Strict interpretation of fiscal provisions led to larger bench reference on CENVAT credit for banking compliance services.

CENVAT credit on services linked to statutory banking obligations was found to require reconsideration because the earlier larger bench view allowing credit sat uneasily with the later principle that fiscal and exemption provisions must be construed strictly. The Bench noted that ambiguity in exemption clauses operates in favour of the Revenue and that the correctness of the prior view could not be resolved without authoritative clarification. Applying judicial discipline, it referred the framed questions to the President for constitution of a larger bench.

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Issues: Whether the matter should be referred for consideration by a larger bench on the questions relating to admissibility of CENVAT credit on services used for statutory banking obligations, in view of the prior larger bench decision and the principle of strict interpretation of fiscal statutes.

Analysis: The appeal concerned CENVAT credit claimed on service tax paid on insurance premium to DICGC and on brokerage paid for dealing in government securities and maintaining statutory liquidity requirements. The earlier larger bench view allowing credit was examined alongside the later Supreme Court exposition that taxing and exemption provisions must be construed strictly, with ambiguity in exemption clauses operating in favour of the Revenue. The Bench found that the reasoning adopted in the earlier view required reconsideration in light of that principle and that the issue could not be concluded without authoritative clarification. Applying the doctrine governing judicial discipline and reference to a larger bench, the Bench held that the correctness of the earlier view should be examined by a larger bench.

Conclusion: The matter was referred to the President for constitution of a larger bench to decide the framed questions.

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