Referral Charges From Banks and Insurers Are Business Auxiliary Service; Penalty Set Aside as Tax Paid Before Notice: Supreme Court in TVS Motor v. CCE [2026 INSC 892]

In M/s TVS Motor Company Limited v. Commissioner of Central Excise, Chennai-III (2026 INSC 892), the Supreme Court held that referral charges received from HDFC Bank, ICICI Bank and the Oriental Insurance Company for customers who availed motor vehicle loans and insurance policies are a Business Auxiliary Service, as the assessee was promoting the business of the banks and the insurer (paras 4–5). A Bench of Justice J.B. Pardiwala and Justice K. Vinod Chandran, however, set aside the penalty under Section 78 of the Finance Act, 1994, since the tax liability had been fully satisfied before the show cause notice dated 02.04.2008 and there was confusion on the issue of liability (para 6).

Status: Appeal partly allowed; taxability of referral charges as Business Auxiliary Service upheld; penalty under Section 78 set aside, the penalty under Section 76 having been set aside by the Tribunal (paras 4–7).

Headnote: Referral Charges as Business Auxiliary Service and Penalty

Service Tax – Finance Act, 1994 – Section 65(105)(zzb) – Business Auxiliary Service – Referral charges received by automobile dealer from banks and insurance company – Promotion of business of financial institutions – Section 73(3) – Tax paid before show cause notice – Extended period of limitation – Suppression – Penalty under Sections 76 and 78.

Held: (i) Referral charges obtained from banks and an insurer under agreements, on customers availing motor vehicle loans and insurance policies, are definitely a Business Auxiliary Service (para 4).

(ii) The assessee was promoting the business of the banks and the insurance company and received an amount stipulated in the agreements for it (para 4).

(iii) The larger bench of the Tribunal had found, with respect to the assessee, that it was promoting and marketing the services of banks and insurers and was a link in their economic activity (para 5).

(iv) The entire tax liability was satisfied by deposits between 31.03.2005 and 30.03.2007, before the show cause notice dated 02.04.2008 (para 6).

(v) There was some confusion on liability, which explained why the referral charges were not disclosed as Business Auxiliary Service in the returns (para 6).

(vi) Even if notice could issue within the extended period, payment of the liability before notice warranted setting aside the penalty under Section 78 (para 6).

(paras 1–7)

Case Details: TVS Motor Company Ltd. v. CCE, Chennai-III (2026 INSC 892)

Final Outcome: Appeal partly allowed; referral charges held taxable as Business Auxiliary Service; penalty under Section 78 of the Finance Act, 1994 set aside.

Case: M/s TVS Motor Company Limited v. Commissioner of Central Excise, Chennai-III

Neutral Citation: 2026 INSC 892

Case No.: Civil Appeal No. 7947 of 2013

Court: Supreme Court of India (Civil Appellate Jurisdiction) – Non-Reportable

Date of Decision: 19 August 2026

Bench: Justice J.B. Pardiwala and Justice K. Vinod Chandran (author)

Relevant Acts & Sections: Finance Act, 1994 (Chapter V) – Sections 65(105)(zzb), 73(3), 76, 78

Impugned Order(s): Judgment of the Tribunal on the taxability of referral charges; the judgment does not give its date (paras 4, 6)

Counsel: Ms. Charanya Lakshmikumaran for the appellant; Ms. Nisha Bagchi, Senior Counsel, for the Department (paras 2–3)

Source: Supreme Court of India (official website)

Key Holdings of the Supreme Court

• Referral charges received by an automobile dealer from banks and an insurer for customers' loans and policies are taxable as Business Auxiliary Service under Section 65(105)(zzb) (paras 1, 4).
• The Tribunal had dealt with taxability elaborately, examining the agreements with HDFC Bank, ICICI Bank and the Oriental Insurance Company (para 4).
• The assessee promoted the business of the banks and the insurance company in return for amounts stipulated in the agreements (para 4).
• The larger bench of the Tribunal had found the assessee to be a link in the economic activity of the banks and insurers (para 5).
• Tax paid in full before the show cause notice, in a period of confusion on liability, justified setting aside the Section 78 penalty (para 6).
• The penalty under Section 76 had already been set aside by the Tribunal (para 6).

Brief Facts of the Case

The appellant, a dealer in automobiles, received referral charges for loans availed and insurance policies taken out by its customers through it (para 1).

The charges arose under agreements with HDFC Bank, ICICI Bank and the Oriental Insurance Company, under which customers of the assessee availed motor vehicle loans and took insurance policies (para 4).

The Department treated these charges as taxable Business Auxiliary Service and alleged suppression, as the assessee had shown them as miscellaneous income. The period involved was 2003-2004 to 2006-2007 (paras 3, 6).

The assessee deposited 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. The show cause notice was issued on 02.04.2008 (para 6).

The Tribunal upheld the taxability of the referral charges and set aside the penalty under Section 76, but the penalty under Section 78 survived (paras 4, 6).

Issues Before the Supreme Court

1. Whether referral charges obtained by the appellant are taxable under Section 65(105)(zzb) of the Finance Act, 1994 as Business Auxiliary Service (para 1).
2. Whether the appellant suppressed turnover, enabling the Department to invoke the extended period of limitation, and whether the penalty was sustainable (paras 1, 6).

