Division Bench wrongly referred to five-member panel; must follow three-member Bench and refer to three-member first

Division Bench's referral to a five-member Bench was held improper; two-member Benches must follow three-member Bench decisions and, if convinced they are plainly wrong, refer to a three-member Bench first. The three-member Larger Bench decision in South Indian Bank need not be re-referred to a five-member Bench. Reliance on subsequent SC Constitution-Bench authorities showed the Division Bench erred. Kerala HC and Bombay HC have upheld the three-member Bench view. The reference order was quashed and the appeals are to be decided by the Division Bench in conformity with the three-member Larger Bench ruling.

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Issues Involved:
1. Whether the Division Bench of the Tribunal could refer the decision of three Members to a Larger Bench of five Members.
2. Whether the decision of the Larger Bench of the Tribunal of three Members in South Indian Bank requires reconsideration by a Larger Bench of five Members.
3. The fate of the reference when the decision of the Larger Bench in South Indian Bank has been upheld by the Kerala High Court and the Bombay High Court.

Detailed Analysis:

(i) Whether the Division Bench could refer the decision of three Members to a Larger Bench of five Members:
The Division Bench of the Tribunal expressed its inability to agree with the decision of the Larger Bench of three Members in South Indian Bank and referred the matter to the President for constituting a Larger Bench of five Members. However, the President of the Tribunal, guided by the Supreme Court's Constitution Bench judgments in Bharat Petroleum Corporation, Pradip Chandra Parija, and Hansoli Devi, held that judicial discipline and propriety demand that a Bench of two Members should follow the decision of a Bench of three Members. If the two Members find the decision of three Members incorrect, they should refer the matter to a Bench of three Members. Only if this Bench also finds the earlier decision incorrect, can a reference to a Bench of five Members be justified. Consequently, the President referred the matter to a Bench of three Members to decide whether the decision in South Indian Bank was incorrect and required a reference to a Bench of five Members.

(ii) Whether the decision of the Larger Bench of the Tribunal of three Members in South Indian Bank requires reconsideration by a Larger Bench of five Members:
The Larger Bench of the Tribunal in South Indian Bank had concluded 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 Division Bench, however, expressed its inability to agree with this decision, citing the Supreme Court's judgment in Dilip Kumar, which mandates strict interpretation of fiscal statutes. However, the Larger Bench found that the judgment in Dilip Kumar was not relevant to the issue at hand. The Tribunal in South Indian Bank had thoroughly examined the relevant statutes and concluded that the insurance service is an input service necessary for providing output services. The Division Bench's reliance on Dilip Kumar was misplaced as it pertains to exemption notifications, not the interpretation of input services under the CENVAT Rules. Thus, there was no need for reconsideration by a Larger Bench of five Members.

(iii) Fate of the reference when the decision of the Larger Bench in South Indian Bank has been upheld by the Kerala High Court and the Bombay High Court:
The decision of the Larger Bench in South Indian Bank was upheld by both the Kerala High Court and the Bombay High Court. The Kerala High Court agreed with the Larger Bench's conclusion that the insurance service provided by the Deposit Insurance Corporation is an input service, and CENVAT credit can be availed for this service. The Bombay High Court also concurred with this view and dismissed the appeals filed by the department. Given these high court validations, there was no requirement for further reconsideration by a Larger Bench of five Members. The decisions of the Kerala and Bombay High Courts reinforce the correctness of the Larger Bench's decision in South Indian Bank, making any further reference unnecessary.

Conclusion:
The Division Bench of the Tribunal was not justified in referring the matter to a Larger Bench of five Members. The decision of the Larger Bench of three Members in South Indian Bank does not require reconsideration by a Larger Bench of five Members. The decision has been upheld by the Kerala High Court and the Bombay High Court, eliminating the need for further reference. The papers may now be placed before the Division Bench for deciding the appeals.

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