under Section 73(3) of the Finance Act.
She also pointed out that different tribunals had earlier taken conflicting views on whether such referral income was taxable at all, and the confusion was resolved only later by a larger bench in the Pagaria Auto Center case.
For the department, senior counsel Nisha Bagchi argued that TVS had deliberately hidden the referral income under a vague head, which itself showed intent to evade tax, justifying the penalty.
What The Court Observed
The bench of Justice J.B. Pardiwala and Justice K. Vinod Chandran examined the agreements between TVS and the financial institutions and agreed with the tribunal's finding that the company was actively promoting and marketing banking and insurance products for its customers, forming a clear link in that business chain.
The judgment noted that a larger tribunal bench had already concluded, in TVS's own related case, that the dealer's close association with these institutions amounted to a taxable service.
On the penalty question, the Court noted that TVS had paid amounts totalling over Rs 1.46 crore in instalments between March 2005 and March 2007, all before the notice was issued in 2008.
Decision
The Supreme Court held the referral charges taxable as Business Auxiliary Service but set aside the penalty imposed under Section 78, holding the appeal partly allowed.
Case Details:
Case Title: M/S TVS Motor Company Limited vs Commissioner of Central Excise, Chennai-III
Case Number: Civil Appeal No. 7947 of 2013
Judges: Justice J.B. Pardiwala and Justice K. Vinod Chandran
Decision Date: August 19, 2026
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