AI Drafter 
TaxTMI 
TaxTMI 
2015 (5) TMI 143
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....2011 6.11.2011 to 30.03.2012 6.5.2012 to 23.8.2012 Show cause notice date 24.10.2011 & 7.3.2012 31.1.2013 25.6.2013 Order-in-original No. 11/COMMR(BKS)/LTU-M/ST/2012 dated 10.1.2013 01-02/COMMR(WLH)/LTU-M/CX/2014 dated 11.4.2014 Demand of service tax Rs. 2075, 64,65,926/- & Rs. 283,15,29,750/- - - Interest Not quantified. Rs. 19,17,54,309/-Rs. 12,12,383/- Penalties imposed (i) Rs. 2075,64,65,926/- + Rs. 283,13,29,750 u/s 78;Rs. 12,96,11,708/- u/s. 76 & Rs. 29,000/- u/s. 77 of the Finance Act, 1994. Rs. 8,19,481/- u/s. 76 & Rs. 10,000/- u/s. 70 of the Finance Act, 1994. (ii) Rs. 200/- per day or @ 2% per month whichever is higher for the period 1-5-06 to 15-5-08 u/s 76;& (iii) Rs. 10,000/- u/s 70, of Finance Act, 1994 Aggrieved of the same, the appellant is before us. 2. Brief Facts Brief facts relating to these cases are as follows:- 2.1. DICGC is a subsidiary of RBI established under ....
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....Tax registration thereafter and started paying Service Tax w.e.f. the half year ending March 2013. They furnished the information on gross charges recovered up to 31/3/2011 on 13/10/2011 & 19/10/2011. 2.7. Show cause notice demanding Service Tax amounting to Rs. 2075.65 Cr. invoking extended period of limitation was issued on 24/10/2011 for the period from 1/5/2006 to 31/3/2011 and demanding Service Tax amounting to Rs. 283.15 Cr. was issued on 07/03/2012, for the period from 1/4/2011 to 30/9/2011 within normal time limit. Two more show cause notices were issued for recovery of interest for the belated payment of service tax and for imposition of penalties on 31/01/2013 and 25/06/2013. These notices were adjudicated as indicated in the opening paragraph and the demands confirmed and penalties imposed. Hence the appeals before us. 3. Submissions on behalf of the appellant The submissions advanced on behalf of the appellant are detailed below:- 3.1. Adverse Circulars withdrawing certain benefit/relief are prospective in operation. CBEC (Board in short) had vide letter dated 24/02/2009 clarified that the services provided by the appellants were not taxable. Subsequently....
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....en though the purchase turnover with respect to the purchase of empty bottles from the unregistered dealers under bought note can be charged for purchase tax under section 7-A of the Act, the petitioner is entitled for the benefit of the clarifications dated November 9, 1989 and December 27, 2000 till the same is withdrawn prospectively by the clarification dated January 28, 2002 and therefore, the impugned levy of purchase tax on the purchase turnover for the purchase of empty bottles from unregistered dealers under section 7-A of the Act is illegal. 3.1.3. Similar views have been taken in - (i) Simplex Castings Ltd. Vs. CC 2003 (155) ELT 5 (SC); and (ii) CCE Vs. Maruti Foam 2004 (164) ELT 394 (SC). In both these cases, withdrawal circular was given prospective effect only. 3.1.4. Applying the ratio of the above cases, service tax, if any, can be levied only after issuance of adverse circular, i.e., after 20/09/2011. This is without prejudice to the submission that no tax is payable at all as appellants have not rendered any taxable service. 3.2. Extended period of limitation is not invokable in the present case. The first show cause notice has been served on 24/10/201....
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.... of a contract, and it was held that the contract was a guarantee and not an insurance policy. This case, however, provides little guidance in principle, and Romer L.J s judgement in Season v. Heath remains the most detailed pronouncement on the matter. The difference between the two classes of contract, he states, does not depend on the mere use of the words insurance or guarantee, but they can generally be distinguished by the way in which they are effected. Contracts of insurance are generally matters of speculation, where the person desiring to be insured has means of knowledge as to the risk, and the insurer has not the means or not the same means. The insured generally puts the risk before the insurer as a business transaction, and the insurer on the risk stated fixes a proper price to remunerate him for the risk to be undertaken; and the insurer engages to pay the loss incurred by the insured in the event of certain specified contingencies occurring. On the other hand [in contracts of guarantee] the creditor does not himself go to the surety, or represent, or explain to the surety, the risk to be run. The surety often takes the position from motives of friendship, and gen....
