TaxTMI 
TaxTMI 
2020 (11) TMI 120
X X X X Extracts X X X X
X X X X Extracts X X X X
.... PER: BENCH Appellant banks as well as the Department have filed these appeals directed against various impugned orders passed by the Commissioner of Service Tax. The issue involved in all these appeals is identical and hence all these appeals are taken up together for the purpose of discussion and disposal. The details of appeals are as under:- Sl. No. Appeal No. Party Name OIA / OIO Service Tax (Rs.) Penalty (Rs.) 1. ST 20747 of 2015 M/s. South Indian Bank v/s. CC, CE, & ST, Calicut OIO No. CAL-EXCUS-000- COM-0022-14-15 dated 31/12/2014 10,42,22,371/- 73,19,138/- 1,00,000/- 73,19,138/- 2. ST 22214 of 2015 Bank of Baroda v/s. CCT, Bangalore North OIO No. BLR-LTUNT-000- COM-033-2015 dated 27/07/2015 4,83,21,881/- /- 1,00,00,000/- 3. ST 21027 of 2015 CC, CE, & ST, Calicut V/s. M/s. South Indian Bank OIO No. CAL-EXCUS-000- COM-0022-14-15 dated 31/12/2014 10,42,22,371 9,69,03,233/- 4. ST 20548 of 2017 C.C., C.E. & S.TCalicut v/s. M/s. South Indian Bank OIO No. CAL-EXCUS-000- COM-018-16-17 dated 30/01/2017 - - 5. ST 20635 of 2017 South Indian Bank Ltd v/s. CC, CE, & ST, Calicut OI....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ceived by the banks from the Deposit Insurance and Credit Guarantee Corporation. Initially there was a Difference of Opinion between two Benches of the Tribunal regarding to the fact as to whether the insurance service rendered by the Deposit Insurance and Credit Guarantee Corporation is covered by the definition of "Input Service" or not. To resolve the said issue, a reference was made to the Larger Bench of the Tribunal and the Hon'ble Larger Bench, after considering the submissions of both the parties and after examining the statutory provisions of Cenvat Credit Rules, 2004 and also various decisions relied upon by both the parties, vide its Interim Order Nos.13-31/2020 dt. 20/03/2020 answered the said reference by holding that insurance service provided by Deposit Insurance and Credit Guarantee Corporation to the banks is an "input service" and cenvat credit of service tax paid for this service received by the banks from the Deposit Insurance and Credit Guarantee Corporation can be availed by the banks for rendering output service. 3. After the decision of the Larger Bench, these appeals have been listed before this Bench for final disposal. It is pertinent to note that wher....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tax, the insurance service rendered by the Insurance Corporation to the banks cannot be considered as an "input service". 44. The basic activity of a banking company, as contemplated under the definition of "banking", either under the Deposit Insurance Act or the Banking Regulation Act, is to accept deposits from the public, which deposits are used for the purpose of lending or investment by the banks. Thus, the main activity of a banking company is to mobilise the resources received by the banks in the form of deposits from the public for the purpose of lending or investment. These deposits, thus generate returns for the banks. A part of the returns is given by the banks to the depositors as a consideration, which consideration is normally in the form of interest. 45. What also needs to be noticed is that the lending and investment portfolio of banks are required to be funded by deposits and the funds of the shareholders. The Credit Deposit ratio is the percentage of how much the banks lend out of the deposits they have mobilised and also indicates how much of the core funds of the banks are being utilised for lending. A higher ratio indicates more reliance on de....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hen the bank ceases to carry on banking business in India. This implies that banks must accept deposits for the purpose of lending and for the purpose of accepting deposits, the banks have to obtain registration with the Deposit Insurance Corporation and, therefore, pay premium for the insurance. It, therefore, follows that if a banking company fails to pay the premium amount to the Deposit Insurance Corporation, it would not be able to retain its registration with the Deposit Insurance Corporation, which may ultimately also lead to the cancellation of the licence granted to the banking company by the Reserve Bank of India under section 22 of the Banking Regulation Act. 49. The third condition under which the Reserve Bank of India can cancel the licence of the banking company is when the Reserve Bank of India comes to a conclusion that the interest of the depositors is being prejudiced by a banking company. The interest of depositors is protected by the Deposit Insurance Corporation and in case premium is not paid by the banks for insuring the deposits, the registration with the Deposit Insurance Corporation can be cancelled and so would the interest of the depositors as