Court remands tax credit case to Tribunal for fresh decision on insurance services by Deposit Insurance Corporation.

The Bombay High Court in Bank of Maharashtra vs Commissioner of CGST & Central Excise, Pune-II remanded the matter to the Tribunal for a fresh decision in line with the Larger Bench's ruling that banks can avail credit of service tax paid for insurance services provided by the Deposit Insurance Corporation. The Tribunal, following the South Indian Bank case, held that such service tax credit is permissible. As a result, the impugned order was set aside, and the appeal was allowed in favor of the banks.

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Issues:
Whether banks can avail credit of service tax paid for the service provided by the Deposit Insurance Corporation.

Analysis:
The appeal was against the order confirming the demand of inadmissible CENVAT credit availed in respect of deposit insurance service under the Finance Act, 1994. The issue was whether banks can avail credit of the service tax paid by them for the service provided by the Deposit Insurance Corporation. The Principal Commissioner found that the deposit insurance service does not have any relationship with the activity of the bank, other than the activity of acceptance of deposits. It was concluded that since the activity of acceptance of deposits is not a 'service' as defined in the Finance Act 1994, it cannot qualify as an 'output service' as per the CENVAT Credit Rules, 2004. The Tribunal in South Indian Bank vs Commissioner of Customs, Central Excise & Service Tax, Calicut held that the insurance service provided by the Deposit Insurance Corporation to the banks is an 'input service,' and CENVAT credit of service tax paid for this service can be availed by the banks for rendering 'output services.'

The Bombay High Court in Bank of Maharashtra vs Commissioner of CGST & Central Excise, Pune-II set aside the impugned order and remanded the matter to the Tribunal for a fresh decision in conformity with the decision rendered by the Larger Bench of the Tribunal. A Division Bench of the Tribunal in Indian Overseas Bank vs Commissioner of Central Excise & Service Tax followed the decision of the Larger Bench in South Indian Bank and held that credit of the service tax paid on premium paid to DICGC is eligible. Similarly, a Division Bench in Tamil Nadu State Apex Co-op. Bank vs Commissioner of GST & Central Excise, Chennai also supported this view. Consequently, the impugned order dated November 27, 2015, was set aside, and the appeal was allowed.

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