TaxTMI 
TaxTMI 
2024 (4) TMI 1149
X X X X Extracts X X X X
X X X X Extracts X X X X
....s. 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 the Division Bench did not specify the strength of the Members that would constitute the Larger B....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l 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 must not lightly disregard the decision of another Bench of the same Tribunal on an identical question. This is particularly true when the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rt 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 Judges? 3. We may point out, at the outset, that in Bharat Petroleum Corporation Limited v. Mumbai Shramik Sangha and Ors., [2001] 4 SCC 448, a Bench of five Judges considered....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pt 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 so very incorrect that under no circumstances it can be followed, the proper course for the Bench of two Members to adopt is to refer the matter to a Bench of three Members and it is only when a Bench of three Mem....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 / 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? 2. In Sun Export case (supra), a three-Judge Bench ruled that an ambiguity in a tax exemption pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 "deposits" accepted by the banks. It has to register every existing "banking company" as also a "new banking company" as an insured bank and the insured bank has to pay a premium to the Deposit Insurance Corporation at the rate notified by the Deposit Insurance Co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ese 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. 52877/2018, dated 9-3-2018, in case of M/s. Punjab National Bank v. Commissioner of Central Excise Service Tax, Bhopal, wherein the Hon'ble Tribunal has held that such, activity credit of service available to the appellant. ***** 6. We find that the issue is no more res inte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 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 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. ***** Hence, the argument that to commence and continue the banking business, insuring the deposits of customers is mandatory, accordingly, the service tax paid on ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al. 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 parties. 52. It is not in dispute that after accepting the deposits there are number of services on which the banks have to pay service tax under "banking and other financial services". These services are in connection with both the "accepting" of deposits and "lending" activity of the banks. Banks would be able to lend only if they accept deposits. It has been seen that without pa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en 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 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er 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 paid for this service received by the banks from the Deposit Insurance Corporation can be availed by the banks for rendering "output services"." " (emphasis supplied) 37. Subsequently, Service Tax Appeal No. 87659 of 2016 and Service Tax 88202 of 2019 filed by Bank of America came up for hearing before a Division Bench of the Regional Bench of the Tribunal at Mumbai. The Division Bench, in its order dated 02.11.2020, expressed its inability to agree with the decision of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 person insured it was reinsurance but for the insurance company it was the insurance service received, and was an input service. Further the decisions rendered in the case of PNB Metlife Insurance case etc, all have been rendered much prior to the decision of the Apex Court in the case of Dilip Kumar and Co [2018-TIOL-302-SCCus-CB], wherein a five member bench of Hon'ble Apex Court has favored the strict interpretation of the fiscal statue. Even the decision of South India Bank has been passed without consideration of the said decis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sue. 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 notification, should the benefit of such ambiguity go to the subject/assessee or should such ambiguity should be construed in favour of the revenue, denying the benefit of exemption to the subject/assessee? ***** ***** 41. After thoroughly examining the various precedents some of which were cited before us and after giving our anxious consideration, we would be more than justified to conclude and also compelled to hold that every taxing statute including, charging, computation and exemption clause (at the threshold stage) should be interpreted strictly. Further, in case....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 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 that arises for consideration is whether the banks can avail credit of the service tax paid by the banks for the service provided by the Deposit Insurance Corporation. This is for the reason that the service provided by the Deposit Insurance Corporation to the banks for insuring the deposits of public with the banks is considered by the banks to be an "input service" and CENVAT credit of service tax paid by the banks for this service has been availed by the banks for rendering "output services". 46. The decision of the Supreme Court in Dilip Kumar could not have been made the basis for the Division Bench to refer the matter t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ilip 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 bound to follow the decision of the Larger Bench which is placed before us. Following the same, we are of the opinion that the impugned order cannot sustain and requires to be set aside, which we hereby do." (emphasis supplied) 49. The reference order of the Division Bench also observes that the judgment of the Karnataka High Court in PNB Metlife Insurance, which has a direct bearing on the issue involved in these appeals, would be of no benefit to the appellants since it was delivered prior to the judgment of the Supreme Court in Dilip Kumar. 50. The Karnataka High Court, in paragraphs 6 and 7, of the judgment rendered in PNB Metlife I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as 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 consequential assurance or services provided by the bank. Such construction not only cause violence to the clear expression but would act contrary to the intended expressions in Section 66D. 14. It can be construed from a plain reading of section 66D that the negative list is compiled of the services stated therein and is relied on to bring the assessee within the negative list is clause-(n) i.e. services by way of extending deposits, loans, advances etc. in so far as the consideration is represented by way of interest or discount. The expression used in clause-(n) begins with the words "extending deposits, loans or advances", and such activity is represented by....
X X X X Extracts X X X X
X X X X Extracts X X X X
....k. 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 department holding that the High Court was in agreement with the views expressed by the Kerala High Court and the relevant paragraphs of the judgment are as follows: "9. We have heard learned counsel for the parties. We have also perused the record, the decision of the Larger Bench of CESTAT as cited before us, as also the decision of the Kerala High Court, and the impugned orders. We may at the outset observe that the issue in the present proceedings is certainly not different which fell for consideration of the Larger Bench in the case of South Indian Bank (supra). We find that the Larger Bench has taken into consideration the statutory scheme of DICGC as also the mandatory requirement....