Cenvat credit on deposit insurance premium allowed where statutory cover has direct nexus with banking operations.

A bank was held entitled to Cenvat credit of service tax paid on insurance premium remitted to the Deposit Insurance and Credit Guarantee Corporation. The reasoning treated deposit insurance as a statutory requirement closely connected with the carrying on of banking business, which depends on accepting deposits and making loans. On that basis, the premium was found to have a direct nexus with the bank's taxable business operations and to qualify as an eligible input service for credit purposes.

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Issues: Whether a bank is entitled to Cenvat credit of the service tax paid on the insurance premium paid to the Deposit Insurance & Credit Guarantee Corporation for deposit insurance.

Analysis: The issue was treated as covered by the Larger Bench decision in South Indian Bank and by the subsequent judgment of the Kerala High Court. The reasoning accepted that banking business depends on acceptance of deposits and lending, that deposit insurance is a statutory requirement connected with carrying on banking activity, and that the premium paid for such insurance has a direct nexus with the bank's taxable business operations.

Conclusion: The bank was entitled to take Cenvat credit on the premium paid to the Deposit Insurance & Credit Guarantee Corporation.

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