TaxTMI 
TaxTMI 
2015 (5) TMI 143
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 the DICGC Act, 1961 for the purpose of providing insurance of deposits and guaranteeing credit facilities. It insures all bank deposits, savings, fixed,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 the said clarification was revised vide letter dated 20-9-2011 wherein it was stated that the activity undertaken by the appellant is taxable under the taxable service of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 24/10/2011 demanding service tax for the period 01/05/2006 to 31/03/2011. The appellant had bona fide belief that they were a statutory corporation performing statutory functions and not rendering an....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 generally not as the result of any direct bargaining between him and the creditor, or in consideration of any remuneration passing to him from the creditor. The question must ultimately depend on the ex....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 happening of an event insured against, to be put by the insurer in to the same position in which the insured would have been had the event not occurred, but in to no better position. (ii) Srinivasan s Principal of Insurance Law , 8th Edition , 2006 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 of the contract of insurance is present in the impugned case and hence the appellants are not providing any insurance services. 3.6. The appellants are not engaged in any business. 3.6.1. The word business has not been defined in chapter V of the Finance Act, 1994. However, it has been inte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ary 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 case there is no contract at all between the appellants and the banks. 3.7. Reliance placed by the department on section 36 (e) of the GIBA Act to hold that the appellants are carrying on insurance business is misplaced. 3.7.1. Section 36 (e) of the GIBA act is 1972 reads as under:- 36. Exemptions. (1) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 the provision inserted in that belief or assumption. This submission is squarely covered by the decision of the Supreme Court in case of ITO Vs. Mani Ram 1969 (72) ITR 203 (SC). 3.8.1. The department is placing reliance on the term insurance used in the preamble of the DICGC Act to conclude that the appellants are rendering insur....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 maintenance of roads, street lights etc. Revenue alleged that the above activity falls under the category of Management, Maintenance or Repair Service'. After considering the various provisions of the MIDC Act, the Hon ble tribunal came to a conclusion that the MIDC is performing the statutory function and therefore not liable to service tax. Relevant po....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 notification no. 22/2006 ST dated 31.5.2006. The aforesaid notification provides exemption in respect of service provided by RBI. The same is reproduced as under:- Reserve Bank of India Exemption to taxable services hereby exempts the following taxable services from the whole of the service tax leviable thereon under section 66 of the said Finance Act, namely :- (i) taxab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 agent is eligible for the exemption which is available to the principal in terms of the relationship with the principal of the agent and not because of exemption granted specifically to the agent or principal, we have to hold that the appellant is eligible for exemption. If RBI were to undertake the activity there would have been no question of levy of service tax. It was also brought to our n....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 held by the Apex Court that such functions do not come within sovereign functions of the State.[AIR 2000 SC 3116]. On the other hand, DICGC is a statutory authority established under an Act of the Parliament. This does not mean that DICGC is performing a regulatory function. In fact SBI is set up under SBI Act, 1955 to do business as a Bank; similarly, the General Insurance Corporation was set up under Section 9 (1) of GIBA, 1972 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion 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/mandatory under a statute. Secondly, three parties are involved in the transaction. The premium is paid by banks (Owner of the vehicle in the case of MTPI ) to the Insurer i.e, DICGC ( Insurance company in the case of MTPI ) and the beneficiary is a third party i.e the depositor ( Affected third party in the case of MTPI ). In the MTPI the contract is express and in the case of deposit insurance it is implied. But in both cases, the s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 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 business should cover all types of insurance other than life insurance, fire and marine insurance, capital redemption business and annuity certain business. Deposit insurance would thus be covered under section 65(49) of Finance Act,1994, even if the argument advanced by the appellant is conceded. 4.5. As regards the question as to whether Deposit insurance is a contract of Insurance, since it is mandatory and not voluntary or is it a guaran....