CENVAT credit on deposit insurance premium remains available where the service is integral to banking operations and taxable output services.

Banks were entitled to CENVAT credit of service tax paid on premium to the Deposit Insurance and Credit Guarantee Corporation because deposit insurance was treated as an integral and mandatory part of banking operations. The premium was linked to the statutory ability to accept deposits and provide banking services, and the service was brought within the main part of the definition of input service under Rule 2(l) of the Cenvat Credit Rules, 2004. The reversal mechanism under Rule 6(3B) did not defeat credit where the service had nexus with taxable output services and was not excluded from the definition. Departmental appeals therefore failed.

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Issues: Whether banks are entitled to avail CENVAT credit of service tax paid on premium paid to the Deposit Insurance and Credit Guarantee Corporation for insurance service received by them.

Analysis: The service of deposit insurance was held to be an integral and mandatory part of banking operations. The payment of premium was treated as a statutory obligation linked to the banks' ability to accept deposits and carry on banking and other financial services. The Bench followed the Larger Bench ruling that the service fell within the main part of the definition of input service under Rule 2(l) of the Cenvat Credit Rules, 2004. It further noted that the reversal mechanism under Rule 6(3B) did not defeat entitlement to credit where the service had nexus with taxable output services and was not excluded from the definition.

Conclusion: The banks were entitled to CENVAT credit of the service tax paid on the insurance premium, and the contrary departmental appeals could not succeed.

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