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....ion with one or more of them but does not include capital redemption business and annuity certain business. The above definition also does not provide what the miscellaneous insurance business is. However, Section 3 (p) of the GIBA Act provide as under:- (p) words and expression used in the act but not defined herein and defined in the insurance Act, shall have the meaning respectively assigned to them in that act . Section 2(13B) of the Insurance Act, 1938 defines miscellaneous insurance business as:- "miscellaneous insurance business means the business of effecting contracts of insurance which is not principally or wholly of any kind or kinds included in clauses (6A), (11) and (13A); Sub-sections (6A), (11) and (13A) of Section 2 of the Insurance Act, 1938 deals with fire insurance business, life insurance business and marine insurance business respectively. 3.4.2. The definition of insurance as given in well-known text books is reproduced as under:- (i) Colinvaux s Law of insurance, Eight s Edition, page 4 an agreement to confer upon the insured a contractual right which, prima facie, comes in to existence immediately when loss is suffered by the ha....
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....to pay to the depositors . This is not the risk of the banks as they are otherwise liable to pay to the depositors. 3.5.4. In the present case, bank is not having any insurable interest in the subject matter of the transaction, i.e. deposits . Deposits are not the assets of the bank but it is its liability. Bank is otherwise liable to pay to the depositors. 3.5.5. Section 43 of the DICGC Act specifically provides that nothing in the Companies Act, 1956 or the Insurance Act, 1938 shall apply to the corporation. The functions of the appellants are not governed by IRDA. 3.5.6. Insurance company can refuse insurance on various grounds; however, DICGC cannot refuse insurance to insured banks. 3.5.7. In normal insurance, premium depends on the risk involved in each case whereas in the present case DICGC Act, the standard amount is paid by virtue of section 15 of the DICGC Act. 3.5.8. In normal insurance, the amount of claim is paid to policy holders and not to any other person whereas in the present case, DICGC shall pay the amount payable under sec 16 in respect of the deposit of each depositor directly to the depositor and not to banks. Thus, none of the ingredients o....
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....e activity of repairs by Mazgaon docks will amount to undertaking of business. It was in that context the Hon ble Court observed that the in fiscal statues business should be construed widely. In the said case, the issue before Supreme Court did not relate to a question as to whether profit motive is necessary for treating an activity as business. The said decision has no application in the present case. 3.6.4. Similarly, reliance placed on the decisions in the case of Andhra Sugar [AIR 1968 SC 599] and others are also not applicable in the facts of the present case. In all those cases, there were indeed a contract between the two parties to the contract. Some elements of consensus like sale price and quantity were created by statutory control order. Assessees contended that since there was no free consent, on all aspects, there is no contract at all. Supreme Court held that other elements like product meeting specifications, terms of delivery, actual placing of order by customer are enough to constitute a contract. The limited question in all those cases was whether the contract was fulfilling the conditions of a valid contract viz. free consent etc. However, in the present cas....
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....an exception in section 36 of the GIBA Act. Thus, mere words insurance business in clause (e) does not indicate that the appellants are doing any business. 3.8. It is settled law that beliefs and assumption of makers of the law does not make the law. It is well settled law that beliefs and assumptions of makers of law do not make law. i) Principles of Statutory Interpretation by G.P. Singh 9th edition page 269 to 273, refer: But a legislation proceeding upon an erroneous assumption of the existing law without directly amending or declaring the long is ineffective to change the law. The beliefs or assumptions of those who frame Acts of Parliament cannot make the law and a mere assumption exhibited in a statute as to the state of the existing law is ineffective to express an intention to change the law. If by such a statute the idea is to change the law, it will be said that the Legislature has plainly missed fire . As has been observed by S. K. Das, J : - Legislation founded on a mistaken or erroneous assumption has not the effect of making that the law which the Legislature had erroneously assumed to be so. The court will disregard such a belief or assumption and also t....
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.... provided to the banks. Hence, premium collected by the appellants is in the nature of Statutory/regulatory fees. The appellants are performing their duties with a view to provide stability and guarantee to small depositors who have deposited their hard earned money with the bank. Thus, the activities of the appellants are in the nature of public interest. 3.9.3. In case of MIDC Vs. CCE 2014-TIOL- 2022 (Tri-Mum] the appellants have been constituted by the Government of Maharashtra to develop industrial areas in the State of Maharashtra by acquiring land from the land owners and plotting it into suitable industrial plots. Thereafter, these plots are sold/leased out under a lease agreement to individuals/companies desirous of setting up industries. As per the lease agreement, certain infrastructural facilities like roads, water, drainage, street light, etc. are provided by MIDC to plot owners. The MIDC collect certain charges from the plot owners for providing the above facilities e.g. water charges, delay payment charges, service charges (for maintenance of street lights, roads, gardens, plantation, etc.). The service charges so collected by MIDC are for the purpose of maintenanc....
