Deposit insurance service and CENVAT credit: service tax on DICGC premium held eligible as input service, credits allowed.

Whether service tax paid on deposit insurance premiums qualifies as an "input service" under the CENVAT Credit Rules was considered; deposit insurance is a statutory, mandatory component of banking and is integrally connected to taxable banking services, so the tax on such premiums is eligible for CENVAT credit. The Tribunal's reliance on a Larger Bench CESTAT decision-affirmed by a High Court which rejected attempts to segregate deposit acceptance from allied banking services-was held correct. The Revenue's substantial questions of law are answered against it, and the appeals challenging allowance of credit were dismissed.

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Issues: Whether the service tax paid by banks on deposit insurance premium remitted to the Deposit Insurance and Credit Guarantee Corporation (DICGC) qualifies as an "input service" under Rule 2(l) of the CENVAT Credit Rules, 2004 and whether CENVAT credit of such service tax is admissible to the banks.

Analysis: The question was examined in light of Rule 2(l) of the CENVAT Credit Rules, 2004, the definition of "service" in Section 65B(44) of the Finance Act, 1994, and the statutory obligations under the Deposit Insurance and Credit Guarantee Corporation Act, 1961. Authoritative decisions addressing identical questions include the Larger Bench decision of the CESTAT in South Indian Bank Ltd. and the subsequent affirmation by the Kerala High Court; the Bombay High Court has followed the same view. The statutory mandate requiring banks to obtain deposit insurance and pay the prescribed premium was treated as integral to the business of banking, such that the insurance service is used in providing the banks' taxable banking and financial services. The availability of CENVAT credit was assessed by reference to the requirement of a nexus between the service availed and the taxable output services of the banks and the settled precedents holding that deposit insurance satisfies that requirement.

Conclusion: The service tax paid on DICGC deposit insurance premium constitutes an "input service" under Rule 2(l) of the CENVAT Credit Rules, 2004 and CENVAT credit of such service tax is admissible to the banks. The substantial questions of law raised by the Revenue are answered against the Revenue and in favour of the assessee; the appeals are dismissed.

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