TaxTMI 
TaxTMI 
2020 (10) TMI 578
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....al benefit association within a group for the very same eventuality and now boasts of such gargantuan proportion as to subsume the several anonymous beneficiaries may offer insights that could be of assistance in deciding these appeals. To the public large, it is, probably, the tenacity of the agent who persuasively bags a policy. To the agent, it may be the promise of a steady life-long income. To those in the business of setting money to work, it would be the enormous annual inflows. To the taxman, it appears to be the premium contributed by the policy holder. However, as in the famous poem of John Godfrey Saxe, in which 'each was partly in the right, and all were in the wrong!', the elephant in the room remains glaringly unnoticed. Essentially, a life insurance policy is financial instrument that represents the individual contribution to a pool of such mammoth proportions in which the certainty of ultimate extinction of the individual is eclipsed by the probability of perpetual existence of the whole. Implicitly, the pooled fund is mobilized for keeping the premium within reach of sufficiently large number of individuals. The 'life insurance' companies, by this very expertise in....
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....es' within the meaning of rule 2 of CENVAT Credit Rules, 2004 with attendant implications. 5. In the show cause notice, the proposal for recovery was based on the data furnished by M/s Birla Sun Life Insurance Co Ltd to the effect that the tax liabilities had not been discharged on Rs. 5,32,71,853, Rs. 2,34,29,816, Rs. 8,79,73,185, Rs. 10,07,91,72,713 and Rs. 71,48,93,646 of the amount received as premium for 2008-09, 2009-10 (till 30th June), for the rest of 2009-10, 2010-11 and 2011-12 respectively and fastened with liability of Rs. 17,38,12,097 under rule 14 of CENVAT Credit Rules, 2004 read with proviso to section 73(1) of Finance Act, 1994, along with interest thereon under section 75 of Finance Act, 1994, and penalty of like amount under rule 15 of CENVAT Credit Rules, 2004 while dropping demand of another Rs. 80,88,53,089 proposed in the show cause notice. In like manner, the grievance of M/s HDFC Standard Life Insurance Co Ltd is the confirmation of liability of Rs. 13,06,61,840 under section 73 of Finance Act, 1994, along with interest thereon under section 75 of Finance Act, 1994, and penalty of like amount under section 78 of Finance Act, 1994 while dropping demand of....
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....is context, it would not be inappropriate to visit the provisions of CENVAT Credit Rules, 2004 that were drawn upon, viz., Rule 6. Obligation of manufacturer of dutiable and exempted goods and provider of taxable and exempted services.- (1) The CENVAT credit shall not be allowed on such quantity of input or input service which is used in the manufacture of exempted goods or for provision of exempted services, except in the circumstances mentioned in sub-rule (2). Provided that the CENVAT credit on inputs shall not be denied to job worker referred to in rule 12AA of the Central Excise Rules, 2002, on the ground that the said inputs are used in the manufacture of goods cleared without payment of duty under the provisions of that rule. (2) Where a manufacturer or provider of output service avails of CENVAT credit in respect of any inputs or input services, and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for receipt, consumption and inventory of input and input service me....
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.... month except for the month of March, when such payment shall be made on or before the 31st day of the month of March. Explanation III.- If the manufacturer of goods or the provider of output service fails to pay the amount payable under sub-rule (3) or as the case may be sub-rule (3A), it shall be recovered, in the manner as provided in rule 14, for recovery of CENVAT credit wrongly taken. (4) No CENVAT credit shall be allowed on capital goods which are used exclusively in the manufacture of exempted goods or in providing exempted services, other than the final products which are exempt from the whole of the duty of excise leviable thereon under any notification where exemption is granted based upon the value or quantity of clearances made in a financial year. (5) Notwithstanding anything contained in sub-rules (1), (2) and (3), credit of the whole of service tax paid on taxable service as specified in sub-clause (g), (p), (q), (r), (v), (w), (za), (zm), (zp), (zy), (zzd), (zzg), (zzh), (zzi), (zzk), (zzq) and (zzr) of clause (105) of section 65 of the Finance Act shall be allowed unless such service is used exclusively in or in relation to the manufactu....
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....) if the option of proportionate reversal of credit is more advantageous to the provider of taxable service. As the segregation of 'taxable service' and 'exempted service' is the critical factor in the impugned order, the definitions of the two are pertinent. The latter is relevant only in the context of availment of credit and, accordingly, in rule 2 of CENVAT Credit Rules, 2004 means '(e) ..... taxable services which are exempt from the whole of the service tax leviable thereon and includes services on which no service tax is leviable under section 66 of the Finance Act.' In the light of submissions made on behalf of the appellants that the portion of the premium on which tax has not been paid is not consideration for 'exempted services', as defined, we do not, unless requited to, propose to delve into the issue of the adjudicating authority having appropriated the exercise of the option available in rule 6 of CENVAT Credit Rules, 2004. 10. Considering the amount involved in the disputes and the rigidity of adversarial stances adopted by either side, the profusion and verbosity of arguments as well as the citation of several judgements in support of nuances postula....
