TaxTMI 
TaxTMI 
2020 (11) TMI 120
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....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 OIO No. CAL-EXCUS-000- COM-018-16-17 dated 30/01/2017 5,55,96,022/- 2,77,98,011/- 55,59,602/- 6. ST 20198 o....
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....ee 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 where the cenvat credit on insurance service is denied to the banks, the banks are in appeal and where the Department has dropped the demand of service tax, interest or penalty, the Department is in appeal as shown in the table above. 4. We have heard the learned counsel for ....
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....n 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 deposits for lending. In such circumstances, the raising of deposits is an important function of the banks. In other words, the acceptance of deposits is not only a pre-requisite for lending but is also necessary for the banks since the entire activity undertaken by the bank begins with the accept....
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....ny 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 their deposits will not have the cover of insurance. Thus, if the interest of the depositors is not sufficiently protected then under the third requirement the licence of the bank can also be cancelled by the Reserve Bank of India. 50. It cannot, therefore, be doubted that the insurance service received by the banks from the Deposit Insurance Cor....
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....n 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 service tax on any amount of interest earned on extending of deposits. It is, therefore, not possible to accept the contention of the Department that "accepting" of deposits is covered under section 66D(n) of the Finance Act. 55. The Assessable deposits, on which the premium is calculated, not only includes deposits such as savings, fixed, current, recurring, etc., but also c....
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..... 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 Court was whether an assessee can avail CENVAT credit of service tax paid on reinsurance services by treating the said service as an "input service". PNB Metlife India Insurance Company was carrying on life insurance business and on the insurance policy issued by it, service tax was charged from the customers. It also procured re-insurance service from overseas insurance companies and availed CENVAT credit o....
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.... 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 may further add that the Service Tax is levied for certain service rendered and the provision of giving the Cenvat credit is so that there may not be double taxation. If a person has collected service tax, no doubt the same has to be deposited, but if in the process of the same transaction he has paid some service tax, which is necessary for its business, then he is entitled to the Cenvat credit to the extent of servic....