2022 (12) TMI 600 - AT - Service Tax

Insurance Surrender Charge Not Taxable under Finance Act, 1994. Appeal Allowed, Tax Demand Set Aside. Consideration vs. Termination Charges

Tata AIA Life Insurance Company Ltd Versus Commissioner of Service Tax - VII

The Tribunal held that the 'surrender charge' retained by the insurance company was not subject to additional tax liability under the Finance Act, 1994, ... Demand of services on ‘surrender charge’ retained by the appellant upon withdrawal of ‘insured’ from ‘unit linked insurance policies (ULIP)’ - voluntary withdrawal from coverage under ‘unit linked insurance policy (ULIP)’ - HELD THAT:- It is, unabashedly, about treating the return of the consideration, once already considered for taxability, upon discontinuation of contract of service even though such retention does not alter either that reality or that no additional consideration has passed from recipient to appellant while the provision of service subsisted. The ‘premium’ paid in the past by the recipient was in pursuance of contract providing for amortized payments towards the bundled service – each of which was assessed to tax on receipt by the appellant – over the contract period and obliging of repayment of the amounts, not attributable to service already rendered by coverage and investment, upon termination of contract of service may be treated as consideration only in a bizarre, and perverse, context that is out of touch with the reality of transactions in the insurance sector. This was the finding in re Bharti- AXA Life Insurance Company Ltd [2021 (7) TMI 735 - CESTAT MUMBAI] which, de hors the decisions in earlier rulings, led to the outcome therein. The taint, if any, that the other decisions may have vis-à-vis the recall of the decision in re Reliance Life Insurance Company Ltd [2018 (4) TMI 1407 - CESTAT MUMBAI] has no bearing on the binding precedent of this decision placed before us on behalf of the appellant. The ‘surrender value’ so retained had already been subjected to tax as ‘premium’ for rendering of taxable service and not liable to be taxed again for that very reason upon ceasing to be provision service Issues:1. Tax liability on 'surrender charge' retained by insurance company.2. Interpretation of taxable services under Finance Act, 1994.3. Application of tax policy on 'life insurance' offerings.4. Precedent set by previous Tribunal decisions on similar issues.5. Consideration of 'surrender charge' as additional tax liability.Analysis:1. The judgment dealt with the tax liability on the 'surrender charge' retained by an insurance company upon withdrawal of 'insured' from 'unit linked insurance policies (ULIP)'. The impugned order confirmed the demand under sections 73, 75, 77, and 78 of the Finance Act, 1994. The issue revolved around whether the 'surrender charge' constituted consideration for taxable services as per the Finance Act.2. The Learned Chartered Accountant for the appellant argued that the issue was covered by a previous Tribunal decision. The Authorized Representative for the respondent reiterated the findings in the impugned order, emphasizing the taxable nature of the 'surrender charge'.3. The judgment analyzed the tax policy evolution on 'life insurance' offerings and the interpretation of taxable services beyond the primary coverage of 'death'. It discussed the tax liability on amounts retained by insurance service providers upon premature termination of policies.4. Previous Tribunal decisions, such as in the cases of Bharti-AXA Life Insurance Company Ltd, Reliance Life Insurance Company Ltd, Shriram Life Insurance Company, and Max Life Insurance Co India Ltd, were referenced. These decisions provided insights into the nature of 'surrender charge' and its taxability under the Finance Act, 1994.5. The judgment scrutinized the nature of the 'surrender charge' as either additional consideration for services rendered or as a non-taxable actionable claim. The analysis highlighted the importance of differentiating between consideration for services and charges related to policy discontinuation.6. Ultimately, the Tribunal held that the 'surrender value' retained by the insurance company had already been subjected to tax as 'premium' for rendering taxable services. Therefore, it was not liable to be taxed again upon the cessation of service provision. The appeal was allowed by setting aside the impugned order, providing a detailed analysis based on legal precedents and interpretations of the Finance Act, 1994.