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....d age - leaves no room for doubt that the activity is not amenable to segregation as separate contracts. It was further argued that though the new levy, brought about by the incorporation of section 65(105)(zzzzf) in Finance Act, 1994, did tax a further portion of the premium, it is clear from the Explanation that 'management of segregated fund' of unit linked insurance business could be so subject only by legislatively deeming it within the scope of 'in relation to management of investment under unit linked insurance business' implying that the legal fiction cannot be stretched to assert the existence of such 'deemed service' prior to 15th May 2008. It was also contended that the computation of value of 'exempted service' by reverse deduction includes the amount invested in accordance with the regulations issued by the Insurance Regulation & Development Authority. 14. Our attention is also drawn to the decisions of the Tribunal in Reliance Life Insurance Co Ltd v. Commissioner of Service Tax, Mumbai [2017-TIOL-3839-CESTAT-MUM] and in Sahara India Life Insurance Co Ltd v. Commissioner of Central Excise & Service Tax, Lucknow [final order no. 70810/2018 dated 22 February 2018] an....
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....therein, to contend that the proposed tax was intended to cover the fees charged for management of the segregated fund which, being an essential component of the 'unit linked insurance policy', was, till then, an exempted service. Drawing attention to the opinion of the Tribunal in re Reliance Life Insurance Company Ltd that '5...... However we are of the view that in terms of explanation to Rule 2 (e) of CCR, 2004 the services on which no service tax is payable is to be considered as "exempted service" and the credit of input or input services is not available to the service provider...' he contends that the law so settled should not be disturbed. We must here state that, in our view, the context in which that observation was made therein does not validate it as a precedent for resolving the present dispute: the scheme under consideration was 'Traditional Golden Year Plan' which did not offer 'risk cover' and remained entirely out of the tax net. Pointing out that circular no. 354/9/2011-TRU dated 12th July 2011 of Central Board of Excise & Customs (CBEC) has clearly addressed the scope of the composition scheme in rule 6(7A) of Service Tax Rules, 1994, he submits that....
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....to any of the enumerations in section 65 (105) of Finance Act, 1994. It is palpably clear that such an 'exempted service' must be a 'taxable service' first. Recourse has not been had by the tax authorities to this aspect of 'exempted service' in the proceedings initiated against the appellants. The second leg, comprising the inclusive aspect, is intended to encompass 'services' that, even without recourse to section 93 of Finance Act, 1994, are not leviable to tax within its fold. It is interesting to note that, just this once, is the expression 'service, found in Finance Act, 1994, and the attendant rules, without the crutch of 'taxable' to support it and devoid of any meaning assigned to it. That Finance Act, 1994 does not is understandable as the taxing provision can be enforced, in the classificatory regime, without having to define 'service' for undertaking enumeration of 'taxable service' in section 65 therein. 19. It is not within the sphere of subordinate legislation to expand the scope of a concept that is non-existent in the parent statute. In like manner, an interpretation of subordinate legislation should not venture where the notified Rules have not forayed. It is c....
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....ed therein. Indeed, contingent, as it is, on the unveiling, by incorporation in section 65(105) of Finance Act, 1994, of an unrevealed service, rationally acceptable time frame for neutralization does not exist. And for a statutory mechanism in which 'time', owing to limitation on recovery and mandatory interest, is no less crucial a factor than 'taxability', enforcement of rule 6 of CENVAT Credit Rules, 2004 on such contingency is not legislative intent. Invoking of section 73 for recovery is restricted only to such consideration that was legally subject to tax for the period of dispute and retrospective taxability, or non-taxability, as in this case, is not contemplated therein. Hence, we can reasonably deduce that legislative intent of the inclusive aspect of 'exempted service' did not contemplate subsequent incorporation as the test of exemption. Nevertheless, we must travel on to ascertain the legislative intent. 21. There are certain activities that may well be beyond the competence of the Union to tax and, thereby, beyond contemplation for inclusion in section 65(105) of Finance Act, 1994. 'Trading' is one which comes to mind immediately and yet another is 'works contract....
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.... service within, and assigning a value to it, was not intended to cover a new service. Both were extractions from the expenditures incurred by the insurer in relation to the policy. 24. These were considered and disposed off by the Tribunal in SBI Life Insurance Company Ltd v. Commissioner of Central Excise, Mumbai-II [final order no. A/87354/2019 dated 18th December 2019 in appeal no. ST/85961/2019] wherein the issue in question was discussed thus '6... According to the impugned order, the appellant herein was excluded from levy of tax on 'management of investment' of funds placed by the policyholder under the 'unit linked insurance policy' and on some portion of the premium paid by the holder of 'endowment' till the whole of it was made taxable and which constituted consideration for the handling of investments to enable committed returns to the policyholder. This, according to the adjudicating authority, made the appellant to be a provider of 'exempted services', defined as xxxx in rule 2 of CENVAT Credit Rules, 2004 and, which being covered by exclusion in rule 6 therein, as xxxxx required appellant to be fastened with the liability and detri....
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....inistration charges are collected and Service Tax paid.......' leading to the inevitable conclusion that invested portion of the premium does not represent a service. 14. Though it is submitted by Revenue, in relation to the demand for the period from 1st April 2008 to 15th May 2008 on non-taxability of a portion of the premium paid on 'unit linked insurance policy', we cannot but take note that the provider and recipient in section 65(105)(zx) and section 65(105)(zzzzf) of Finance Act, 1994 remain the same and, that but for the exemption notification no. 9/2002-ST dated 1st August 2002, the whole of the premium would have been liable to tax under the former; even the subsequent amendment in 2004, by which 'risk cover' was subjected to tax, cannot erase the essential integrity of the product offered in the course of 'life insurance business' to extract a new service. Life insurance policies with limited risk cover may not have much appeal for the Indian consumer and the prospect of a return of contribution, packaged as premium and comprehended as premium by the policy holder, impacts upon the marketability of the products. It is, therefore, intrinsic to life insur....