Court's Findings and Reasoning

Assessee's case (para 2): Counsel argued that the entire liability was paid before the notice, which absolves the assessee of penalty under Section 73(3), and that there was confusion on the taxability of such services, with Tribunals taking different views until the issue was settled in Pagaria Auto Center.

Department's case (para 3): Senior Counsel argued that the assessee purposefully showed referral charges as miscellaneous income, which was a clear act of suppression. The assessee knew the Finance Act provisions, was taking commission for referring clients to the banks and the insurer, and the penalty was in tune with the Act.

Referral charges are Business Auxiliary Service (para 4): On the agreements with the banks and the insurance company, the referral charges received when customers took insurance and availed vehicle loans were definitely a Business Auxiliary Service. The assessee was promoting their business and received the amount stipulated in the agreements.

Larger bench finding on the assessee (para 5): The Court noted the larger bench of the Tribunal had found that the assessee's agreements showed close association with banks and financial institutions for promotion and marketing, that its dealers were required to inform buyers of the lending facilities, and that it was providing taxable Business Auxiliary Service.

Penalty set aside (para 6): The tax liability was fully satisfied before the show cause notice of 02.04.2008. Section 73(3) mandates that where short-paid tax is paid before notice, the Department should desist from issuing a notice. Given the confusion on liability, and even if the extended period was available, prior payment warranted setting aside the Section 78 penalty.

Final Outcome and Directions

• The finding that referral charges are taxable as Business Auxiliary Service is upheld (paras 4–5).
• The penalty under Section 78 of the Finance Act, 1994 is set aside; the penalty under Section 76 stands set aside by the Tribunal (para 6).
• Appeal partly allowed (para 7).
• Pending applications disposed of (para 8).

Legal Principle Laid Down

Referral charges that a dealer earns from banks and insurers, under agreements, for customers who avail loans and insurance through it amount to promoting the business of those institutions and are taxable as Business Auxiliary Service under Section 65(105)(zzb) of the Finance Act, 1994. Where the assessee has paid the entire tax before the show cause notice, at a time of confusion over liability, the penalty under Section 78 may be set aside, even if the notice falls within the extended period.

Precedents Relied Upon

• M/s. Pagaria Auto Center v. Commissioner of Central Excise, Aurangabad, 2014 (33) S.T.R. 506 (Tri. – LB) – Cited by the appellant as settling the confusion on taxability; the Court extracted the larger bench's finding with respect to the assessee. Discussed at paras 2, 5.

Important Paragraphs of the Judgment

Verbatim extracts from the judgment. For the full text, refer to the judgment PDF below.

Para 1: "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."

Para 4: "The assessee is promoting the business of the banks and the insurance company for which they receive an amount as stipulated in the agreement."

Para 5: "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."

Para 6: "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."

Para 6: "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."

Para 6: "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."

Practical Impact of the Ruling

• For automobile dealers: Commission or referral charges received from banks and insurers for customer loans and policies attract service tax as Business Auxiliary Service (paras 4–5).
• For assessees facing penalty: Paying the full tax before a show cause notice, especially where liability was unclear, can lead to the penalty under Section 78 being set aside (para 6).
• For the Department: Showing such receipts as miscellaneous income did not, on these facts, sustain the penalty once tax had been paid before notice (paras 3, 6).
• For tax practitioners: Section 73(3) remains relevant for legacy service tax disputes where tax was deposited before the notice (para 6).
• For financial tie-up arrangements: Agreements requiring dealers to inform buyers of financing and insurance facilities point towards promotion of the financier's business (para 5).

FAQs on Referral Charges and Business Auxiliary Service

1. What did the Supreme Court hold in TVS Motor Company Limited v. Commissioner of Central Excise?

It held that referral charges received from banks and an insurer are taxable as Business Auxiliary Service, but set aside the penalty under Section 78, and partly allowed the appeal (paras 4, 6–7).

2. Why are referral charges a Business Auxiliary Service?

Because the assessee was promoting the business of the banks and the insurance company and received amounts stipulated in the agreements for customers who took loans and policies (para 4).

3. Why was the penalty set aside?

Because the entire tax liability was paid before the show cause notice dated 02.04.2008, and there was confusion on liability during the period (para 6).

4. What does Section 73(3) of the Finance Act, 1994 provide?

As noted by the Court, if short-paid tax is paid before notice, the Department should desist from issuing a show cause notice (para 6).

5. What happened to the penalty under Section 76?

It had already been set aside by the Tribunal, and the Supreme Court set aside the penalty under Section 78 as well (para 6).

Keywords: 2026 INSC 892, TVS Motor Company Limited v. Commissioner of Central Excise Chennai-III, referral charges, Business Auxiliary Service, Section 65(105)(zzb) Finance Act 1994, service tax on automobile dealers, bank and insurance commission, Section 73(3) Finance Act, penalty Section 78, Section 76 penalty, extended period of limitation, suppression, Pagaria Auto Center, Justice K. Vinod Chandran, Justice J.B. Pardiwala, Supreme Court non-reportable judgment, service tax

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Download Judgment PDF – TVS Motor Company Ltd. v. CCE, Chennai-III

Judgment PDF: 2026 INSC 892 – M/s TVS Motor Company Limited v. Commissioner of Central Excise, Chennai-III (Civil Appeal No. 7947 of 2013) – Download Judgment PDF

Source: Supreme Court of India (official website).