2020 (11) TMI 120 - AT - Service Tax

Banks Entitled to Cenvat Credit for Insurance Services per Tribunal, Supporting Core Activities Under 2004 Rules.

M/s. South Indian Bank, Bank of Baroda, Canara Bank, Corporation Bank, Karnataka Bank, Syndicate Bank, Catholic Syrian Bank Ltd. Versus C.C.,C.E. & S. T-Calicut, C.C.E & ST, Mangalore, C.C. CE & S.T, Trivandrum, State Bank of Mysore

The Tribunal, following the Larger Bench's decision, affirmed that banks are entitled to avail Cenvat credit on service tax paid for insurance services ... CENVAT Credit - insurance service received by the banks from the Deposit Insurance and Credit Guarantee Corporation - initially there was Difference of Opinion - After the decision of the Larger Bench, these appeals have been listed before this Bench for final disposal - HELD THAT:- This issue has been answered in favour of the banks by the Larger Bench decision of the Tribunal in the assessee-banks’ own case vide order dt. 20/03/2020. [2020 (6) TMI 278 - CESTAT BANGALORE - LB]. By respectfully following the ratio of the Larger Bench decision of this Tribunal, the appeals of the banks are allowed - decided in favor of Banks and against Revenue. Issues Involved:1. Eligibility of Cenvat credit on insurance services received by banks from Deposit Insurance and Credit Guarantee Corporation.Detailed Analysis:Issue 1: Eligibility of Cenvat Credit on Insurance Services- Background: The primary issue in all the appeals is whether the assessee banks are eligible for Cenvat credit of service tax availed on insurance services received from the Deposit Insurance and Credit Guarantee Corporation (DICGC). Initially, there was a difference of opinion between two Benches of the Tribunal regarding whether the insurance service rendered by DICGC is covered by the definition of 'Input Service.' This issue was referred to the Larger Bench of the Tribunal.- Larger Bench Decision: The Larger Bench examined the statutory provisions of the Cenvat Credit Rules, 2004, and various decisions relied upon by both parties. The Bench concluded that the insurance service provided by DICGC to the banks is an 'input service.' Consequently, the Cenvat credit of service tax paid for this service received by the banks from DICGC can be availed by the banks for rendering output services.- Key Findings:- The insurance service rendered by DICGC is covered under the main part of the definition of 'input service' as it is used by a provider of output service (the banks) for providing an output service.- The acceptance of deposits is a fundamental activity for banks, necessary for their lending and investment operations. This activity is integral to the banks' functioning and is protected by the insurance service provided by DICGC.- The payment of premium to DICGC is a statutory obligation for banks, and non-payment can lead to the cancellation of their license by the Reserve Bank of India (RBI), thereby affecting their ability to function.- The insurance service is not excluded from the definition of 'input service,' and hence, banks are justified in availing Cenvat credit on this service.- Legal Precedents:- The Karnataka High Court in the case of Commissioner of Central Excise, Bangalore vs. PNB Metlife India Insurance Co. Ltd. held that reinsurance services, which are a statutory requirement, are an integral part of the insurance process and qualify as 'input services' eligible for Cenvat credit.- The Tribunal in Shriram Life Insurance Company Ltd. vs. Commissioner of Customs, Central Excise, and Service Tax, Hyderabad, held that statutory investment activities related to insurance services are integral to the insurance business and qualify for Cenvat credit.- Tribunal's Conclusion: Following the Larger Bench's decision, the Tribunal allowed the appeals of the banks, confirming their eligibility to avail Cenvat credit on the service tax paid for the insurance services received from DICGC. The appeals filed by the Department were dismissed, and the cross-objections filed by the banks were accordingly disposed of.Operative Portion: The operative portion of the order was pronounced in open court on 23/09/2020, confirming the eligibility of the banks to avail Cenvat credit on the insurance services received from DICGC.