AI Drafter 
TaxTMI 
TaxTMI 
2024 (11) TMI 471
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....arantee Corporation [in short "DICGC"] and also on the commission paid to the brokers for underwriting the government security etc. and for making investments in securities to maintain mandatory Statutory Liquid Ratio in accordance with Banking Regulation Act, 1949. 2. Division Bench of this Tribunal has heard the Service Tax Appeal Nos. 87659 of 2016 and 88202 of 2019 respectively filed by Bank of America National Association but, vide its order dated 02.11.2020, expressed its inability to agree with the decision of the Larger Bench of the Tribunal in the matter of South Indian Bank vs. Commissioner of Customs, C.Ex & S.T., Calicut; 2020(41) GSTL 609 (Tri.-L.B.) on identical issues and therefore the said Division Bench referred the matter to the President of the Tribunal for constituting another Larger Bench of the Tribunal to resolve the following issues:- "(a) Whether the interpretation of the legal provisions contained in Sections 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....
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.... (supra). 5. To resolve the issue a Larger Bench was constituted and after considering the submissions of both sides and perusal of case laws, vide Interim Order Nos. 14-18/2024 dated 30.4.2024 it has been held that the Larger Bench's decision of the Tribunal of three Members in the matter of South Indian Bank(supra) does not require re-consideration as the said decision of the Larger Bench has been upheld by the Hon'ble Kerala High Court in a challenge to the said decision and subsequently the Hon'ble Bombay High Court in yet another decision also agreed with the view taken by Hon'ble Kerala High Court of approving the said decision of the Larger Bench. 6. After the decision of the Larger Bench, these appeals have been listed before us. Learned counsel for the appellants submits that despite the Larger Bench's clear verdict that the insurance services provided by the DICGC to the banks, qualify as an 'input service' and despite the clear verdict therein approving the credit eligibility of DICGC's services, the Division Bench vide order dated 2.11.2020 doubted the decision of the Larger Bench and referred the matter to the President of the Tribunal to once again const....
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....that the Appellant also operates as a Primary Dealer ("PD") authorized by the Reserve Bank of India ("RBI") to underwrite securities. Underwriting of government securities by banks is a financial service where banks, acting as primary dealers, buy government securities in a primary auction and selling them to investors. The Appellant earns underwriting commissions from the RBI, on which service tax is paid. To manage these investments and to underwrite securities, the Appellant obtains brokerage services and claims credit for the service tax paid on these services. Learned Counsel submits that the brokerage services availed by the Appellant are although mandatory but commercially expedient as well. Without the said brokerage service and investments in government securities, the Appellant may not be able to function effectively. Therefore, in light of the ratio laid down by the South Indian Bank (supra), the Appellant is entitled for CENVAT credit on brokerage services. 9. According to learned counsel the issue, that the brokerage service received by the appellant qualifies as an input service, is no more res integra and in support of his submission, learned Counsel relied upon t....
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.... Principal Commr., Mumbai; [2024(4) TMI 1149-Tri. Mum] has confirmed the decision of the Larger Bench in the matter of South Indian Bank (supra) and held that the earlier decision of Larger Bench needs no reconsideration, therefore we have no hesitation in holding that the issues involved herein are no longer res integra and is covered by the decision of Larger Bench in South Indian Bank (supra). It is not out of place to reproduce the relevant paragraphs/findings of the Larger Bench's interim order dated 30.04.2024 in the instant appeal, which are as under:- "A Division Bench of the Mumbai Regional Bench of the Tribunal, while hearing Service Tax Appeal No. 88202 of 2019 and Service Tax Appeal No. 87659 of 2016 filed by Bank of America, National Association, expressed its inability to agree with the decision of the Larger Bench of the Tribunal comprising three Members in South Indian Bank vs. Commissioner of Customs, C. Ex. & ST, Calicut 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 Sections 65 and 66 ....
