TaxTMI 
TaxTMI 
2024 (4) TMI 1149
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....arger Bench of the Tribunal comprising three Members in South Indian Bank vs. Commissioner of Customs, C. Ex. & ST, Calicut [2020 (41) G.S.T.L. 609 (Tri.-LB)] and by order dated 02.11.2020 referred the matter to the President of the Tribunal for constituting a Larger Bench of the Tribunal to decide: "a. Whether the interpretation of the legal provisions contained in Section 65 and 66 of the Finance Act, 1994 made in the decision of the CESTAT, in case of South India Bank, satisfy to the test laid down by the five member bench of Hon'ble Supreme Court in case of Dilip Kumar and Co, referred above. b. Whether the CENVAT credit of the Service Tax paid on the services availed to fulfill a statutory obligation, should be admissible even if the services availed do not otherwise qualify to be input services as defined under rule 2(k) of the CENVAT Credit Rules, 2004 as amended. c. Whether Rule 6(3B), of the CENVAT Credit Rules, 2004, is an authority for the banks to claim the credit in respect of all the services without establishing that the services under consideration are the common input services for providing the exempted and taxable services." 2. Though....
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....he credit, but subsequently a Division Bench of the Tribunal at Mumbai without considering the aforesaid decision of the Principal Bench took a contrary view. The Larger Bench answered the reference holding that the insurance service provided by the Deposit Insurance 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 Corporation can be availed by the banks for rendering "output services". 6. To support the view that two Members of the Tribunal could refer the matter to the President of the Tribunal for constituting a Larger Bench of the Tribunal consisting of five Members, the Division Bench placed reliance on a judgment of the Supreme Court in Union of India vs. Paras Laminates (P) Ltd. [1990 (49) E.L.T. 322 (S.C.)] rendered on 17.08.1990 by two Hon'ble Judges and also on the decision rendered on 18.07.2000 by a Larger Bench of the Tribunal consisting of five Members in Commissioner of C. Ex., Vadodara vs. Asia Brown Boveri Ltd. [2000 (120) E.L.T. 228 (Tri.-Del.)]. 7. In Paras Laminates, the Supreme Court observed as follows: "9. It is true that a Bench of two members....
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....h of the Supreme Court observed as follows: "1. The order of reference to a Constitution Bench is dated 13.01.1998. Two learned judges of this Court have doubted the correctness of the scope attributed to Section 10 of the Contract Labour (Regulation and Abolition) Act, 1970 in the Constitution Bench judgment in Gammon (India) Ltd. v. Union of India, [1974] 3 SCR 665. This is how the matter comes before us. 2. We are of the view that a decision of a Constitution Bench of this Court binds a bench of two learned judges of this Court and that judicial discipline obliges them to follow it, regardless of their doubts about its correctness. At the most, they could have ordered that the matter be heard by a Bench of three learned judges. 3. Accordingly, this matter shall now be heard and decided by a Bench of two learned judges." (emphasis supplied) 11. In Pradip Chandra Parija, the Constitution Bench of the Supreme Court held: "2. The question is whether two learned Judges of this Court can disagree with a judgment of three learned Judges of this Court and whether, for that reason, they can refer the matter before them directly to a Bench of five....
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....learned Judges. But if a Bench of two learned judges concludes that an earlier Judgment of three learned Judges is so very incorrect that in no circumstances can it be followed, the proper course for it to adopt is, to refer the matter before it to a Bench of three Learned Judges setting out the reasons why it could not agree with the earlier judgment and then the Bench of three learned judges also comes to the conclusion that the earlier judgment of a Bench of three learned Judges is incorrect, then a reference could be made to a Bench of five learned Judges. In view of the aforesaid Constitution Bench decision, the very reference itself made by the two learned judges was improper and we would have sent the matters to a Bench of three learned judges for consideration. *****" (emphasis supplied) 13. It clearly follows from the aforesaid three Constitution Bench judgments of the Supreme Court, each rendered by five Hon'ble Judges, that judicial discipline and propriety demands that a Bench of two Members of the Tribunal should follow the decision of a Bench of three Members of the Tribunal, but if a Bench of two Members concludes that the earlier decision of three Members is s....