t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... extending deposits would mean the activity of accepting deposits. The activity of accepting deposits would be an activity where the banks receive deposits from the customers in the form of savings account, recurring deposits, for which the banks pay interest to the customers. On the other hand, the extending of deposits would be an activity of a bank giving its surplus money in the form of deposit to another person, where the consideration received would be in the form of interest. This would be a case where in the course of banking activities, one bank makes a deposit with another bank for which it receives consideration in the form of interest. It is this consideration received by the banks in the form of interest which has been specified under section 66D (n) of the Finance Act in the negative list of services. Thus, in case of accepting deposits, the banks have to pay interest to the customers, whereas while extending deposits, the banks receive interest from other banks. It is for this reason that inter-bank deposits are not included in the returns filed by the banks with the Deposit Insurance Corporation for calculating the premium payable. The banks cannot avail credit of s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ule (3B) has, therefore, been introduced with a view to disallow the credit of input and input services attributable to interest/investment income earned by banking companies. Having regard to the fact that it is difficult to ascertain the actual amount of input and input services used in earning interest income, sub-rule (3B) provides for reversal of 50% of input and input services. 57. Thus, the reversal has been made, banks are entitled for credit of the entire amount of service tax paid on input service having nexus with the provisions of output service and it is irrelevant as to which part of the input service is used for provision of taxable output service and which part has been used for provisions of exempted service. Having made reversal under rule 6(3B), the banks have duly complied with the 2004 Rules and hence they are entitled to avail CENVAT credit on the insurance service received from the Deposit Insurance Corporation. 58. It would now be useful to examine decisions on this issue. 59. In Commissioner of Central Excise, Bangalore vs. PNB Metlife India Insurance Co. Ltd16 , the issue that came up for consideration before the Karnataka High C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....policy from another company (which is a statutory requirement) is an integral part of the total process. The process of insurance does not come to an end merely on the issuance of the Insurance Policy by the Insurer. In fact, it continues till the existence of the term of the policy. The re-insurance is taken by the Insurer immediately after the insurance policy is issued, as is required under Section 101A of the Insurance Act, 1938. Since re-insurance is a statutory obligation, and the same is coterminus with the Insurance policy issued by the respondent, we are of the opinion that the stand taken by the Tribunal is correct that the transfer of a portion of the risk ox the reinsurance has to be considered as having nexus with the output service, since the reinsurance is a statutory obligation and the same is coterminus with the Insurance Policy. We only reiterate that the issuance of insurance policy by insurer, and then taking of reinsurance by it, is a continuous process, and in the facts of the present case, it cannot be said that the same would not be an 'input service' eligible for Cenvat credit within the meaning of Rule 2(l) of the Cenvat Credit Rules, 2004. 7. We ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nal in Shriram Life Insurance Company Ltd. vs. Commissioner of Customs, Central Excise and Service Tax, Hyderabad17 also needs to be referred to. The appellant provided life insurance services for which it had to statutorily invest the premiums collected in approved securities. The issue that arose before the Tribunal was whether such investments in securities can be considered as an exempted service as a result of which CENVAT credit was required to be reversed under rule 6 of the 2004 Rules. The Tribunal found that the activity undertaken by the Appellant of issuing unit linked policy or any instrument was covered under life insurance business and the Insurance Act made it obligatory for an insurance company to make investments. Any insurance company which did not comply with this requirement could be disqualified from undertaking insurance business. Thus, the investment activity undertaken by the Appellant was held to be an integral part of life insurance service. The Tribunal also found that since the service rendered by the Appellant was a taxable service, it could not be said that the Appellant was rendering an exempted service. The Appellant was, therefore, held entitled to ....