TaxTMI 
TaxTMI 
2019 (2) TMI 957
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....ten are filed by respective assessee- Appellants and two are filed by the Revenue against respective orders in original passed by the concerned commissioners of central excise customs and service tax. All these appeals since involve common issues are taken up together for disposal. The amount of credit and penalty involved in each of the appeal is mentioned as below: Name of the Appellant & Appeal No. Period of Dispute Amount of credit involved Rs. Amount of Penalty in Rs. ICICI Bank Ltd. ST/86237/2015 June, 2012 to Dec., 2013 30,10,85,994/- 3,00,00,000/- Bank of Baroda ST/86142/2015 March, 2013 to Nov., 2013 38,88,52,482/- 3,00,00,000/- State Bank of India ST/86060/2015 April, 2012 to Dec., 2013 141,99,92,593/- 10,00,00,000/- Bank of India ST/86176/2015 Nov., 2012 to Dec., 2012 18,18,33,981/- 2,00,00,000/- Dena Bank ST/86221/2015 April, 2012 to Nov., 2013 10,90,91,460/- 5,00,00,000/- Dena Bank ST/87616/2015 May, 2014 to Nov., 2014 6,07,09,296/- 50,00,000/- IDBI Bank ST/86297/2015 Feb., 2013 12,81,91,842/- 1,00,00,000/- Union Bank ST/86393/2015 11.4.2012 to 27.11.2013 30,70,97,5....
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....be registered with the Deposit insurance and credit guarantee Corporation (DICGC), a subsidiary of Reserve Bank of India. The DICGC protects small depositors, in the event of failure of bank, by way of ensuring return of the deposits up to Rs. 100,000/- per depositor. Every bank in India is mandatorily required to insure its deposits through DICGC. During the relevant period from July 2012 to March 2014 the appellant ICICI Bank Ltd. have paid Rs. 4,869,765,276/- towards insurance premium to DICGC on which they paid service tax amounting to Rs. 70,49,47, 822/-and consequently avail credit of the said amount. 4. Referring to the definition of 'input service', the learned advocate for the appellant has submitted that the case of the Department mainly rests on three counts; (i) the insurance service is for the benefit of the depositors and not for the bank. DIGCC has not insured the Bank and thus the bank cannot be treated as an insured person; (ii) Deposit insurance premium is linked only to deposits accepted by banks and has no nexus with any other service provided by banks so it cannot be termed as 'input service' used for rendition of any output service.; (iii) The appellant did....
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....in it is held that 'used for' is wider than the phrase 'used in' and 'used for' would cover any of the goods if used for producing or bringing about any change in any substance for the manufacture of final product would be capital goods and thus qualify for input credit. Similarly the learned advocate has also referred to the judgement of this Tribunal in the case of Mundra Port & Special Economic Zone Ltd. Vs. CCE, Rajkot 2009 (13) STR 178 (Tri.-Ahmd.), whereunder the credit of duty paid on cement and steel used in construction of jetty were held to be not admissible but the said judgment was set aside by the Hon'ble Gujrat High Court reported at 2015 (39) STR 726 (Guj.). 7. The Ld. advocate has further submitted that insurance being a statutory obligation, the reserve Bank of India has power to cancel the license of the bank for non-compliance, thus, the service of DICGC is not only commercially expedient but also mandatory nature. It is submitted that deposit insurance, being a statutory obligation for bank, non-compliance with the same could impact the mobilization activity of the bank, without which the lending activity cannot be judiciously carried out. He has further subm....
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.... that the appellant has discharged service tax on various charges/incomes earned in the course of providing loans such as documentation services, loan processing service, delay payment charges etc.. Acceptance of deposits was in the normal course of banking business. The same has been explained in the judgement of Indian Bank Ltd., Madras Vs. Commissioner of Income Tax, Madras 1959 3 SCC (Madras HC). 11. The Ld. advocate assailing the observation that the insurance services were received by the depositor and not by the Bank, hence credit of the service tax paid on such premium not admissible, submitted that the Commissioner has travelled beyond the scope of the show cause notice as no such allegation was made thereunder. Secondly, the contractual relationship between the bank and the DICGC exists and not between the depositor and DICGC. 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 its debt/liability to the depositor, that is being insured with certain limit (Rs.1.00 lakh per depositor). DICGC is not even aware who is the depositor, what type of account ....