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 ITR 368(SC)] in fiscal statutes, it must be construed in a broad rather than a restricted sense. At Page 912 of Major Law Lexicon , a compilation of definitions from general and law dictionaries has been given, which indicates that the said expression extends to all cases of work, which occupies the time, attention and labour of men for profit or otherwise. In re: Narain Swadeshi Mills v. Commr. of Excess Profits (AIR 1955 SC 176) the Apex Court ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tee? (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 history of deposit insurance in India and the provisions of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 and the Deposit Insurance Scheme in place on account of the enactment of the said Act. The Annual Report of the Corporation for the year 2013-2014 (downloaded from the web-site of the appellant) contains a brief on the above matter and has been placed before the Parliament under section 32(2) of the said Act. Therefore, the accuracy and authenticity of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 under the priority sector as defined by the RBI. With a view to integrating the functions of deposit insurance and credit guarantee, the two organisations, viz., the DIC and the CGCI, were merged and the Deposit Insurance and Credit Guarantee Corporation (DICGC) came into existence on July 15, 1978. The Deposit Insurance Act, 1961 was thoroughly amended and it was renamed as The Deposit Insurance and Credit Guarantee Corporation Act, 1961 . With effect from April 1, 1981, the Corporati....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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, intimation in writing to the bank to that effect. The letter of intimation, apart from the advice of registration and registration number, gives details of the requirements to be complied with by the bank, viz., the rate of premium payable to the Corporation, the manner in which the premium is to be paid, the returns to be furnished to the Corporation, etc. (5) INSURANCE COVERAGE Under the provisions of Section 16(1) of the DICGC Act, the insurance cover was originally limited to Rs. 1,500/- only per ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ancelled 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 the case of a co-operative bank, its registration also gets cancelled if it ceases to be an eligible co-operative bank. In the event of the cancellation of registration of a bank, for reason other than default in payment of premium, deposits of the bank as on the date of cancellation remain covered by the insurance. (10) SETTLEMENT OF CLAIMS (i) In the event of the winding up or liquidation of an insured bank, every depositor is entitled to payment of an amount equal to the deposits held by him at all the branches of that bank put together in the same capacity and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 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 case may be, is required to repay to the Corporation out of the amounts realised from the assets of the failed bank and other amounts in hand after making provision for the expenses incurred. (12) FUNDS, ACCOUNTS AND TAXATION The Corporation maintains three distinct Funds, viz., (i) Deposit Insurance Fund (DIF); (ii) Credit Guarantee Fund (CGF), and (iii) General Fund (GF). The first two Funds are created by accumulating the insurance premia and guarantee fees respectively and are applied for settlement of the respective claims. The authorised capital of the Corporation is Rs. 500....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 the Corporation with the previous approval of the Central Government. The premium rate will be determined by the Corporation from time to time with the previous approval of the Central Government. The maximum rate for which provision is being made in the Bill is 15 naye paise per hundred rupees per annum. The Corporation's liability will arise and be discharged in the event of the liquidation of a bank or the enforcement in relation to it of a scheme of compromise or arrangement or reconstruction or amalgamation. The payments due to the depositors up to the limit of the insurance cover offered by the Corporation will be made in the most convenient and expedient manner which may be p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ration 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 Corporation in respect of an insured bank referred to in clause (a) or clause (b) of sub-section (1) of section (13) or clause (a) or clause (b) of section 13C shall be limited to the deposits as on the date of the cancellation of the registration: Provided further that the total amount payable by the Corporation to any one depositor in respect of his deposit in that bank in the same capacity and in the same right shall not exceed one lakh rupees . .. (2) Where in respect of an insured bank a scheme of compromise or arrangement or of reconstruction or amalgamation has been sanctioned by any competent authority and the said scheme provides for each depositor being paid or credit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g 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 convenience, refers to or incorporates a provision of another. These have been discussed in various earlier decisions viz, Secretary of State v. Hindustan Cooperative Insurance Society Ltd., [1931] 58 I .A. 259, Collector of Customs v. Nathella Sampathu Chetty & another, [1962] 3 S.C.R. 786, Ram Sarup v. State, [1963] 34 SCR 858. Ram Kirpal v. State. [1970] 3 S.C.R, New Central Jute Mills Co. Ltd. v. The Assistant Collector. [1971] 2 SCR 92, State of Madhya Pradesh v. Narasimhan,[1976] 1 S.C.R. 61, Bhajva v. Gopikabai, [1978] 3 S.C.R. 561, Mahindra & Mahindra Ltd. v. Union,[1979] 2 S.C.R. 10348 and Western Coal Fields v. Special Area Development Authority. [1982] 2 S.C.R. 1. It unnecessary to make a detailed reference to these decision....