2023 (9) TMI 1378 - HC - Service Tax

Banks entitled to claim Cenvat credit on service tax for insurance premiums

The court upheld the banks' entitlement to avail Cenvat credit on service tax paid for insurance premium to the DICGC. It dismissed the revenue's appeals, ... CENVAT Credit - input service - Deposit Insurance Service provided by Deposit Insurance and Credit Guarantee Corporation - nexus of such service with the actual performance of the banking service provided by the respondents/assessees - HELD THAT:- The issue in the present proceedings is certainly not different which has fell for consideration of the Larger Bench in the case of M/S. SOUTH INDIAN BANK VERSUS THE COMMISSIONER OF CUSTOMS, CENTRAL EXCISE AND SERVICE TAX-CALICUT [2020 (6) TMI 278 - CESTAT BANGALORE] - It is found that the Larger Bench has taken into consideration the statutory scheme of DICGC as also the mandatory requirement under the Reserve Bank of India directives to be complied by the bank like the assessee and the compliances of which were mandatory. It is in the course of availing such insurance service for the benefit of the depositors, the petitioner was required to pay the premium on which service tax was paid, and of which, input tax credit was sought to be availed. The CESTAT has rightly observed that the issue stands squarely covered by the decision of the Larger Bench. It can be construed from a plain reading of section 66D that the negative list is compiled of the services stated therein and is relied on to bring the assessee within the negative list is clause-(n) i.e. services by way of extending deposits, loans, advances etc. in so far as the consideration is represented by way of interest or discount. The expression used in clause-(n) begins with the words ‘extending deposits, loans or advances’, and such activity is represented by way of interest or deposit of money. The determining word in the clause is ‘extending deposits, loans or advances etc.’ ‘Extending deposits’ literally understood is the deposits, loans etc. extended by the assessee. The acceptance of deposits is a pure and simple money transaction. But the realm in which the controversy operates is after receiving the deposits from public, the assessee is under statutory obligation to insure the deposits received for conducting the bank business and extends under law services on which service tax is paid. The services provided by the assessee are not falling within the negative list. Therefore, there is relatability on a hostile consideration of business in banking between the services availed and services rendered. Thus, no substantial question of law arises in the present appeals - appeal dismissed. Issues:The judgment involves the following Issues:1. Availment of Cenvat credit on service tax paid on Deposit Insurance Service by banks.2. Interpretation of statutory provisions regarding input tax credit for banks.3. Consistency in decisions regarding Cenvat credit for banks.4. Applicability of Section 66D(n) in the context of banking services.Issue 1: Availment of Cenvat credit on service tax paid on Deposit Insurance Service by banks:The case involved appeals by the revenue against banks engaged in the banking business regarding the availing of Cenvat credit on service tax paid on Deposit Insurance Service. The department disputed the availing of such credit by the banks, arguing that there was no nexus with the actual banking services provided. Investigations were conducted, show cause notices were issued, and Orders-in-Original confirmed the demand raised against the banks. The CESTAT allowed the appeals of the banks, following a decision by the Larger Bench that considered the insurance service as an input service, allowing banks to avail Cenvat credit for rendering output services.Issue 2: Interpretation of statutory provisions regarding input tax credit for banks:The revenue raised substantial questions of law, questioning the correctness of the CESTAT's decision on various grounds. The primary contention was that the CESTAT should not have followed the Larger Bench decision in allowing the appeals of the banks. The revenue argued that the premium paid by the banks to the DICGC should not have been considered for input services. However, the respondents contended that the payment of such premium was a mandatory requirement under the Deposit Insurance and Credit Guarantee Corporation Act, 1961, making them entitled to claim Cenvat credit for the service tax paid.Issue 3: Consistency in decisions regarding Cenvat credit for banks:The judgment highlighted that the issue had been considered by the Larger Bench of the CESTAT and the Division Bench of the Kerala High Court. Both courts upheld the banks' entitlement to avail Cenvat credit on the service tax paid for insurance premium to the DICGC. The courts emphasized the mandatory nature of the premium payment and the statutory obligations under the relevant laws, supporting the banks' claim for input tax credit.Issue 4: Applicability of Section 66D(n) in the context of banking services:The judgment addressed the applicability of Section 66D(n) concerning services by way of extending deposits, loans, advances, etc. The courts rejected the revenue's argument that the services provided by the banks did not fall within the negative list of services. They emphasized the statutory obligations and the relationship between the services availed and rendered by the banks, ultimately supporting the banks' right to claim Cenvat credit for the service tax paid on insurance premium to the DICGC.Conclusion:After considering the arguments and reviewing the relevant decisions, the court concluded that no substantial question of law arose in the appeals. The court dismissed both appeals, stating that the decisions of the CESTAT and the Kerala High Court were appropriate, and no grounds for interference were found.