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....is view is approved by the Supreme Court in case of Surana Steels Pvt. Ltd. reported at (1999) 4 SCC 306. In this judgment, the Supreme Court quoted with approval a passage from Portsmouth Corporation Vs. Smith reported at (1885) 10 AC 364 (HL), which is reproduced below: " . When a single section of an Act of Parliament is introduced into another Act, I think, it must be read in the sense it bore in the original Act from which it was taken, and that consequently it is perfectly legitimate to refer to all the rest of that Act in order to ascertain what the section meant, though those other sections are not incorporated in the new Act" Thus, if the provisions of clause (g) of the section 3 GIBA Act 1972 read with section 36 (e) is to be applied, it will lead an unanimous conclusion that the clause (g) of section 3 of the GIBA act will not apply to appellants and consequently provision of section 65 (49) of the Finance Act, 1994 will also not apply. 3.11. Service provided, if any, by the appellants are exempt under notification no. 22/2006 ST dated 31.5.2006 3.11.1. Assuming that the appellants are providing taxable service, even then, the same will be exempt in terms of ....
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....ollowing decision:- (i) Canara Bank Vs. CST -2012 (28) STR 369 (Tri-Ahd). In this case Canara Bank provided services of operating a bank account on behalf of government in respect of payment of pension, transactions of various government departments, public deposit, RBI Bonds, EPF, special deposit scheme, senior citizens saving scheme, compulsory deposit scheme etc. The department raised demand interalia alleging that the activities of the Canara bank is taxable under Banking and Financial services . The assessee contended that service provided are exempted from payment of service tax in view of the fact that the appellant is performing the functions which were to be performed by RBI and therefore the appellant is entitled to exemption which is provided to RBI vide Notification No. 22/2006 dated 13-4-2006. The tribunal inter alia held that the exemption available to RBI has to be extended to Canara Bank as well as Canara Bank is acting as agent of the RBI. Relevant portion of the order is reproduced herewith:- 13. The above observations of the Hon ble Supreme Court make it clear that exemption to the principal would be available to the agent also. For this purpose, since the ....
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....Act, shall have the meanings respectively assigned to them in that Act. 4.2.2. The arguments advanced on behalf of the appellant are that,- (a) DICGC is performing a sovereign function for the RBI in terms of an Act intended specifically for performing a regulatory function of deposit insurance. (b) Premia collected by DICGC from the banks is more in the nature of a regulatory fee or statutory fee. (c) Nothing in the Companies Act, 1956 or the Insurance Act, 1938 shall apply to DICGC in terms of section 43 of DICGC Act, 1961 (d) Deposit insurance is not a contract of Insurance; it is a guarantee 4.2.3. DICGC, though a subsidiary of RBI, is not performing any sovereign function. As ruled by the Apex Court in the case of Chief Conservator of Forests (1996 2 SCC 293) one of the tests to determine whether the executive function is sovereign in nature is to find out whether the State is answerable for such action in courts of law. The deposit insurance business of DICGC does not meet this test. Similarly, in the case of functions of an Agricultural Produce Market Committee established by Karnataka State through a statute for the benefit of agriculturist, it has been he....
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....ction 2 (i) and (j) of the Act, the Bank which is required to get registered upon issue of licence under section 22 of BRA,1949 is named insured bank and the deposit or any portion thereof whose repayment is insured by DICGC is called the insured deposit . Thus, read with section 15 of DICGC Act, it comes out clearly, that the property insured is the specified deposit/s of a depositor up to a limit. The banks have a statutory obligation to pay a premium towards insurance of deposits held by them. DICGC holds the premia collected thus from Banks in Funds for reimbursement to depositors in the event of winding up or liquidation of a bank. Insured banks pay premia on behalf of depositors for the risk of loss faced by them in respect of their property viz. deposits on account of winding up or liquidation of a bank. Thus, all the essentials of an insurance transaction, namely, the definition of the risk, duration of the risk, premium and amount of insurance are present in the deposit insurance activity of DICGC. Accordingly, DICGC has to be regarded as an insurer . 4.2.6. In key respects, deposit insurance is comparable to Motor Third-Party Insurance . Firstly, it is made compulsory/....
