2020 (11) TMI 582 - AT - Service Tax

Tribunal Seeks Clarity on CENVAT Credit for Service Tax: President to Constitute Larger Bench

The tribunal referred the issue of the admissibility of CENVAT Credit for service tax paid on DICGC premiums and brokerage services to the President for ... CENVAT Credit - input services - service tax paid on the insurance premium paid to DICGC - service tax paid on the commission paid to the brokers for underwriting the government securities etc and for making investments in securities to maintain mandatory SLR as per the Banking Regulation Act, 1949 - levy of penalty. HELD THAT:- Matter referred to Hon’ble President for referring the matter to larger bench, for resolving the issues as follows: a. Whether the interpretation of the legal provisions contained in Section 65 and 66 of the Finance Act, 1994 made in the decision of the CESTAT, in case of South India Bank, satisfy to the test laid down by the five member bench of Hon’ble Supreme Court in case of Dilip Kumar and Co, referred above. b. Whether the CENVAT credit of the Service Tax paid on the services availed to fulfill a statutory obligation, should be admissible even if the services availed do not otherwise qualify to be input services as defined under rule 2(k) of the CENVAT Credit Rules, 2004 as amended. c. Whether Rule 6(3B), of the CENVAT Credit Rules, 2004, is an authority for the banks to claim the credit in respect of all the services without establishing that the services under consideration are the common input services for providing the exempted and taxable services. Issues Involved:1. Admissibility of CENVAT Credit of service tax paid on the premium paid to DICGC.2. Admissibility of CENVAT Credit of service tax paid on the commission paid to brokers for underwriting government securities and maintaining SLR.3. Penalties imposed.Detailed Analysis:1. Admissibility of CENVAT Credit of Service Tax Paid on the Premium Paid to DICGC:The issue of whether banks can claim CENVAT Credit for service tax paid on premiums to the Deposit Insurance Credit Guarantee Corporation (DICGC) has been settled by the larger bench of the tribunal in the case of South Indian Bank. The tribunal held that such CENVAT Credit is admissible. This decision has been followed in subsequent cases by the Mumbai Bench in DBS Bank Ltd, Yes Bank Ltd, and IndusInd Bank. The tribunal noted that the premium paid to DICGC is a statutory requirement for banks to insure depositors' accounts, and the service tax paid on this premium qualifies as an input service for providing output services.2. Admissibility of CENVAT Credit of Service Tax Paid on Brokerage:The appellant argued that the services of stock brokers are essential for underwriting government securities and maintaining the Statutory Liquidity Ratio (SLR) as mandated by the Reserve Bank of India and the Banking Regulation Act, 1949. They contended that these services are necessary for conducting banking operations and should be eligible for CENVAT Credit. The tribunal referred to the decision in South Indian Bank and other relevant cases, which supported the admissibility of CENVAT Credit for services availed to fulfill statutory obligations. However, the tribunal also noted that the matter needs reconsideration in light of the Supreme Court's decision in Dilip Kumar and Co., which emphasized strict interpretation of fiscal statutes. Consequently, the tribunal referred the issue to the President for constituting a larger bench to clarify the admissibility of CENVAT Credit for services availed to fulfill statutory obligations.3. Penalties Imposed:The appellant argued that the penalties imposed under Section 78 should be set aside or restricted to 25% of the disputed CENVAT amount. They also contended that no penalty should be imposed for credits reversed along with interest prior to the issuance of the show cause notice, citing various decisions that supported this view. The tribunal noted that the penalty provisions and the appellant's compliance with statutory requirements need to be considered in light of the relevant legal precedents.Conclusion:The tribunal concluded that the issues of admissibility of CENVAT Credit for service tax paid on DICGC premiums and brokerage services require further examination. The matter was referred to the President for constituting a larger bench to address the following questions:a. Whether the interpretation of legal provisions in the South Indian Bank decision satisfies the test laid down by the Supreme Court in Dilip Kumar and Co.b. Whether CENVAT Credit for services availed to fulfill statutory obligations is admissible even if the services do not qualify as input services under Rule 2(k) of the CENVAT Credit Rules, 2004.c. Whether Rule 6(3B) of the CENVAT Credit Rules, 2004, allows banks to claim credit for all services without establishing that the services are common input services for providing exempted and taxable services.Order Pronounced in the Open Court on 02.11.2020.