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....nt of the Supreme Court in Commissioner of Cus. (Import), Mumbai vs. Dilip Kumar & Company [2018 (361) E.L.T. 577 (S.C.)] to conclude that non-consideration of the principles laid down by the Supreme Court in Dilip Kumar would require examination of the issues by a Larger Bench of the Tribunal consisting of five Members, but a perusal of paragraphs 1 and 2 of the judgment of the Supreme Court in Dilip Kumar would leave no manner of doubt that not only would the said judgment not be applicable to the facts of the present case, but also that the Division Bench could not have directly referred the three issues to be decided by a Larger Bench of five Members of the Tribunal. 18. The first two paragraphs of the judgment of the Constitution Bench of the Supreme Court in Dilip Kumar are, therefore, reproduced below: "This Constitution Bench is setup to examine the correctness of the ratio in Sun Export Corporation, Bombay v. Collector of Customs, Bombay, (1997) 6 SCC 564 = 1997 (93) E.L.T. 641 (S.C.) [hereinafter referred as "Sun Export case" for brevity], namely the question is - What is the interpretative rule to be applied while interpreting a tax exemption provision / noti....
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.... is, therefore, in the teeth of the procedure laid down by the aforesaid three constitution Bench judgments of the Supreme Court and is also not in conformity with the procedure that was followed by the Supreme Court in Dilip Kumar, on which reliance was placed by the Division Bench in the reference order. (ii) Whether there is a requirement to refer the decision of the Larger Bench of the Tribunal of three Members in South Indian Bank to a Larger Bench of five Members 21. This Larger Bench has to decide whether the decision of the Larger Bench of the Tribunal in South Indian Bank is so incorrect that it requires a reference to a Bench of five Members of the Tribunal. 22. To examine this, it would be necessary to first examine the relevant facts. 23. The appellants herein are banking companies as defined under section 5(c) of the Banking Regulation Act, 1949. The Deposit Insurance Corporation is a subsidiary of the Reserve Bank of India and has been established under the Deposit Insurance and Credit Guarantee Corporation Act, 1961 for the purpose of insuring deposit and guarantee credit facilities. The Deposit Insurance Corporation transacts business of insuring the ....
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.... State Bank of Bikaner was not considered by the Division Bench of the Tribunal at Mumbai in ICICI Bank. 26. It will, therefore, be appropriate at this stage to refer to the divergent views expressed by the Division Benches of the Tribunal on the issue involved in these appeals. 27. In State Bank of Bikaner that was decided on 11.01.2019, the Principal Bench of the Tribunal held that banks would be justified in availing credit of service tax paid as such a service would be an "input service" and the relevant observations are as follows: "3. Ld. Counsel appearing on behalf of the appellant submits that insurance of deposits is essential for them to secure the money retain by them and also there is a statutory provisions for the same under DICGC, wherein they have to mandatorily ensure the deposits lying with them. Therefore, insurance is essential and they have paid the service tax on that insurance premium. In the circumstances, they are liable to availed Cenvat Credit on such services. In support of their claim reliance was placed on the decision of DGB Bank Ltd. v. CCE, Commissioner of Service Tax-I, Mumbai [2017 (6) G.S.T.L. 479 (Tri. - Mum.)] and Final Order No. ....
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....ion Bench are as follows : "38. The contention of the Advocates for the appellants that since lending is the core banking business and without accepting the deposit, lending business by the Bank since not possible, therefore, the activity of accepting deposit be considered as provision of service for the core business of the banking. Also, the argument of the appellants is that compliance of the provisions of DICGC Act, 1961 as per the RBI guidelines is mandatory and to commence and continue the business of banking, therefore, it is an input service used for providing output service. Both these arguments would not also hold good, firstly, in view of the above analysis that deposit by customers does not involve any service by the bank to the customer, and interest against loans or advances covered under the provisions of Section 66D of the Finance Act, 1994; secondly, this plea would have some basis under the definition of 'input service' as was in force prior to 1-4-2012, which, inter alia 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 comm....