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.... case of Onkarlal Nandlal vs. State of Rajasthan is cited as follows: Therefore, when only sub-section (2) of a section of an earlier Act was incorporated in a later Act, sub-section (1) which had a restrictive effect on the operation of sub-section (2 ) was not allowed to be read for purpose of construing sub-section (2) as incorporated in the later Act [1986 AIR SC 2146]. Thus, it is not permissible to apply the provisions of section 43 of DICGC Act,1961 to restrict the scope of section 65(49) of Finance Act, 1994, read with Section 3(g) and 3(p) of General Insurance business (Nationalisation) Act,1975 [GIBA, 72] and the provisions of Insurance Act ,1938. Alternatively, assuming that the provisions of Insurance Act are not applicable in view of section 43 of DICGC Act, it may only mean that section 3(p) of GIBA, 1972 read with section 2 (13B) of the Insurance Act would not be applicable. Section 3 (g) of GIBA, 1972 would still be applicable and the expression miscellaneous insurance business would then have to be interpreted in the light of the common parlance understanding. Viewed in this light, and drawing on section 3(g) of GIBA, 1972, the expression miscellaneous insurance bu....
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....y law. By setting up the occupation or trade the person signifies his consent to enter into contracts which the law commands him to contract. DICGC having been set up as a DI and the banks having been mandated to pay the premia for protecting the specified deposits, the present instance is an example of an implied contract with an implied offer and implied acceptance by the parties as per the DICGC Act, 1961. The preamble to the DICGC Act, the definitions and provisions incorporated in that Act clearly point to the fact that the transactions between the banks and DICGC though, brought about under a statute, constitute contractual transactions of the nature of insurance. Further, there are separate and independent provisions in the said Act relating to guaranteeing operations of DICGC. The Act itself distinguishes between an insurance transaction and a guarantee transaction. Thus, the implied contract that exists between the banks and DICGC is not in the nature of a guarantee. 4.6. Coming to the question as to whether the activity of DICGC be called a business , the expression business is of wide import and as observed by the Apex Court in the case of Mazgaon Dock Ltd.[1958 34 IT....
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....rance business as defined in Section 65 (49) read with 65 (105) (d) of the Finance Act, 1994? (2) Whether the activity of DICGC is a business or not? (3) Whether the activity of deposit insurance undertaken by the appellant is a sovereign/statutory function not amenable to service taxation or is it a commercial activity which can be subjected to tax? (4) Whether deposit insurance is a contract of insurance/contract of indemnity or a contract of guarantee? (5) Whether the appellant is eligible for the benefit of tax exemption under notification No. 22/2006-ST dated 31/05/2006? (6) Whether the appellant could be alleged to have suppressed facts with an intent to evade tax and whether extended period of time could be invoked to confirm the service tax demand? (7) Whether the appellants are liable to penalty? 5.1. Whether the activity undertaken by the appellant, DICGC, is insurance business or not and if so, does it fall within the ambit of general insurance business as defined in Section 65 (49) read with 65 (105) (d) of the Finance Act, 1994? 5.1.1. In order to appreciate the rival contentions made, it will be useful to make a brief reference to the his....
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....orporation was required to register eligible co-operative banks as insured banks under the provisions of Section 13 A of the DICGC Act. The Government of India, in consultation with the Reserve Bank, introduced a credit guarantee scheme in July 1960. The Reserve Bank was entrusted with the administration of the scheme, as an agent of the Central Government, under Section 17 (11 A)(a) of the Reserve Bank of India Act, 1934 and was designated as the Credit Guarantee Organisation (CGO) for guaranteeing the advances granted by banks and other credit institutions to small scale industries. The Reserve Bank operated the scheme up to March 31, 1981. The Reserve Bank also promoted a public limited company on January 14, 1971, named the Credit Guarantee Corporation of India Ltd. (CGCI).The credit guarantee schemes introduced by the Credit Guarantee Corporation of India Ltd., aimed at encouraging the commercial banks to cater to the credit needs of the hitherto neglected sectors, particularly the weaker sections of the society engaged in non-industrial activities, by providing guarantee cover to the loans and advances granted by the credit institutions to small and needy borrowers covered un....
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....ted a licence by the Reserve Bank. (iii) When the owned funds of a primary cooperative credit society reach the level of Rs. 1 lakh, it has to apply to the Reserve Bank for a licence to carry on banking business as a primary co-operative bank and is to be registered with the Corporation within 3 months from the date of its application for licence. (iv) A co-operative bank which has come into existence after the commencement of the Deposit Insurance Corporation (Amendment)Act, 1968, as a result of the division of any other co-operative society carrying on business as a co-operative bank, or the amalgamation of two or more co- operative societies carrying on banking business at the commencement of the Banking Laws (Application to Co-operative Societies)Act, 1965 or at any time thereafter, is to be registered within three months of its making an application for licence. However, a cooperative bank will not be registered, if it has been informed by the Reserve Bank, in writing, that a licence cannot be granted to it. In terms of Section 14 of the DICGC Act, after the Corporation registers a bank as an insured bank, it is required to send, within 30 days of such registration, inti....