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....ther, he has submitted that there are various types of deposits, which are made by customers, namely, fixed deposit, saving account, current account etc. When the customer open an account and operates the said account, various charges like, issuance of Demand Draft, RTGS charges, Cheque Book issue charges, Debit-credit card issue charges etc. are collected by the Bank from the customers, which are chargeable to Service Tax. These charges are collected on supply of service made to the customers only when he opens the account for deposit. Therefore, the acceptance of deposit is not wholly exempted from Service Tax. 14. Further, he has submitted that as per Section 10 of the DICGC Act, 1961, every Bank is required to register with DICGC. It is a compulsory registration. Further, Section 15A of the said Act provides that the Corporation may cancel the registration of an insured bank, if it fails to pay the premium for three consecutive period. This default will ultimately lead to cancellation of License granted under section 22 of the Banking Regulation Act, 1949. Therefore, no output services can be provided unless the statutory requirement of insuring the deposit has been complied....
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....in the definition of input service particularly when the definition of the output service is read in conjunction with the definition of input service; (ii) Whether service is being received by the Bank or by the depositor. 19. Elaborating his argument, he has submitted that so far as scope of 'input service' for availing CENVAT Credit under the CENVAT Credit Rules is concerned, clause (eee) of sub-section (2) of Section 94 of the Finance Act, 1994 empowers the Central Government to frame Rules pertaining to "the credit of Service Tax paid on the services consumed or duty paid or deemed to have been paid on goods used for providing a taxable service". Thus, it is his contention that scope of the rules framed under Section 94(2)(eee) of Finance Act, 1994 is limited to the service consumed in providing taxable services. Further, referring to the definition of 'input service' prescribed under rule 2(l) of the CENVAT Credit Rules, 2004, the learned AR has submitted that between clause (i) and clause (ii) of said Rule, absence of phrase "in or in relation to" in clause (i) shows that the scope of input services for provider of output service is narrower, when compared to that applicab....
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....ubmitted that it is not correct in so far as deposit are solely transaction in money and are raised for providing loan, which is also a transaction in money not covered within the scope of Service Tax or excluded as per Section 66B being not a taxable service. He has further submitted that there are host of other services provided by the Banks, namely, safe deposit vault, issuance of DD against cash, issuance of cheque books for transferring money, providing Bank Guarantee etc. In all such cases, common input services namely, hiring of premises, security service, management, maintenance and repair service, on which credit would be available to the Banks. Further, in case of issuance of DD, cheque books etc., no Service Tax is leviable on the principal amount, tax is charged only on the fees levied by the Bank for issuance of these services. Thus, any transaction in money including making deposit, receiving deposits/extending loan cannot be treated as input or output service. 21. Further, he has submitted that DICGC provides insurance only to the depositor of the Bank and this was not for the benefit of the Bank or for protecting the interest of the Bank. It was meant for the ben....
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....o be avoided. He has submitted that interpretation advanced by the appellant that since they have already been allowed to avail credit by depositing 50% of the credit availed, therefore, the credit availed on Service Tax paid on insurance premium automatically admissible to them, is incorrect inasmuch as a person can avail credit of input service and not all services that were used in running the business. Accordingly, irrespective to the scope of Rule 6(3B), the credit of the Service Tax paid on insurance premium to DICGC by the Bank not admissible. The learned AR further submitted that the principles referred by the appellant laid down by the Hon'ble High Court of Gujarat in Mundra Ports & Special Economic Zone - 2015 (39) STR 726 (Guj) and the judgment of Hon'ble Andhra Pradesh High Court in the case of Sai Samhita Storage Ltd. - 2011 (23) STR 341 (AP) have already been considered by the jurisdictional Hon'ble Bombay High Court in the case of Bharat Airtel Ltd. Vs. CCE - 2014 (35) STR 865 (Bom). The Hon'ble High Court in para 27 of the judgment observed that the towers cannot be considered as an integral part in providing the telecom services. 23. Referring to....
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....definition, being a transaction in money. It is their further argument that once the activity of accepting deposit is not a service, consequently cannot come within the scope of "output service" as defined under Rule 2(p) of CENVAT Credit Rules, 2004. Hence, the definition of input service laid down at Rule 2(l) of the CENVAT Credit Rules, 2004 is also not satisfied. It is also contended that Section 94(eee) of the Finance Act, 1994, empowers to make rules in relation to the credit of service tax paid on the services consumed, accordingly, the input service definition cannot be interpreted to provide the meaning beyond the scope of rule making power. The revenue has also argued that Rule 6(3B) of CCR,2004 is applicable when the input service qualifies to be eligible to credit, It cannot be interpreted to mean that the said provision allows the appellant to avail credit on the activity which is not at all a 'service' least an input service. 28. To examine the rival contentions, analysis of relevant provisions needs to be carried out. However, before undertaking such an exercise, it is necessary to have a brief understanding of the historical growth of credit scheme of the duty/ta....