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 definition makes it absolutely clear that anything other than fire or marine insurance would come within the purview of miscellaneous insurance business . Thus deposit insurance comes within the scope of miscellaneous insurance business as mentioned above. As per section 65 (49) of the Finance Act, general insurance business has the meaning assigned to it in clause (g) of section 3 of the General Insurance Business (Nationalisation) Act, 1972. As per section 65 (105)(d), taxable service means any service provided or to be provided to a policy holder or any person by an insurer or re-insurer, carrying on general insurance business in relation to general insurance business . In the preceding paragraphs, we have held that DICGC is in the busines....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 management of the affairs and business of the Corporation shall vest in a Board of directors which may exercise all powers and do all acts and things which may be exercised or done by the Corporation. Thus the DICGC has been established as a body corporate with power to acquire, hold or dispose of property and to contract . As per section 65(13) of the Finance Act, 1994, "body corporate" shall have the meaning assigned to it in clause (7) of Section 2 of the Companies Act, 1956 (1 of 1956). In law, body corporate means a legal entity (such as an association, company, person, government, government agency, or institution) identified by a particular name. The authorised capital of the Corporation is Rs. 50 crore which is entirely subscribed to by the Reserve Bank. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ry 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 Appellant Board for misconduct, and various sums were recovered from them. Therefore, they filed a Claims Application under Section 33C (2) of the Industrial Disputes Act, alleging that the said punishment was imposed in violation of the principles of natural justice. The appellant Board raised a preliminary objection before the Labour Court that the Board, a statutory body performing what is in essence a regal function by providing the basic amenities to the citizens, is not an industry within the meaning of the expression under section 2(j) of the Industrial Disputes Act, and consequently the employees were not workmen and the Labour Court had no jurisdiction to decide the claim of the workmen. This objection being over-ruled, the appellant Board filed two Writ 'Petitio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....harge 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 the State does not furnish any answer to the question whether these activities are industries. When undertaken by a private individual they are industries, therefore, when undertaken by the State, they are industries. The nature of the activity is the determining factor and that does not change according to who undertakes it. ..sovereign functions, strictly understood, (alone), qualify for exemption, not the welfare activities of economic adventures undertaken by Government or statutory bodies. Even in departments discharging sovereign functions, if there are units which are industries and they are substantially severable, then they can be considered to come within sec. 2(j). Constitutionally and competently enacted legislative provisions may well remove from the scope ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 regulated by that law, yet there are cases in which the supreme necessity of providing for the public safety compels the Government to acts which do not pretend to justify themselves by any canon of municipal law. Acts thus done in the exercise of sovereign powers but which do not profess to be justified by municipal law are what we understand to be the acts of State of which municipal courts are not authorised to take cognizance." The doctrine or the defence by the "act of State", is not the same as sovereign immunity. The former flows from the nature of power exercised by the State for which no action lies in civil court whereas the latter was developed on the divine right of Kings. One of the tests to determine if the legislative or executive function ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ot 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 State which are undertaken by the State or the corporations established by the State to achieve various socio-economic objectives cannot be regarded as sovereign functions and are therefore amenable to civil and criminal laws, including taxation. Further section 3 (1) of the DICGC Act, 1961 provides that Deposit Insurance Corporation 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 . In view of this explicit provision in law, we find no merit in the contention that the activity of deposit insurance is a sovereign/statutory function not amenable to service taxation. Accordingly we reject this contention as completely devoid of mer....
