2015 (6) TMI 1057 - HC - Service Tax

Levy of service tax on life insurance coverage to the employees of the State Government - By the judgment under appeal, learned single Judge held that the life insurance provided pursuant to Rules 22A and 22B of Part I KSR is not exigible for service tax. It is this judgment which is under challenge before us. - Held that - Reading of the CBEC circular shows that it has been clarified by the CBDT that activities performed by sovereign/ public authorities under the provisions of law are in the nature of statutory obligations which are fulfilled in accordance with law, as the functions, according to the Board, are mandatory and statutory functions and are not in the nature of service to any particular individual for any consideration. On this basis, it is clarified that such activities performed under the provisions of law do not constitute taxable service and that no service tax is leviable on such activities. As we have already seen, the respondent department is providing personal insurance and group insurance in pursuance of the statutory mandate as contained in Rules 22A and 22B of Part I KSR. In other words, the insurance provided is a mandatory statutory function discharged by a State Government Department. Such an activity is not a taxable service for the purpose of service tax in the light of the circular issued by the Central Board of Customs and Excise referred to above. This, therefore, means that the view taken by the learned single Judge does not merit interference.

Summary

Issues:
1. Whether the State Insurance Department is liable to pay service tax for providing life insurance and general insurance coverage to government employees.
2. Legality of the conclusion by the learned single Judge that life insurance provided under specific rules is not subject to service tax.

Analysis:
1. The appeals stemmed from writ petitions filed by the Kerala State Insurance Department regarding the liability to pay service tax for providing life insurance and general insurance coverage to government employees. The issue was whether the insurance provided under Rules 22A and 22B of Part I KSR was taxable under the Finance Act, 1994. The learned single Judge ruled that life insurance under these rules was not subject to service tax. The appeals challenged this decision.

2. The key question before the court was the legality of the conclusion reached by the learned single Judge regarding the taxation of life insurance provided under Rules 22A and 22B of Part I KSR. Rule 22A mandates new government employees below 50 years to subscribe to a policy with the State Life Insurance branch, while Rule 22B requires enrollment in the General Insurance Scheme. Despite insurance services being taxable at the relevant time, a circular by the Central Board of Customs and Excise clarified that activities performed by sovereign/public authorities as statutory obligations, without consideration for individuals, are not taxable services. The court noted that the insurance provided by the respondent department was a mandatory statutory function, falling within the scope of the circular, and thus not subject to service tax.

3. The court emphasized that the insurance provided by the State Insurance Department was in compliance with statutory obligations under Rules 22A and 22B of Part I KSR, making it a non-taxable activity as per the circular by the Central Board of Customs and Excise. Therefore, the court upheld the decision of the learned single Judge that the life insurance provided under these rules was not liable for service tax. Consequently, the appeals were dismissed, affirming the original judgment.