2026 (2) TMI 668 - AT - Service Tax

Cenvat credit entitlement: investment and management components of life insurance premiums remain taxable, so credit restriction does not apply.

The article clarifies that where life insurance premiums and associated investment/management components attract service tax, those services retain a ... Restriction on Cenvat credit under Rule 6(3)(c) of the Cenvat Credit Rules, 2004 - Definition of exempted service under Rule 2(e) of the Cenvat Credit Rules, 2004 - Taxability of life insurance/ULIP premium and treatment of investment/savings component - Utilisation of Cenvat credit by providers of taxable and exempted services - Whether the appellant is manufacturing dutiable and exempted goods to attract Rule 6(3)(c) of Cenvat Credit Rules, 2004 - HELD THAT:- The Commissioner in the impugned orders has dropped the proceedings on the ground that the appellant had availed credit only to the extent of 20% of the amount of service tax payable on the taxable output services. The grievance of the appellant is that they are eligible for 100% credit since they do not fall under the provisions of Rule 6 of the Cenvat Credit Rules, 2004 to attract restriction of cenvat credit as per Rule 6(3)(c) of Cenvat Credit Rules, 2004. The Commissioner has also relied on the CBEC Circular F. No.354/9/2011 TRU dated 12th July 2011 to deny the benefit of 100% credit. This issue is no longer res integra inasmuch as various Tribunals have categorically held that since the appellant is paying service tax at the rate of 1% on the gross amount of premium charged, the services rendered by the appellant cannot be considered as exempted services as defined under Rule 2(e) of the Cenvat Credit Rules, 2004. We find that this issue is no longer res integra inasmuch as this Tribunal vide Final Order [2023 (12) TMI 181 - CESTAT BANGALORE] in appellant’s own case in a similar set of facts. Thus, we do not find any reason to sustain the impugned orders. Appeals are allowed. Issues: Whether the appellant (life insurance provider) is subject to the restriction under Rule 6(3)(c) of the Cenvat Credit Rules, 2004 (limiting utilisation of credit to 20% of service tax payable on taxable output service) or is entitled to full cenvat credit because the services rendered are taxable and not exempted under Rule 2(e) of the Cenvat Credit Rules, 2004.Analysis: The Court examined Rule 6(3)(c) of the Cenvat Credit Rules, 2004 and the definition of exempted service under Rule 2(e). The Commissioner had held that portions of premium attributable to investment/savings were exempted services and thereby attracted the restriction in Rule 6(3)(c). The Tribunal reviewed precedents, including its own recent decision in the appellant's similar matter and authoritative CESTAT decisions (noting CCE & ST, LTU vs. Max New York Life and HDFC Standard Life and Birla Sun Life decisions), which hold that where service tax is discharged (including at 1% on gross premium) for life insurance and related management of investment services, the investment/savings component does not constitute a separate exempted service under Rule 2(e). Applying these principles, the Tribunal found no basis to treat the investment component as an exempted service that would attract the 20% utilisation restriction of Rule 6(3)(c).Conclusion: The appeals are allowed; the appellant is not subject to the restriction under Rule 6(3)(c) and is entitled to cenvat credit as held by the Tribunal in favour of the assessee.Ratio Decidendi: Where a life insurer discharges service tax on premiums (including management of investment/administrative components) such services are taxable and not exempted under Rule 2(e) of the Cenvat Credit Rules, 2004; consequently Rule 6(3)(c) limiting credit to 20% does not apply.