TaxTMI 
TaxTMI 
2010 (12) TMI 824
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....the premium amount is annual. The schedule shows that the model premium payable is Rs. 4,810/-. 3. The dispute between the parties arose in the following circumst-ances : In terms of the policy the premium was being collected from 22-6-2006 which instalment was the first one. This amount was collected in subsequent years. By a notice dated 24-5-2009, Ext.P2, the petitioner required the second respondent to pay service tax of Rs. 495.43 along with the premium amount and the net amount is shown as Rs. 5,305.43. This was objected to by the second respondent by sending Ext.P3 letter after remitting the amount. The petitioner sent a further reply explaining the various aspects as per Ext.P4 stating that the premium due for base policy is Rs. 5,305.45 (Rs. 4810.00 + 1.03% of service tax) and the total amount due is Rs. 5,305.45. Thereafter, the second respondent approached the Ombudsman by filing a complaint, a copy of which is produced as Ext.P5. The written version of the petitioner is produced as Ext.P6 and after hearing the parties, the award has been passed. 4. The view taken by the Ombudsman as evident from the award Ext.P7 is that the model premium payable is Rs. 4810/....
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....the heading "General Provisions" and the specific heading "Governing Laws and Jurisdiction" stating that "the policy is governed and construed according to the laws of the Republic of India and the Parties shall be subject to the exclusive jurisdiction of the courts/forums/commissions/or such other bodies at New Delhi for all matters relating to this policy." 9. A reading of the notice issued and the pleadings of the parties and the award show the following : The policy herein started in the year 2006, the date of proposal being 22-6-2006. The policy commenced on 30-6-2006. The premium amount is annual and the amount fixed as premium is Rs. 4,810/-. The company in para 3 of the writ petition, has stated that the premium payable comprised of different components, viz. (i) a risk charge for extending insurance cover to the customer; (ii) expenses which mainly include : (a) the acquisition costs such as agent commission, commission for generating and issuing the policy, under-writing cost etc. and (b) the maintenance costs such as expenses incurred in connection with maintenance of the policy, namely, issuing reminder letters, premium notices, executing requests received from cu....
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....erein the concept of "service tax" has been emphasised in para 7 as follows : "In the light of what is stated above, it is clear that Service Tax is a VAT which in turn is destination based consumption tax in the sense that it is on commercial activities and is not a charge on the business but on the consumer and it would, logically, be leviable only on service provided within the country. Service tax is a value added tax." It is therefore contended that it has to be borne by the customer. 13. The Ombudsman relied upon Section 67(2) of the Finance Act which reads as follows : "Where the gross amount charged by the service provider for the service provided or to be provided is inclusive of service tax payable, the value of such taxable service shall be such amount as with the addition of tax payable is equal to the gross amount charged." Reliance was placed on sub-section (3) of Section 67 also which reads as follows : "Gross amount charged for taxable service shall include any amount received towards taxable service before, during or after provision of such service." The crucial questions herein therefore are whether the premium initially collected can safely be presume....
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....e of the proposal. Acceptance may be expressed in writing or it may even be implied if the insurer accepts the premium and retains it. In the case of assured, a positive act on his part by which he recognises or seeks to enforce the policy amounts to an affirmation of it. In para 12, it was further held thus : "The four essentials of a contract insurance are, (i) the definition of the risk, (ii) the duration of the risk, (iii) the premium and (iv) the amount of insurance. (Macgillivary on Insurance Law (5th Edn.) Vol. I, Para 656, page 316).............The policy not only defines the risk and its duration but also lays down the special terms and conditions under which the policy may be enforced on either side." 16. Going by the contentions of the parties, it will have to be ascertained what should be the importance that can be attached to the word 'premium'. In fact, it cannot be disputed that the policy contains the terms of the contract between the insurer and the insured. There will be terms, conditions and exceptions in the policy. 17. Under the Chapter "Terms, Conditions and Exceptions of Policy", viz. Chapter 7, the learned Author terms 'Premium' as follows : "P....
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....surance which require to be disclosed, and which do not apply to other contracts of insurance, that is rather an illustration of the application of the principle than a distinction in principle. From the very fact that the contract involves a risk and that it purports to shift the risk from one party to the other, each one is required to be absolutely innocent of every circumstance which goes to influence the judgment of the other while entering into the transaction." It is therefore evident that being a contract described as having utmost good faith, the parties will have to disclose to each other all the new information. Once the proposal has been accepted, it cannot be said that all the conditions applicable have not been incorporated also. A liability like this, cannot be said to be an implied condition in a policy document. 18. Now we will come to the general principles with regard to life insurance. The Apex Court in LIC of India v. Viswanathan Verma (AIR 1995 SC 189), held thus with regard to a life insurance policy : "Although there is no statutory definition of life insurance, but it has been defined as a contract of insurance whereby the insured agrees to pay cert....
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.... at by mutual negotiations between the parties as in the case of ordinary contracts. The Insurer has various types of policies to suit various needs and a person who applies for a policy of life insurance must accept one of these which may be most suitable to him. 21. In the light of these principles, it is evident therefore that once there is proposal and acceptance a valid contract has been created. Evidently, the first step is the proposal for insurance and the parties have agreed the terms and when the second respondent tendered the first premium, he has fulfilled his part of the contract and on acceptance the terms have become absolute and unqualified. The same is self evident from Ext. P1 wherein it is specified that "This Policy is subject to the terms and conditions stated herein and the Schedule." Evidently, at that point of time the petitioner had not put any additional conditions for payment of any extra amount above Rs. 4,810/- to meet the service tax element. It is evident therefore that there had been consensus arrived at on the terms of the policy, as found in Ext.P7 award, to include every items within the Premium Amount of Rs. 4810/-. 22. The petitioner....
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.... the proposal was submitted. The Ombudsman in Ext.P7 award has stated that it was not specifically mentioned by the petitioner in the reply that at the time of submitting the proposal, premium was not arrived at as inclusive of service tax and other expenses, by the agent. This is significant. No other evidence has been led into the contrary. 24. The Ombudsman relied upon Sections 67(2) and 67(3) of the Finance Act and it was concluded that if a gross amount is collected, the value of the service has to be treated as the amount less the service tax payable. 25. Evidently, as already noticed, at the time of issuance of policy the liability to pay service tax was there. As rightly held by the Ombudsman, Rs. 4,810/- was fixed as total premium which was agreed to be realised. This amount was being collected by way of annual premium subsequently also. 26. The Ombudsman was therefore of the view that the premium was fixed as inclusive of tax and all the expenses. From the circumstances pointed out above, it cannot be said that the view taken therein is wrong. What is important is the proposal and the terms agreed upon by the parties evidently through the agent which was....