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....004 0.08 1-07-1993 0.05 1-10-1971 0.04 1-01-1962 0.05 (8) CANCELLATION OF REGISTRATION Under Section 15A of the DICGC Act, the Corporation has the power to cancel the registration of an insured bank if it fails to pay the premium for three consecutive half-year periods. However, the Corporation may restore the registration if the deregistered bank makes a request, paying all the dues in default including interest, provided the bank is otherwise eligible to be registered as an insured bank. Registration of an insured bank may be cancelled if the bank is prohibited from accepting fresh deposits; or its licence is cancelled or a licence is refused to it by the Reserve Bank; or it is wound up either voluntarily or compulsorily; or it ceases to be a banking company or a co-operative bank within the meaning of Section 36A(2) of the Banking Regulation Act, 1949; or it has transferred all its deposit liabilities to any other institution; or it is amalgamated with any other bank or a scheme of compromise or arrangement or of reconstruction has been sanctioned by a competent authority where the said scheme does not permit acceptance of fresh deposits. In ....
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.... bank or insured bank, as the case may be, within three months from the date on which the scheme of amalgamation/ reconstruction, etc. comes into effect [Section 18(1) of the DICGC Act]. (v) The Corporation is required to pay the amount due under the provisions of the DICGC Act in respect of the deposits of each depositor within two months from the date of receipt of such lists prepared in accordance with guidelines issued by the corporation and complete / correct in all respects. The Corporation gets the list certified by a firm of Chartered Accountants which conducts onsite verification. (vi) The Corporation generally makes payment of the eligible claim amount to the liquidator/ chief executive officer of the transferee/insured bank, for disbursement to the depositors. However, the amounts payable to the untraceable depositors are held back till such time as the Liquidator/Chief Executive Officer is in a position to furnish all the requisite particulars to the Corporation. (11) RECOVERY OF SETTLED CLAIMS In terms of Section 21(2) of the DICGC Act read with Regulation 22 of the DICGC General Regulations, the liquidator or the insured bank or the transferee bank, as the....
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....18.01 1.71 61.45 41.32 2009-10 41.55 15.13 4.07 37.53 28.93 2008-09 34.53 12.89 9.09 39.73 26.89 5.1.2. The Statement of Objects and Reasons to the DICGC Act, 1961 records that,- The question of establishing a statutory corporation for insuring deposits in commercial banks has been under consideration for some time. Various suggestions or the proposals in this connection, including the recommendations made by the Shroff Committee on Finance for the private sector which reported in 1954, have been examined in consultation with the Reserve Bank and the representatives of the commercial banks, and it is now considered desirable that the scheme should be implemented at a very early date. The Deposit Insurance Corporation will be established as a wholly-owned subsidiary of the Reserve Bank with a paid-up capital of a crore of rupees. It will insure all deposits in commercial banks including the State Bank and its subsidiaries, other than the deposits belonging to the Central Government or to a State or foreign Government or to the insured banks. The limit of the insurance cover will be Rs. 1,500 but this limit may be raised by....
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....ortion thereof the repayment whereof is insured by the Corporation under the provisions of this Act; (l) premium means the sum payable by an insured bank under section 15 of this Act ; Section 15 of the Act deals with the premium liable to be paid by the insured bank and reads as follows: 15. (1) Every insured bank shall, so long as it continues to be registered, be liable to pay a premium to the Corporation on its deposits at such rate or rates as may, with the previous approval of the Reserve Bank, be notified by the Corporation, from time to time, to the insured banks and different rates may be notified for different categories of insured banks . Section 16 deals with the liability of the Corporation in respect of insured deposits and the relevant extracts are as below: 16. (1) Where an order for the winding up or liquidation of an insured bank is made, the Corporation shall, subject to the other provisions of this Act, be liable to pay to every depositor of that bank in accordance with the provisions of section 17 an amount equal to the amount due to him in respect of his deposit in that bank at the time when such order is made: Provided that the liability of the....