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....nd hence cannot be considered as binding precedent." (emphasis supplied) 33. A Larger Bench of this Tribunal was, therefore, constituted to resolve whether the banks can avail CENVAT credit of service tax paid by the banks for the service provided by the Deposit Insurance Corporation, as conflicting views had been expressed by Division Benches of the Tribunal. 34. The Larger Bench of the Tribunal in South Indian Bank, examined at length the provisions of the Finance Act, the CENVAT Rules, the Deposit Insurance Act and the Regulations as also the factual position and observed as follows: "50. It cannot, therefore, be doubted that the insurance service received by the banks from the Deposit Insurance Corporation is not only mandatory but is also commercially expedient. In fact, without this service the banks may not be able to function at all. 51. Premium is paid by the banks to the Deposit Insurance Corporation for providing the insurance service for which the banks pay service tax. It is this service tax paid by the banks on the insurance service received by the banks from the Deposit Insurance Corporation that is the bone of contention between the partie....
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....ance 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. ***** 56. It has also been submitted by Learned Counsel appearing for banks that even if it is assumed that some part of the deposit is not used for providing "output service", then too the banks are still entitled for the credit availed on the insurance service provided by the Deposit Insurance Corporation as the banks have reversed 50% of the total Cenvat credit taken in terms of Rule 6(3B) of the 2004 Rules. ***** This sub-rule (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, subrule (3B) provides for reversal of 50% of input and input services. 57. Thus, the reversal has been made, banks....
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....g output service, namely, insurance and whether Cenvat Credit taken on re-insurance service is admissible. Hon'ble High Court held that re-insurance is a statutory obligation and the same is co-terminus with the insurance policy. Issuance of insurance policy by insurer, and then taking of reinsurance by it, is a continuous process. Re-insurance is, therefore, an input service." 61. In the present appeals also, in order to render any output service under the category of "banking and other financial services", it is necessary for a bank to register itself with the Deposit Insurance Corporation and pay premium after registration. A bank, without obtaining registration and without payment of insurance premium on the deposits outstanding, cannot render any "output service" of "banking and other financial service"." (emphasis supplied) 36. The Larger Bench of the Tribunal thereafter answered the reference in South Indian Bank in the following terms: "65. The reference is, accordingly, answered in the following terms : "The insurance service provided by the Deposit Insurance Corporation to the banks is an "input service" and Cenvat credit of service tax pa....
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....aced by the depositor while making the deposits with the bank and not the risk which bank or banking business incurs." (emphasis supplied) 37. After referring to various paragraphs of the judgment of the Karnataka High Court in PNB Metlife, the Division Bench held that it would not be applicable as it was rendered prior to the judgment of the Supreme Court in Dilip Kumar. The observations are: "4.6 The larger bench has while deciding the case of South India Bank relied heavily on the decision of the Karnataka High Court, in case of PNB Metlife Insurance. ***** ***** 4.7 From the facts, as narrated in the case of reinsurance the insurance company was mitigating its risk by seeking the insurance from the certain other foreign based insurance company. To mitigate such risk they took the insurance cover from the foreign based company, and paid the premium for obtaining such an insurance cover. The service tax paid against such insurance scheme cannot be equated with the scheme as envisaged under the Deposit Insurance Scheme, because in that case what was mitigated was the risk of the insurance company and not the insured person. Definitely for the....
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.... application to the facts of the present appeals. 41. It needs to be noted, and it is also clear from paragraph 1 of the judgment of the Supreme Court in Dilip Kumar, that the Constitution Bench was set up to decide what interpretative rule should be applied while interpreting a tax exemption provision or a notification when there is an ambiguity as to its applicability with reference to the entitlement of the assessee or the rate of tax to be applied. Paragraph 28 points out the core issue that was required to be examined and paragraph 41 answers the core issue. The Bench held that every taxing statute, including charging, computation and exemption clause "at the threshold stage" should be interpreted strictly, but in case of ambiguity in a charging provision, the benefit must necessarily go in favour of the assessee. However, in the case of an exemption notification, the benefit of ambiguity must be strictly interpreted in favour of the Revenue. Paragraphs 28 and 41 of the judgment of the Supreme Court in Dilip Kumar are reproduced below: "28. With the above understanding the stage is now set to consider the core issue. In the event of ambiguity in an exemption notifi....
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....certain circumstances, it cannot be expanded/interpreted to include those, which were not intended by the Legislature." (emphasis supplied) 43. The Supreme Court also pointed out that when words in the statute are clear, plain and unambiguous and only one meaning can be inferred, the Courts are bound to give effect to the said meaning irrespective of the consequences. 44. The reference was ultimately answered by the Supreme Court in the following manner: "52. To sum up, we answer the reference holding as under - (1) Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. (2) When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue. (3) The ratio in Sun Export case (supra) is not correct and all the decisions which took similar view as in Sun Export case (supra) stands overruled." 45. In the present appeals, the issue th....
