Insurance auxiliary service tax and CENVAT credit disputes resolved in favour of the taxpayer on all three counts
Insurance auxiliary service applies only where the service is rendered by a duly licensed insurance agent or equivalent intermediary; mere provision of office space and allied facilities in bank branches was treated as business support infrastructure, so reverse-charge service tax was not sustainable. CENVAT credit on group health insurance premium for employees was admissible under binding precedent, so denial of credit failed. Alleged short accounting of insurance premium income was not established on the audited records, so no demand survived on that head.
Issues: (i) Whether the amount paid to the bank for providing space and facilities in its branches was liable to service tax as insurance auxiliary service under reverse charge mechanism. (ii) Whether CENVAT credit on group health insurance premium for employees was admissible. (iii) Whether any demand could survive on the alleged short accounting of insurance premium income.
Issue (i): Whether the amount paid to the bank for providing space and facilities in its branches was liable to service tax as insurance auxiliary service under reverse charge mechanism.
Analysis: Insurance auxiliary service covers services rendered by an actuary, intermediary, insurance intermediary, or insurance agent in relation to insurance business. An insurance agent is one licensed under section 42 of the Insurance Act, 1938 and receives commission or other remuneration for soliciting or procuring insurance business. The bank's role under the memorandum was confined to providing office space and allied facilities for the appellant's representatives, and there was no finding that the bank held the requisite licence as an insurance agent. The transaction was, in substance, provision of business support infrastructure, on which service tax had already been discharged.
Conclusion: The demand under insurance auxiliary service was not sustainable and is decided in favour of the appellant.
Issue (ii): Whether CENVAT credit on group health insurance premium for employees was admissible.
Analysis: The admissibility of credit on group health insurance for employees was covered by the Larger Bench ruling treating such insurance as input service for CENVAT purposes. On that basis, denial of credit could not be sustained.
Conclusion: The denial of CENVAT credit was unsustainable and is decided in favour of the appellant.
Issue (iii): Whether any demand could survive on the alleged short accounting of insurance premium income.
Analysis: The audited trial balance showed that the premium figure relied upon by the department was based on an erroneous entry in the annexure, while the correct premium amount was reflected in the audited records. On the facts, no short accounting was established.
Conclusion: The demand on account of short accounting of premium income was not sustainable and is decided in favour of the appellant.
Final Conclusion: The impugned order could not be sustained on any of the three disputed heads, and the appellant was entitled to complete relief.
Ratio Decidendi: A service can be taxed as insurance auxiliary service only when it is rendered by a duly licensed insurance agent or equivalent intermediary as defined under the Finance Act and the Insurance Act, and a demand cannot be sustained where the transaction is merely provision of space or infrastructure already taxed under another correct head; CENVAT credit on employee health insurance is admissible where treated as input service by binding precedent.
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AI Drafter ✕
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