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.... of the enactment), have, clearly, unambiguously and loudly, stated that the activity undertaken by the appellant is insurance , there cannot be any scintilla of doubt in this regard. Any contention to the contrary has to be rejected outright and in toto and we do so. 5.1.9. The next question to be addressed is whether the appellant is carrying on general insurance business as defined in the Finance Act, 1994. Finance Act, 1994 has defined general insurance business by reference to section 3(g) of the General Insurance Business (Nationalisation) Act, 1972, (GIB Act in short). The meaning and scope of referential legislation has been laid down by the hon ble apex court in State of Kerala vs. Attesee (Agro Industrial Trading Corporation)[1988 (38) ELT 720 (SC)] wherein a question arose for consideration as to whether the Kerala General Sales Tax Act (1963) brings in the definitions of the Central Excises and Salt Act, 1944 by way of reference or citation and/or by way of incorporation and the hon ble held as follows:- To appreciate the contentions urged, it is necessary to make a brief reference to the principles of interpretation of an enactment which for purposes of convenien....
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....tually written in it with the pen, or printed in it, and, the moment you have those clauses in the later Act, you have no occasion to refer to the former Act at all. In the light of above decisions of the apex Court , it has to be held that the definition general insurance business given in GIB Act has become an integral part of the Finance Act, 1994 and has to be understood accordingly. 5.1.10. The contention raised that since as per the provisions of Section 43 of the DICGC Act, 1961, nothing in the Companies Act, 1956 or the Insurance Act, 1938, shall apply to the Corporation, the Corporation cannot be construed as carrying on general insurance business as defined in section 3(g) of the General Insurance Business (Nationalisation) Act, 1972, (GIB Act in short) as such business is carried on by companies registered under the Companies Act, 1956, is not tenable for the following reason. As per section 3(g) of the GIB Act, general insurance business means fire, marine or miscellaneous insurance business, whether carried on singly or in combination with one or more of them, but does not include capital redemption business and annuity certain business. A plain reading of the de....
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....d in the statute. Therefore, the appellants does not have profit motive and they cannot be said to have been engaged in any business. Reliance has been placed on a number of case laws in support of this contention. 5.2.2. The above contention is both factually and legally incorrect. As per section 3 of the DICGC Act, extracted below,- 3. (1) The Central Government shall, by notification in the Official Gazette, establish a Corporation by the name of the Deposit Insurance Corporation which shall be a body corporate having perpetual succession and a common seal with power, subject to the provisions of this Act, to acquire, hold or dispose of property and to contract, and may, by the said name, sue or be sued. 4. (1) The authorised capital of the Corporation shall be one crore of rupees but the Central Government may, in consultation with the Reserve Bank, increase such capital from time to time, so however, that the total authorised capital shall not exceed fifty crores of rupees. (2) The issued capital for the time being of the Corporation shall be fully paid-up and shall stand allotted to the Reserve Bank. 5. The general superintendence, direction and the manageme....
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....d course of activity or conduct with a set purpose. In terms of the law expounded by the apex court, the appellant is engaged in the business of insuring deposits of commercial banks for a consideration by way of premium paid by the insured banks. 5.2.4. In the light of the foregoing analysis, we answer the question in favour of Revenue and against the appellant and hold that the appellant Corporation is engaged in the business of insuring deposits for a consideration with a profit motive. 5.3. Whether the activity of deposit insurance undertaken by the appellant is a sovereign/statutory function not amenable to service taxation or is it a commercial activity which can be subjected to tax? 5.3.1. To understand what a sovereign function is and whether statutory functions can be subjected to service tax, we shall refer to two classical decisions on the concept of sovereign function by the hon ble Apex Court. The first is the case of Bangalore Water-Supply & ... vs R. Rajappa & Others [1978 AIR 548] wherein the question was whether State is an industry as defined in Section 2(j) of the Industrial Disputes Act, 1947. 5.3.2. The respondent employees were fined by the Appe....
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....o, whether it is undertaken in fulfilment of the State's constitutional obligations or in discharge of its constitutional functions. In fact, to concede the benefit of an exception to the State's activities which are in the nature of sovereign functions is really to have regard not so much to the nature of the activity as to the consideration who engages in that activity; for, sovereign functions can only be discharged by the State and not by a private person. If the State's inalienable functions are excepted from the sweep of the definition contained in section 2(j),one shall have it is the nature of the activity is an industry. Indeed, in this respect, it should make no difference whether on the one hand, an activity is undertaken by a corporate body in the discharge of its statutory functions or, on the other, by the State itself in the exercise of its inalienable functions. If the water supply and sewerage schemes or fire fighting establishments run by a Municipality can be industries so be the manufacture of coins and currency, arms and ammunition and the winning of oil and uranium. The fact that these latter kinds of activities are, or can only be, undertaken by t....
