TaxTMI 
TaxTMI 
TaxTMI 
2026 (2) TMI 434
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....h disallowed and recovered the CENVAT credit availed by the respondent-banks on the service tax paid for DICGC premium, be restored, together with interest and penalties. 2. The brief facts leading to the present appeal are that the respondent-banks, all insured institutions under the Deposit Insurance and Credit Guarantee Corporation Act, 1961 ("DICGC Act"), are mandatorily required to register with the DICGC and pay periodic premiums to insure the deposits accepted by them from the public. On such premium, service tax was payable and was in fact paid by the banks. The banks availed CENVAT credit of this service tax on the footing that the service constituted an "input service" under Rule 2(l) of the CENVAT Credit Rules, 2004. Pursuant to intelligence gathered by the DGCEI investigations were initiated and show-cause notices were issued to many banks proposing denial and recovery of this CENVAT credit. In substance, the notices alleged that deposit-insurance is not connected with taxable output services of banks. The adjudicating authority thereafter passed detailed orders confirming the proposals and demanded recovery of the disputed credit, interest and penalty. 3. The App....
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....surance premium is linked only to deposits and has no nexus with any other service rendered by the Bank ? (vii) Was the CESTAT right in placing reliance on the judgment of the High Court of Karnataka in the case of PNB Metlife India Insurance Co. Ltd. and the CESTAT judgment in the case of Shriram Life Insurance Company Ltd., without discerning the ratio-decidendi of those judgments, to conclude that the Banks can avail CENVAT credit on the premium amount paid to Deposit Insurance Corporation for the insurance service, ignoring the fundamental differences between the facts of those cases and the facts of the instant case ? 7. Mr.N.Dilip Kumar, learned Senior Standing Counsel appearing for the appellant-Revenue submitted that the present appeals have been filed challenging the common Final Order passed by the Tribunal, whereby the Tribunal allowed CENVAT credit on the service tax paid on deposit insurance premium remitted to the Deposit Insurance and Credit Guarantee Corporation (DICGC). It was submitted that the Tribunal committed a serious error in law in holding that the said insurance service qualifies as an "input service" under Rule 2(l) of the CENVAT Credit Rules,....
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.... legally continue to carry on the business of banking. It was contended that the insurance service provided by DICGC is indispensable for the respondent to render taxable output services under the category of "banking and other financial services". The learned counsel submitted that the service in question clearly satisfies the definition of "input service" under Rule 2(l) of the CENVAT Credit Rules, 2004, as it is a service used by the provider of output service for providing such output service. The absence of such insurance would result in cancellation of registration and cessation of banking operations altogether. 8.2. The learned counsel further submitted that the issue involved in the present appeals is no longer res integra. The Tribunal has rightly followed the Larger Bench decision of the CESTAT in South Indian Bank vs. Commissioner of Customs, Central Excise and Service Tax, Kozhikode [(2020) TIOL 861 CESTAT Bang LB], which has been subsequently affirmed by the Kerala High Court in the case of Principal Commissioner of Central Tax & Central Excise, Cochin vs. M/s.South Indian Bank Ltd. and M/s.Catholic Syrian Bank Ltd [(2022) (12) TMI 1479]. The learned counsel pointed....
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.... 9.3. The learned counsel submitted that the service tax paid on the DICGC premium qualifies as an input service under Rule 2(l) of the CENVAT Credit Rules, 2004, as the service is used by the respondent for providing its banking and financial services. The fact that acceptance of deposits may not be taxable by itself does not disentitle the respondent from availing credit, since the insurance service is connected with the business of banking as a whole. It was also submitted that the respondent-bank has complied with Rule 6(3B) of the CENVAT Credit Rules by reversing the prescribed percentage of credit. Once such reversal is made, denial of credit on the remaining portion would result in double taxation, which is not permissible in law. 9.4. The learned counsel further submitted that the issue is no longer res integra, as the Tribunal has rightly followed the Larger Bench decision in South Indian Bank Ltd., which has been affirmed by the Hon'ble Kerala High Court and followed by the Hon'ble Bombay High Court; therefore, the impugned order passed by the Tribunal is legal, proper, and in accordance with settled law. Accordingly, it was submitted that no substantial question of ....
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....banks and that the service tax paid on such insurance premium is eligible for CENVAT credit. The Larger Bench categorically held that without such insurance, a bank cannot lawfully carry on banking operations and render taxable banking and financial services. 15. The said Larger Bench decision has been affirmed by the Kerala High Court in Principal Commissioner of Central Tax & Central Excise, Cochin v. South Indian Bank Ltd. and Catholic Syrian Bank Ltd. [2022 (12) TMI 1479]. The High Court agreed in full with the findings of the Larger Bench and rejected the Revenue's attempt to isolate the activity of acceptance of deposits from other allied banking services. It was held that while acceptance of deposits is a money transaction, the statutory obligation to insure such deposits forms part of the banking business and does not fall within the negative list. The Court further held that the insurance service provided for insuring deposits is an "input service" and that CENVAT credit of service tax paid thereon is admissible. For better appreciation, the relevant portion of the judgment is extracted hereunder:- "12. We have examined the view from the perspective of question....