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....of finished goods or for providing taxable service would be eligible as credit to offset the liability of duty/tax payable on the manufacture of final products or taxable services rendered, as the case may be. 30. In the present case, the central point of dispute is admissibility of CENVAT Credit of the Service Tax paid on insurance premium by the appellant bankers to DICGC insuring the small investors which is mandatory under the DICGC Act, 1961. Payment of such Service Tax whether comes within the definition of 'input service' or otherwise is the question needs an answer. But, to make our task easier it is essential to restate the principle of interpretation applicable to a tax legislation. The Hon'ble Bombay High Court in the case of GREATSHIP (INDIA) LTD. Vs. COMMISSIONER OF SERVICE TAX, MUMBAI-I2015 (39) S.T.R. 754 (Bom.) observed as: "34. It would thus appear that it is settled position of law that in taxing statute, the Courts have to adhere to literal interpretation. At first instance, the Court is required to examine the language of the statute and make an attempt to derive its natural meaning. The Court interpreting the statute should not proceed to add the words wh....
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....ing, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal ; After 01.4.2012: (l) "input service" means any service, - (i) used by a provider of [output service] for providing an output service; or (ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal, and includes services used in relation to modernisation, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal; [but excludes], - [(A) service portion in the execution of a works contract and construction services including service list....
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....appreciate the true meaning and scope of the 'input service', which means any 'service', it is necessary to refer to the meaning of 'service', and the scope of negative list of services, as defined under Finance Act,1994; 'output service', 'exempted service' as defined under the Cenvat Credit Rules,2004. Sec. 65B(44) "service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include- (a) an activity which constitutes merely,- (i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of Article 366 of the Constitution, or (iii) a transaction in money or actionable claim; (b) a provision of service by an employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or tribunal established under any law for the time being in force. Section 66D Negative list of services: (a)........... (n) services by way of- (i) extending deposits, loans or advances in so far as t....
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....ng, also it is being mandatory to insure the small investors/depositors under the DICGC Act, 1961, therefore, insuring the deposits ought to be considered as an input service. 35. Considering the arguments vis-à-vis the statutory provisions and keeping in mind the concept of credit facility of the tax paid on services used for discharging Service Tax, it cannot be denied that all services/activities which are required for promoting or running the business cannot be considered as 'input service' ; the CENVAT Credit facility of the tax paid on such services, could be allowed only when it falls within the scope of the present definition of 'input service'. 36. Needless to mention, there are myriad activities/functions, the modern banks undertake to augment the banking business and it is not limited to the precincts of deposit and lending only. The money deposited in a locker, and the rent paid by the customer to the bank for such purpose, is a service provided by the Bank to the customer and the consideration in the form of rent is taxable; consequently, it is an output service for the Banks. While placing the extent to which the banking activities/operations be subjected....
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....t, 1994; secondly, this plea would have some basis under the definition of 'input service' as was in force prior to 01.4.2012, which, interalia in the inclusive portion contained the expression 'the activities relating to business". With the deletion of the said expression, all the activities which contribute to the commencement and continuation of the banking business may not be relevant for bringing the same within the fold of definition of 'input service' post amendment era. It is settled principle of interpretation that the specific 'words' or 'expression' used in the provision carries with it the intention of the legislature, therefore, its incorporation or deletion be given due importance in understanding the meaning of the provision. Thus, the deletion of the expression 'activities relating to business' post 01.4.2012 is with some significance and in that sense, the new amended provision has to be read and understood. Hence, the argument that to commence and continue the banking business, insuring the deposits of customers is mandatory, accordingly, the service tax paid on such insurance premium, become an input service, in our opinion could not be sustained under the amende....
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....uty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for- (a) the receipt, consumption and inventory of inputs used- (i) in or in relation to the manufacture of exempted goods; (ii) in or in relation to the manufacture of dutiable final products excluding exempted goods; (iii) for the provision of exempted services; (iv) for the provision of output services excluding exempted services; and (b) the receipt and use of input services- (i) In or in relation to the manufacture of exempted goods and their clearance upto the place of removal; (ii) In or in relation to the manufacture of dutiable final products, excluding exempted goods, and their clearance upto the place of removal; (iii) For the provision of exempted services; and (iv) For the provision of output services excluding exempted services, and shall take CENVAT credit only on inputs under sub-clauses (ii) and (iv) of clause (b).] [(3) Notwithstanding anything contained in sub-rules (1) and (2), The manufacture of goods or the provider of output ser....