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....in exercise of statutory powers under the Act immunizes the State, completely, from any loss or damage suffered by the owner. Whether confiscation of part of the goods absolves the State from any claim for the loss or damage suffered by the owner for the goods which are directed to be released or returned to it. It was dissented to by the Madras High Court in Secretary of State for India in Council v. Hari Bhanji and it was observed that Nobin Chunder Dey did not properly comprehend the law laid down in Peninsular. The Chief Justice of the Madras High Court, after dealing with Peninsular and its erroneous application in Nobin Chunder Dey, observed that defence of sovereign immunity was available in those limited cases where the State could not be sued for its acts, such as making war or peace, in Municipal Courts. Relevant observations are extracted below : "Acts done by the Government in the exercise of the sovereign powers of making peace and war and of concluding treaties obviously do not fall within the province of municipal law, and although in the administration of domestic affairs the Government ordinarily exercises powers which are regula....
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....deal of a Welfare State which implies that the State takes care of those who are unable to help themselves." The Commission after referring to various provisions in the. Legislation of other countries observed : "The old distinction between sovereign and non-sovereign functions or governmental and nongovernmental functions should no longer be invoked to determine the liability of the State. As Professor Friedman observes : 'It is now increasingly necessary to abandon the lingering fiction of a legally indivisible State, and of a feudal conception of the Crown, and to substitute for it the principle of legal liability where the State, either directly or through incorporated public authorities engages in activities of a commercial, industrial or managerial character. The proper test is not an impracticable distinction between governmental and non-governmental functions, but the nature and form of the activity in question'. 5.3.4. From the decisions of the apex court discussed in the preceding paragraphs, it is clear that only those functions of the State where the State cannot be sued in a court of law can be called sovereign functions. All other activities of the St....
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....insurance meets all the criteria. The first criterion is contractual relationship between the parties . The same exists between the DICGC and the insured bank. The contract need not always be written or explicit. It can be oral and implicit. The second criterion is there should be some event the happening of which is uncertain. In other words there should be some risk for which insurance is being sought. The uncertain event in the deposit insurance is liquidation or winding up of the insured bank. It is this risk which might impair the capacity of the insured bank to repay it debt/liability to the depositor, that is being insured upto a certain limit (Rs. 1 lakh per depositor). The third criterion is that the insured must have an insurable interest in the subject matter of the property. The insurable interest is the liability of the insured in respect of the deposits it has received from various depositors. The fourth criterion is the Insurer is bound to pay money or provide its equivalent if any uncertain event occurs. In the event of liquidation of the bank, the Insurer, that is, DICGC, makes good the liability upto a maximum limit of Rs. 1 lakh per depositor. The last criterion ....
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....ne or accident insurance, is, in essence, one of indemnity. The underwriter, for consideration, guarantees the assured compensation against loss or risks, the limits of the guarantee against accident or loss or risks, the limits of the guarantee against accident or loss or damage suffered, totally or partially, being subject to the maximum stipulated in the contract of insurance. Conversely, the rights of the assured are not to profit out of the bargain. It is implied in the very nature of the contract of indemnity that the indemnifier is entitled to recoup or minimise the damages he is obliged to pay the assured, by ways and means the assured himself could resort to, in order to reimburse himself against loss caused to him by third party negligence. Such a right of the insurer is, of course, conditional upon his having already indemnified the assured. In other words, arising out of the nature of a contract of indemnity, the insurer, when he has indemnified the assured, is subrogated to his rights and remedies against third parties who have occasioned the loss. This right of the insurer to subrogation or to get into the shoes of the assured as it we, need not necessarily flow from ....
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....d. It was very soon realized that an indemnity might be worth very little indeed if the indemnified could not enforce his indemnity till he had actually paid the loss. If a suit was filed against him, he had actually to wait till a judgment was pronounced, and it was only after he had satisfied the judgment that he could sue on his indemnity. It is clear that this might under certain circumstances throw an intolerable burden upon the indemnity-holder. He might not be in a position to satisfy the judgment and yet he could not avail himself of his indemnity till he had done so. Therefore the Court of equity stepped in and mitigated the rigour of the common law. The Court of equity held that if his liability had become absolute then he was entitled either to get the indemnifier to pay off the claim or to pay into Court sufficient money which would constitute a fund for paying off the claim whenever it was made. As a matter of fact, it has been conceded at the bar by Mr. Tendolkar that in England the plaintiff could have maintained a suit of the nature which he has filed here; but, as I have pointed out, Mr. Tendolkar contends that the law in this country is different. I have already h....
