TaxTMI 
TaxTMI 
2026 (8) TMI 158
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....ious clients as per the provisions of Insurance Act, 1938 and Insurance Regulatory & Development Authority (IRDA) of India Act, 1999. For the purposes of payment of service tax and for compliance with the Finance Act, 1994, the appellants are centrally registered with service tax authority by taking the Service Tax Registration No. AAACL0582HSTCN6. 2.2 On the basis of intelligence developed by the Directorate General of Central Excise Intelligence, Kolkata Zonal Unit (DGCEI), it was identified that the appellants while providing life insurance services to their policy holders were paying service tax on the receipt of premium amount. As per the terms and conditions of the policy, if the policy holder does not pay any premium during the initial three-year period of coverage, and if such policies are not revived within a period of two years from the date of the first unpaid premium, then the amount of premium deposited by the policy holders will stand forfeited. The DGCEI had interpreted that such amount forfeited is a consideration received by the appellants for tolerating an act of the policy holder and the same is liable for payment of service tax in terms of Section 66E(e) of t....
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....iation of policy in such cases, the entire premium amount forfeited is to be treated as consideration on account of the same being a contract to tolerate breach of insurance contract and service tax is liable to be paid by treating the same as a 'declared service' under Section 66E(e) ibid. 3.3 He further submitted that in terms of policy documents entered into between the appellants and their policy holders, Clause 5 of the policy document states that the said policy would be rendered 'void' on happening of certain events which include non-payment of premium or mis-declaration by the policy holder. Accordingly, if policy lapses due to non-payment of premium and if the same is not revived, then the policy does not acquire any surrender value and therefore, nothing is payable to the policy holder. This concept has been wrongly interpreted by the department as 'forfeiture of premium'. Similarly, in case of mis-representation by a policy holder, insurer can reject the claim or terminate policy without any obligation to pay death benefit or surrender value. This is repudiation of policy, which has been misunderstood by the department as forfeiture of premium. Therefore, he submitted....
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.... (xi) Tamil Nadu Housing Board v. CCE [1994 (74) ELT 9 (SC)] 4. On the other hand, learned Authorized Representative appearing for the Revenue reiterated the findings recorded in the impugned order. 5. Heard both sides and perused the case records. 6. The issues for consideration before the Tribunal are as under: - (a) whether the amount forfeited by the appellants on account of non-payment of premium or mis-declaration by the policy holder, are liable for payment of service tax under the taxable category 'declared service' under Section 66E(e) ibid? (b) Whether the adjudged demands confirmed in the impugned order is sustainable or not? 7.1 Learned Commissioner had examined the issues in dispute and had come to a conclusion that any service provided by any person to other person, who receives such service and if there is a consideration then it satisfies the definition of 'service' having been provided. Since the appellants have retained the premiums already paid by the policy folder, due to his inaction in payment of premium, and the same was tolerated by the appellants, it would amount to provision of declared service under Section 66E(e) ibid and ....
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....; or (ii) when the parties, after the default has occurred in payment of the premium, agree in writing to other arrangement.] 7.3 Further, in terms of the conditions and privileges contained as a part of the Insurance Policy document entered into by the appellants with each of the policy holder provide for specific clauses including those covering certain crucial information relating to the insured, personal details in context with the insurance service, proof of age, payment of premium, revival of discontinued policies, non-forfeiture regulations, forfeiture in certain events, suicide clause, guaranteed surrender value, loans, assignments and nominations, disability benefit etc., From the above guidelines provided by the insurance statute, it transpires that if a policy lapses due to non-payment of premium and if the same is not revived, then the policy does not acquire any surrender value and therefore, nothing is payable to the policy holder. Similarly, in case of mis-representation by a policy holder, insurer can reject the claim or terminate policy without any obligation to pay any benefit or surrender value. These forms part of the regular insurance business betwe....
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....igation to refrain from an act or to tolerate an act or to do an act, would be a 'declared service' under section 66E, read with section 65B(44) and would be leviable to service tax. 3. The description of the declared service in question, namely, agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act is similar in GST. "Agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act" has been specifically declared to be a supply of service in para 5 (e) of Schedule II of the CGST Act, 2017. 4. As can be seen, the said expression has three limbs: - (i) Agreeing to the obligation to refrain from an act, (ii) Agreeing to the obligation to tolerate an act or a situation, (iii) Agreeing to the obligation to do an act. Service of agreeing to the obligation to refrain from an act or to tolerate an act or a situation, or to do an act is nothing but a contractual agreement. A contract to do something or to abstain from doing something cannot be said to have taken place unless there are two parties, one of which expressly or impliedly agrees to do or a....
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....er occurring in a 'life insurance service' could be said to be another taxable service, under the category of 'declared service' for the purpose of levy of service tax under 66E(e) of the Act of 1994. In fact, such a presumption may lead to double taxation and is not enforceable in terms of the legal provisions of the Finance Act, 1994. 8.1 We further find from the factual matrix of the case that the event of forfeiture of insurance policy entered with the policy holder by the appellant occurs when a policy lapses due to non-payment of periodical premium amount, as per the contract and the same being not revived within the prescribed period specified therein, or on account of factual incorrectness with respect to certain particulars provided by the policy holder, thus the insurance service contract becomes void ab initio. Hence, even under the existing insurance contract of the appellants, there is no further service is being provided to the policy holder and thus there cannot be any more service tax liability arising from such transactions. 8.2 We further find that similar issue involved in the present dispute was examined by the Co-ordinate Bench of this Tribunal in the cas....
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....nder the agreements was for such supply of coal, materials or for availing various types of services. The intention of the parties certainly was not for flouting the terms of the agreement so that the penal clauses get attracted. The penal clauses are in the nature of providing a safeguard to the commercial interest of the appellant and it cannot, by any stretch of imagination, be said that recovering any sum by invoking the penalty clauses is the reason behind the execution of the contract for an agreed consideration. It is not the intention of the appellant to impose any penalty upon the other party nor is it the intention of the other party to get penalized. 28. It also needs to be noted that section 65B(44) defines "service" to mean any activity carried out by a person for another for consideration. Explanation (a) to section 67 provides that "consideration" includes any amount that is payable for the taxable services provided or to be provided. The recovery of liquidated damages/penalty from other party cannot be said to be towards any service per se, since neither the appellant is carrying on any activity to receive compensation nor can there be any intention of the ....