2021 (1) TMI 1039 - AT - Service Tax

Tribunal allows appeal, sets aside Commissioner's order on CENVAT credit demand. Insurer eligible for credit on reinsurance services.

M/s Oriental Insurance Company Ltd. Versus Commissioner, Large Tax Payer Unit Saket

M/s Oriental Insurance Company Ltd. Versus Commissioner, Large Tax Payer Unit Saket - TMI Issues Involved:1. Whether CENVAT Credit of Rs. 627,17,96,523/- should be disallowed and recovered from the Appellant under Rule 14 of the CENVAT Credit Rules, 2004 read with proviso to Section 73(1) and Section 73(4) of the Finance Act, 1994.2. Whether interest should be charged and recovered from the Appellant under Section 75 of the Finance Act, 1994.3. Whether penalty should be imposed under Rule 15(4) effective up to 26.02.2010 or 15(3) effective from 27.02.2010 of the CENVAT Credit Rules, 2004 read with Section 78 of the Finance Act, 1994.Issue-wise Detailed Analysis:1. Disallowance and Recovery of CENVAT Credit:The Commissioner had confirmed the demand of CENVAT credit of Rs. 196,46,97,360/- with interest and penalty and dropped the demand of Rs. 430,70,99,163/-. The Appellant, a registered insurer, availed reinsurance services from Indian and foreign reinsurance companies. The Commissioner framed three questions for determination regarding the disallowance and recovery of CENVAT credit. The Commissioner differentiated between services rendered before and after April 01, 2011, due to an amendment in the definition of 'input service' in the CENVAT Credit Rules, 2004.For the period prior to April 01, 2011, the Commissioner found that reinsurance services had a nexus with the output service and thus fell within the ambit of 'input service' as per Rule 2(l) of the CENVAT Rules. Consequently, the demand for this period was dropped. The Commissioner justified this decision based on the Tribunal's decision in Shriram General Insurance Company Ltd. vs. Commissioner of Central Excise, Jaipur-I, which held that reinsurance services qualify as 'input service' for insurers.For the period after April 01, 2011, the Commissioner noted that the amendment to Rule 2(l) excluded general insurance services related to motor vehicles from the definition of 'input service.' Thus, the Commissioner held that CENVAT credit availed during this period was incorrectly availed and confirmed the demand of Rs. 196,46,97,360/-.2. Charging and Recovery of Interest:The Commissioner had ordered the recovery of interest on the disallowed CENVAT credit under Section 75 of the Finance Act, 1994. However, the Appellant contended that the denial of CENVAT credit for the period 2011-12 was beyond the scope of the show cause notice, and thus, the confirmation of the demand was not sustainable.3. Imposition of Penalty:The Commissioner imposed penalties under Rule 15(4) effective up to 26.02.2010 or 15(3) effective from 27.02.2010 of the CENVAT Credit Rules, 2004 read with Section 78 of the Finance Act, 1994. The Appellant argued that the extended period of limitation could not have been invoked, nor could penalties have been imposed in the facts and circumstances of the case.Tribunal's Findings:The Tribunal noted that the exclusion clause in the amended definition of 'input service' was limited to general insurance services related to a motor vehicle. Since the reinsurance services availed by the Appellant pertained to insuring business risks and not any particular motor vehicle, the exclusion clause did not apply. The Tribunal held that the denial of CENVAT credit based on the exclusion clause was not sustainable.The Tribunal also referenced the decision in Shriram General Insurance Company, which supported the eligibility of CENVAT credit on reinsurance services even after the amendment. The Tribunal concluded that the Appellant was eligible to avail CENVAT credit on reinsurance services provided by pool member companies under the insurance pool.Conclusion:The Tribunal set aside the part of the Commissioner's order that confirmed the demand of CENVAT credit of Rs. 196,46,97,360/- with interest and penalty. The appeal was allowed, and the order was pronounced in open Court on January 28, 2021.