2023 (9) TMI 1378 - HC - Service Tax

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

The Commissioner of CGST & Central Excise, Mumbai Central Commissionerate Versus Yes Bank Ltd. and Indusind Bank Ltd.

The Commissioner of CGST & Central Excise, Mumbai Central Commissionerate Versus Yes Bank Ltd. and Indusind Bank Ltd. - TMI 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.