Mandatory deposit insurance premium qualifies as input service, making CENVAT credit admissible for banking activity.

CENVAT credit was held admissible on service tax paid on the mandatory premium remitted to the Deposit Insurance and Credit Guarantee Corporation for deposit insurance cover required to carry on banking business. The premium had a direct and integral nexus with the taxable output service, so the underlying service was treated as an input service for credit purposes. The reasoning followed settled Larger Bench and High Court authority recognising that credit is available where a service is mandatorily required for the output activity and the mechanism prevents double taxation. Denial of credit was therefore unsustainable.

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Issues: Whether CENVAT credit is admissible on service tax paid on the premium mandatorily paid to the Deposit Insurance and Credit Guarantee Corporation for deposit insurance cover required for carrying on banking business.

Analysis: The premium was paid under a mandatory regulatory framework for enabling banks to render banking and other financial services. The activity was held to have a direct and integral nexus with the output service, and the service received from the Deposit Insurance and Credit Guarantee Corporation was treated as an input service. The decision followed the settled position affirmed by the Larger Bench and by subsequent High Court decisions approving that view, and the credit mechanism was recognised as preventing double taxation in such a case.

Conclusion: CENVAT credit on the tax paid on the DICGC premium is admissible, and the denial of credit was unsustainable.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: A service that is mandatorily required for carrying on the taxable output activity and is integrally connected to that activity constitutes an input service for CENVAT credit purposes.

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