Deposit insurance premium qualifies as input service, making CENVAT credit on the tax paid admissible to banks.

Deposit insurance premium paid by banks to the Deposit Insurance and Credit Guarantee Corporation is treated as an input service because it is compulsory for a bank to remain licensed and continue banking operations. The service has a direct nexus with the output banking service and is not merely a peripheral business expense. On that basis, the service tax paid on the premium is eligible for CENVAT credit, and the contrary view that it falls outside the scope of input service is not accepted. Reversal under the relevant CENVAT rule does not affect the admissibility of credit on this statutory insurance service.

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Issues: Whether insurance premium paid by banks to the Deposit Insurance and Credit Guarantee Corporation for deposit insurance is an input service, and whether service tax paid on such premium is eligible for CENVAT credit.

Analysis: The premium paid for deposit insurance is compulsory for banks to remain licensed and to continue providing banking and other financial services. The service is integral to the banking activity and has a direct nexus with the output service rendered by the bank. The prior Larger Bench view, later followed by other judicial decisions, recognised that such insurance is not a peripheral expense but a statutory and commercially necessary component of the banking business. The contention that the service falls outside the scope of input service was not accepted, and reversal under the relevant CENVAT rule did not alter the admissibility of credit on the insurance service received from the deposit insurer.

Conclusion: The deposit insurance service is an input service, and CENVAT credit of the service tax paid on the premium is admissible to the banks.

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