X X X X Extracts X X X X
X X X X Extracts X X X X
....terest 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 is insurance should be a contract of indemnity. The insurer indemnifies discharge of liability to the extent of deposit made subject to a cap of Rs. 1 lakh per depositor. Thus, all the criterion of an insurance contract is satisfied in the case of deposit insurance and therefore, it is a contract of insurance and a contract of indemnity. 5.4.3. In Halsbury's Laws of England, fourth edition, Vol. 25, under the heading "Insurance" in paragraph 3, it is observed as follows: "Most contracts of insurance belong to the general category of contracts of indemnity in the sense that the insurer's liability is limited to the actual loss which is in fact proved. The happening of the event does not itself entitle the assured to payment of the sum stipulated in the policy; the event must in fact result in a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 the terms of the motor insurance policy, but is inherent in and springs from the principles of indemnity. This is as a matter of law relating to indemnity, and the basis of the right is justice, equity and good conscience, namely, the indemnifier should be in a position to reduce the extent of his liability within limits. 5.4.5. The hon ble High Court cited as authority Halsbury's Laws of England, Simonds Edn. which states in paragraph 512 that--"subrogation" is a right inherent in all contracts of indemnity, and further--"the doctrine of subrogation applies to all contracts of non-marine insurance which are contracts of indemnity, such, as, for example, contracts of fire insurance, motor vehicle insurance and contingency insurance covering non-payment of money. It applies whether the loss is total or partia....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icient 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 held that Sections 124 and 125 of the Indian Contract Act are not exhaustive of the law of indemnity and that the Courts here would apply the same equitable principles that the Courts in England do. Therefore, if the indemnified has incurred a liability and that liability is absolute, he is entitled to call upon the indemnifier to save him from that liability and to pay it off. 5.4.7. One of the essential ingredients of an Insurance contract is that the insured must have an insurable interest in the subject matter of the contract. Insurance without insurable interest would be a mere wager and as such unenforceable in the eyes of law. The subject matter of the Insurance contract may be a property, or an event that may create a liability but it is not the property or the potential liability which is insured but it is the p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he 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 performing their duty not only lost their limbs or lives but also were denied any medical aid and more often than not were simply removed from the job and lost their livelihood placing them and their families in great difficulty. By passing this act the liability of employer was fixed and he is now required by law to pay compensation to victims of accidents while on duty. The amount of compensation has been fixed in accordance with the extent of injury, disability and linked to the worker s salary and age on the date of accident. (b) Employee State Insurance Act 1948: The purpose behind this legislation was to provide medical aid to workers and their families working in industries located in certain notified areas. Under this act a part of the salary a small amount (at present 1.75%) is deducted from the workman s salary and s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 & marginal farmers which are shared by the Central and State Government. (iii) Hut Insurance Scheme: Introduced in 1988, for the benefit of very poor families (i.e. those whose annual income does not exceed Rs. 4,800/-p.a.). The scheme provides that in case of destruction of Hut due to fire, compensation of Rs. 1,000/ - for hut & Rs. 500/- for belongings shall be paid. The premium is borne by the Central Government. (iv) In addition, to the above schemes the Government has also introduced insurances at subsidized rates for farmers (cattle Insurance), for women (Raj Rajeshwari Mahila Kalyan Yojna), for the girl child (Bhagyashree child welfare policy) and Gramin Personal Accident policy etc. for the benefit of common people. 5.4.11. If we apply the above legal principles to the facts of the case in hand, there is no scintilla of doubt that depos....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 interpretation of an exemption notification as follows:- ....truly speaking liberal and strict construction of an exemption provision is to be invoked at different stages of interpreting it. When the question is whether a subject falls in the notification or in the exemption clause then it being in the nature of exception is to be construed strictly and against the subject but once ambiguity or doubt about applicability is lifted and the subject falls in the notification then full play should be given to it and it calls for a wider and liberal construction. Since the exemption is available to the taxable services rendered by RBI, the exemption clause has to be strictly interpreted to see as to whether DICGC will fall within the said exemption. Since DICGC is both legally and functionally distinct and different from RBI, it will not be eligible for the exemption ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....direct 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 legally sustained. Our view is supported by the decision of the hon ble Apex Court in Suchitra Components Ltd. v. Commissioner of Central Excise, Guntur, (supra) wherein it was categorically held that any revision which is against the assessee is effective prospectively and not retrospectively. Therefore, demand of service tax can be made from the assessee only with effect from 20-9-2011 and not from an earlier date and we hold accordingly. 5.6.2. The contention of the Revenue that the appellant did not get itself registered under the Service Tax law and did not provide information about the premium collected in spite of repeated reminders does not by itself establish the fact that they intended to evade service tax. The facts on record show that they sought exemption from service tax as early as 01/08/2008 and pursued the matter with the CBEC after their req....