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....Interest having arisen by common law. Ownership of a building, car etc, gives the owner the right to insure the property. (b) By Contract: In some cases a person will agree to be liable for something which he would not be ordinarily for. A lease deed for a house for example may make the tenant responsible for the repair and maintenance of the building. Such a contract places the tenant in a legally recognized relationship with the house or the potential liability and this gives him the insurable interest. (c) By Statute: Sometimes an Act of the Parliament may create an insurable interest by granting some benefit or imposing a duty and at times removing a liability may restrict the Insurable Interest. Insurable Interest is applicable in the Insurance of property, life and liability. 5.4.9. Some of the legislation passed by the Govt. of India to protect the rights and to provide benefits to the common man as a part of its efforts to provide social security to its dominions is discussed in brief below: (a) Workman Compensation Act 1923: This perhaps was the earliest act to be enacted for the benefits of the workers. Before this Act was passed workers who met with accidents while....
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....e available to the victims from the Insurance companies. 5.4.10. Other than passing legislations to improve social security, the Government also initiated certain schemes under which Insurance is provided to the economically and socially backward people and workers of the unorganized sector at highly subsidized rates. Some of the schemes introduced by the Govt. of India are,- (i) Personal Accident Social Security Scheme (PASSS): Introduced in 1985 for the benefit of Poor families i.e. (whose income does not exceed Rs. 7,200 per year). The scheme provided for a payment of Rs. 3,000/- in the event of death due to an accident of any person in the age group of 18 to 60 who is the earning member of the poor family. The premium is borne by the Central Government and the expenses for implementation of the scheme by the state Government. (ii) National Agricultural Insurance Scheme or the (RKBY) Rashtriya Krishi Bima Yojna (NAIS) introduced in 1999 with the objective of providing Insurance coverage and financial support to farmers in the event of failure of crops as a result of calamities, pests and diseases. The premium is low and 50% subsidy in premium is allowed to small & margi....
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....e extended to the appellant. This argument is completely mis-placed. The exemption from service tax is in respect of services provided by the RBI and not by the subsidiaries of RBI. RBI and the appellant are separate legal entities established under different statutes, the former under the Reserve Bank of India Act, 1934 and the latter under the Deposit Insurance and Credit Guarantee Corporation Act, 1961. Functionally also they are different. The Preamble of the Reserve Bank of India Act describes the basic functions of the Reserve Bank as: "...to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage" while the preamble of the Deposit Insurance and Credit Guarantee Corporation Act, 1961, reads as - an act to provide for the establishment of a corporation for the purpose of insurance of deposits and guaranteeing of credit facilities and for other matters connected therewith or incidental thereto . 5.5.2. The hon ble Apex Court in the case of Union of India vs. Wood Papers Ltd. [AIR 1991 SC 2049] has laid down the principle of interpretati....
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....ities by any bank operating in India and hence their activity is not taxable under the taxable service of general insurance business . However, the matter was re-examined by the Board in the light of the observations received from the Chief Commissioner (LTU), Mumbai vide his letter dated 21/07/2011. On re-examination, the Board came to the conclusion that the insurance activity of DICGC falls within the ambit of section 65(105)(d) of the Finance Act, 1994, and is chargeable to service tax. This revised view was communicated to the appellant vide letter F.No.137/135/2008-CX-4 dated 20th September, 2011. Thereafter on 24/10/2011 show cause notice was issued to the appellant demanding service tax for the period from 01/05/2006 to 31/03/2011 alleging suppression/mis-representation of facts and invoking the extended period of time. Thus when the Board, the apex indirect tax enforcement authority itself was not clear or entertained doubts about the taxability of the deposit insurance activity, how can it be alleged that the appellant suppressed or mis-represented the facts? In our considered view, this charge, made in the show cause notice and confirmed in the impugned order, cannot be ....
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....disputes etc. The scheme aims at reducing tax compliance cost and delays, and bringing out uniformity in the matters of tax/duty determination. Since the adjudicating/assessing authority is a part of the LTU where the appellant is filing their income tax returns, we do not understand how the service tax department could not have obtained/accessed information regarding the premium collected on deposit insurance activity. The audited financial report of the appellant is put on the public domain and can be freely downloaded from the appellant s web-site. In these circumstances, we are unable to accept the contention of the Revenue that the appellant suppressed/withheld information from the department with an intent to evade service tax. Consequently, the invocation of extended period of time for demand of service tax cannot be sustained in law and we hold accordingly. 5.7. Whether the appellants are liable to penalty? It is a settled position in law that imposition of penalty is not justifiable in matters involving interpretation and classification. In any case, section 80 of the Finance Act, 1994 provides for waiver of penalty on sufficient cause being shown. In our considered ....