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....mbers; and (iii) What would be the fate of the reference when the decision of the Larger Bench of the Tribunal in South Indian Bank, the correctness of which was doubted by the Division Bench, has been upheld by the Kerala High Court and the Bombay High Court. xxx xxx xxx 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 ....
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....ntion 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 payment of insurance premium on the outstanding deposits, banks will not be able to function or render any output service of "banking and other financial services" and the licence granted to the banks by the Reserve Bank of India can be cancelled. 53. Thus, the service rendered by the Deposit Insurance Corporation to the banks would fall in the main part of the definition of "input service", which is any service used by a provider of output service for providing an output service. ***** 54. The contention of the Department is that "accepting" of deposits is covered under Section 66D(n) of the Finance Act which contains the negative list. As noticed above, the negative list comprises, under sub-clause (n) of Section 66D, services by way of extending deposits, loan....
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....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." (emphasis supplied) xxx xxx xxx 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) xxx xxx xxx 45. In the present appeals, the issue that arises for consid....
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....B 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 Insurance had explained that CENVAT credit is given to avoid double taxation and so if the credit of service tax collected by the insurer while selling insurance policy is not given while procuring a policy of re-insurance mandatorily required in law, the same would be against the ethos of CENVAT credit policy as the same would amount to double taxation. This decision of the Karnataka High Court was not followed by the Division Bench in the reference order, even though it had been followed by the Larger Bench of the Tribunal in South Indian Bank, for the reason that it was delivered before the judgment of the Supreme Court in Dilip Kumar. The decision of the Supreme Court in Dilip Kumar, as noticed above, has no application to the facts of the present case. The decision of the Karnataka High Court in PNB Metlife Insurance could not have been ignored by the Division Bench. ....
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....clause-(n) begins with the words 'extending deposits, loans or advances', and such activity is represented by way of interest or deposit of money. The determining word in the clause is 'extending deposits, loans or advances etc.' `Extending deposits' literally understood is the deposits, loans etc. extended by the assessee. The acceptance of deposits is a pure and simple money transaction. But the realm in which the controversy operates is after receiving the deposits from public, the assessee is under statutory obligation to insure the deposits received for conducting the bank business and extends under law services on which service tax is paid. The services provided by the assessee are not falling within the negative list. Therefore, there is relatability on a hostile consideration of business in banking between the services availed and services rendered. The suggestion of revenue would compartmentalise the activities in an odd way only to deny the claim of CENVAT credit and we are not persuaded, firstly, by the argument now canvassed before us and secondly, upon taking note of are the applicable sections in this behalf. The payment of premium on insurance together with service t....
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....e 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 under the Reserve Bank of India directives to be complied by the bank like the assessee and the compliances of which were mandatory. It is in the course of availing such insurance service for the benefit of the depositors, the petitioner was required to pay the premium on which service tax was paid, and of which, input tax credit was sought to be availed. In our opinion, the CESTAT has rightly observed that the issue stands squarely covered by the decision of the Larger Bench. 10. We are also in agreement with the view taken by the Division Bench of the Kerala High Court in approving the decision of the Larger Bench. We may note hereunder the relevant observations of the Division Bench of the Kerala High Court in the case of "The Principal Commissioner of Central Tax/Central Excise vs. M/s. South Indian Bank (supra), to which we subscribe:- ***** 11. In the above context, we do not find ourselves persuaded to accept the case of the appellant/revenue that the questions of law as framed would at all arise....
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....t and remanded the matter to the Tribunal for a fresh consideration and passing of an order "in confirmity with the order of the Larger Bench in South Indian Bank." 13. We have also noted that, the Hon'ble Kerala High Court, upon a challenge by Revenue to the said decision in South Indian Bank (supra), vide its order dated 5.12.2022 reported in 2011 (12) TMI 1479 - Kerala High Court, has upheld the decision of the Larger Bench in South Indian Bank (supra) by rejecting the appeal filed by revenue and recorded the findings as under:- '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. xxx xxx xxx 14. ......... The payment of premium on insurance together with service tax for valid and correct reasons has been held by the larger bench as follows: "The insurance service provi....