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Issues: Whether investment in approved securities made by a life insurance company as part of its statutory investment obligation constitutes exempted trading of securities so as to require reversal of CENVAT credit under Rule 6 of the CENVAT Credit Rules, 2004.
Analysis: The insurer was confined to life insurance business and, under the Insurance Act, 1938, was obliged to invest policy-holder funds in approved securities and maintain the prescribed assets. The investment activity was not a separate independent commercial activity but an inseparable component of the life insurance service. The taxable entry for life insurance service, as amended from 01.05.2011, also brought the investment-management component within the tax net, and the departmental circular acknowledged taxation of that component. Since service tax was discharged on the entire premium collected for the life insurance service, including the investment-management element, the activity could not be characterised as an exempted service. Rule 6 applies only where common inputs or input services are used for taxable and exempted services.
Conclusion: The investment activity was not an exempted service and no reversal under Rule 6 of the CENVAT Credit Rules, 2004 was warranted; the assessee's appeal succeeded.
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