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....(50) G.S.T.L. 437 (Tri. - Chennai)] correctly appreciated that the decision of the Supreme Court in Dilip Kumar would have no relevance to the controversy involved in South Indian Bank and the relevant paragraph of this decision is reproduced below: "6. The Learned AR has relied upon the decision of CESTAT Bench at Mumbai in the case of M/s. Bank of America (supra). The very same issue has again been referred to the Hon'ble President to resolve the issue by constituting a Larger Bench. The reason for such reference and doubting of the order rendered by the Larger Bench is that the decision rendered by the Hon'ble Apex Court in Dilip Kumar & Co. (supra) was not considered by the Larger Bench and therefore the Larger Bench decision is per incuriam. When the issue has been decided by Larger Bench, judicial discipline binds us to follow the same. Further, the judgment in Dilip Kumar & Co. (supra) is with regard to interpretation of exemption notifications and would not be relevant for application to the issue under consideration which is the eligibility of Cenvat credit. Application of judicial discipline is necessary to give uniformity and certainty decisions. Thus, we are bo....
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....oted that Service Tax Appeal No. 20747 of 2015 filed by South Indian Bank was ultimately decided by the Division Bench of the Tribunal on 23.09.2020 on the basis of the order dated 20.03.2020 passed by the Larger Bench answering the reference. The department filed an appeal before the Kerala High Court to assail the order dated 23.09.2020 passed by the Tribunal. The Kerala High Court, after reproducing paragraphs 39 to 64 of the order dated 20.03.2020 of the Larger Bench of the Tribunal in South Indian Bank, observed as follows: "12. We have examined the view from the perspective of questions raised before us. To conclude precisely, the larger bench has taken each one of the circumstances at both the ends i.e. while availing the services and providing services, the practice/procedure and the provisions of law had rendered the view on the entitlement of assessee for availing the credit. We are in full agreement with the view of the larger bench in all fours. 13. The argument of Mr. Sreelal Warrier disjuncts allied services provided by the assessee under one umbrella and expands the meaning of "extending" as including activities related to acceptance of deposits and....
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....sed holding that the High Court was in full agreement with the views expressed by the Larger Bench of the Tribunal. The Kerala High Court further held that the Larger Bench of the Tribunal, for valid and correct reasons, held that the insurance service provided by the Deposit Insurance 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 Corporation can be availed by the banks for rendering output services. 55. The correctness of the view expressed by the Larger Bench of the Tribunal in South Indian Bank also came up for consideration before the Bombay High Court in Yes Bank and Indusind Bank. The order dated 15.09.2020 passed by the Division Bench of the Tribunal in the Appeal filed by Yes Bank as also the order dated 29.09.2020 passed by the Division Bench of the Tribunal in the appeal filed by Indusind Bank were challenged before the Bombay High Court. In the impugned orders before the Bombay High Court, the Division Bench of the Tribunal had relied upon the decision of the Larger Bench of the Tribunal in South Indian Bank. The Bombay High Court dismissed the appeals filed by the....
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.... supplied) 56. It is seen that the Bombay High Court not only agreed with the view taken by the Kerala High Court in approving the decision of the Larger Bench of the Tribunal in South Indian Bank, but the Bombay High Court also observed that the Revenue could not contend before the High Court that there were still some issues which had not been addressed by the Division Bench of the Kerala High Court and which would be relevant. The Bombay High Court also observed that the Revenue was also not able to urge any contention to substantiate why the decision of the Kerala High Court in accepting the decision of the Larger Bench of the Tribunal should not be accepted. 57. The two judgments of the Kerala High Court and the Bombay High Court also reveal that the department had not raised any issue before the Kerala High Court and the Bombay High Court while assailing the decision of the Larger Bench of the Tribunal in South Indian Bank that the Tribunal committed an error in not considering the Constitution Bench judgment of the Supreme Court in Dilip Kumar, even though they were decided after the reference was made on 02.11.2020 and rightly so as the said decision, as noticed above....