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....es (1), (2) and (3), a banking company and a financial institution including a non-banking financial company, 3[engaged in providing services by way of extending deposits, loans or advances] shall pay for every month an amount equal to fifty per cent. of the CENVAT credit availed on inputs and input services in that month. ............................................................................................... 40. A plain reading of the aforesaid sub-rule (1) reveals that CENVAT Credit is not admissible of the service tax paid on inputs used in the manufacture of exempted goods or for providing exempted service. The subsequent sub-rule (2) prescribes that in the event common inputs are used both for taxable and exempted services, separate accounts for receipt and use of input service in the providing taxable and exempted service be maintained. The sub-rule (3) lays down the procedures, for the assessee who is unable or choose not to comply with the provisions of sub-rule (2), whereunder he can opt to reverse certain presumptive amount i.e. 6%, or reverse the amount as per the formula prescribed under Sub- Rule (3A) or avail credit only on the inputs or input services u....
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....1.4.2011 and also on introduction of negative list service tax regime from July 2012. Therefore, since the present issue relates to interpretation of law, and the demand notices have been issued for normal period, we do not find justification in imposing penalty on the appellants. 44. To sum up, the amount of service tax paid on the insurance premium relating to the deposits of customer to DICGC by the Appellant Banks cannot be considered as an "input service" accordingly, credit of the said amount is not admissible to the Appellants. The amount of 50% of the available credit in a month, required to be paid under Rule 6(3B) of CCR,2004 by the Appellants, cannot include the inadmissible credit of service tax paid on insurance premium paid to DICGC. Since the issue involved is a pure question of interpretation of law, no penalty is imposable on the appellants. Consequently, the impugned orders against which the appellants are in appeal are modified by setting aside penalties imposed and appeals are partly allowed to that extent. 45. As far as revenue's appeal are concerned, Appeal No. ST/86160/16 which is filed challenging the impugned Order on the issue of penalty, the same is....
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....bank for the activity of accepting deposits, the same cannot be considered as a service in terms of Section 65B(44). 47.4 If that be so, any service tax paid in relation to the premium for insuring interest of the depositors cannot be considered as an input service as defined under Rule 2 of the Cenvat Credit Rules, 2004. (The definition has been reproduced in para 30. 48. Further, Cenvat Credit Rules for the purpose of service tax has been made in terms of Section 94(eee) of the Finance Act, 1994. Any rules framed in terms of the said section need to be interpreted in terms of the said section and for purpose of carrying out the same section. Section 94(eee) of the Finance Act is as follows:- "the credit of service tax paid on the services consumed or duties paid or deemed to have been paid on goods used for providing a taxable service." A reading of the said section makes it clear that the Central Government could have made rules only in respect of allowing the credit of the service tax paid on services consumed for providing a taxable service. In case the service provided is not a taxable service, in that case the Central Government could have made any rules for allo....
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....with effect from May 14, 2015, by virtue of provisions of Section 67 itself, such reimbursable expenditure or cost would also form part of valuation of taxable services for charging service tax. Though, it was not argued by the learned counsel for the Department that Section 67 is a declaratory provision, nor could it be argued so, as we find that this is a substantive change brought about with the amendment to Section 67 and, therefore, has to be prospective in nature. On this aspect of the matter, we may usefully refer to the Constitution Bench judgment in the case of Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Private Limited8 wherein it was observed as under: "27. A legislation, be it a statutory Act or a statutory rule or a statutory notification, may physically consists of word sprinted on papers. However, conceptually it is a great deal more than an ordinary prose. There is a special peculiarity in the mode of verbal communication by a legislation. A legislation is not just a series of statements, such as one finds in a work of fiction/non-fiction or even in a judgment of a court of law. There is a technique required to draft a legislation as well....
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....few judgments containing this dicta, a little later."" 50. Rule 3 of the Cenvat Credit Rules provides that credit of taxes paid on input services can be allowed only if it is used for providing an output service. In case there is no output service which is taxable or is falling under the category of exempted services or fall outside the definition of the service itself, CENVAT credit is not taxable except in a situation when the same common input service is being used for providing both taxable and non-taxable output service. In the present case the service tax paid for which credit is sought is in respect of the services which,- • firstly, do not fall within the definition of service. • Secondly, if they fall within the definition of service, then they are excluded by virtue of negative list prescribed under Section 66D, hence get excluded from the scheme of output service. If deposits do not fall within the category of output service, CENVAT credit in respect of services that go exclusively for taking such deposits is not admissible. There can be certain services such as renting of immovable property, I.T. services which are used as common input se....