2013 (4) TMI 270 - HC - Service Tax

Service tax liability on insurance service - whether the petitioner a Department of the Govt of Kerala, established for providing Life Insurance coverage to the State Government employees and also for providing General Insurance coverage for the assets of the Government/Governmental Institutions is liable to pay service tax - Held that - From the Circular No. 89/7/2006-Service Tax, dated 18-12-2006 issued by the Central Government, it is clear that, when the Insurance Department is collecting premium, providing insurance coverage as part of the duty cast upon them, it assumes a character of compulsory levy as per the relevant provisions of the Act. Such activity is purely in public interest and is undertaken as mandatory and statutory function and in those cases Service Tax is not leviable. The said proposition has been highlighted in Karnataka Government Insurance Department (K. G. I. D.) Versus ACCE 2011 (11) TMI 307 - KARNATAKA HIGH COURT making it clear that, if a Government authority performs a service, which is not in the nature of statutory activity and the same is undertaken for a consideration not in the nature of statutory fee/levy, then in such cases, Service tax could be leviable and it falls within the ambit of Taxable Service . It was accordingly, that a finding was rendered that the particular type of insurance coverage being undertaken by the Karnataka State Insurance Department, in respect of motor vehicles was liable to be reckoned as a Taxable Service . Thus the activity being pursued by the petitioner in providing Life insurance coverage to the employees of the State Government as part of its statutory obligation giving effect to Rule 22A of Part I KSR is not a taxable service so as to attract tax liability. However, with regard to any other service/insurance coverage provided to the General Insurance business extended to commercial institutions/individuals, even if it is a Government Company, such activities are liable to Service Tax as no statutory duty is involved and the same cannot be avoided, unless exemption is obtained under Section 93 of the Finance Act, 1994.

Summary

Issues Involved:
1. Liability of the petitioner to pay service tax on life insurance coverage provided to state government employees.
2. Liability of the petitioner to pay service tax on general insurance coverage for government assets and governmental institutions.
3. Validity of demand notices and orders issued by the respondents.
4. Applicability of exemptions under the LIC Act and the General Insurance Business (Nationalisation) Act.
5. Consideration of the petitioner's application for exemption under Section 93 of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Liability to Pay Service Tax on Life Insurance Coverage:
The petitioner, a department of the Kerala State Government, contended that it is not rendering any "taxable service" as it provides life insurance coverage to state government employees as mandated by Rule 22A of Part I KSR. The petitioner argued that this activity is exempt under Section 44(f) of the LIC Act, 1956, which excludes schemes involving compulsory deductions from government employees' salaries for life insurance coverage. The court agreed, stating that the life insurance coverage provided by the petitioner is a statutory obligation and not a taxable service under Section 65(12) of the Finance Act, 1994.

2. Liability to Pay Service Tax on General Insurance Coverage:
The petitioner also provided general insurance coverage for government assets and institutions, claiming exemption under Section 36(1)(a) of the General Insurance Business (Nationalisation) Act, 1972. The court noted that while insurance coverage for government assets may not constitute a taxable service, coverage for assets of institutions where the government has financial interest, such as government companies, may be considered a taxable service if it involves contractual obligations rather than statutory duties. The court held that such activities could attract service tax unless an exemption is obtained under Section 93 of the Finance Act, 1994.

3. Validity of Demand Notices and Orders:
The petitioner was issued several demand notices and orders for service tax and penalties, which were challenged in the writ petitions. The court observed that the initial order dated 19-11-2001 was set aside by the appellate authority, and the matter was remanded for fresh assessment. Despite this, subsequent notices and orders were issued without proper consideration of the appellate authority's directions. The court stayed further proceedings related to these notices and orders until the central government decides on the petitioner's application for exemption.

4. Applicability of Exemptions under the LIC Act and General Insurance Business (Nationalisation) Act:
The court examined the exemptions under Section 44(f) of the LIC Act and Section 36(1)(a) of the General Insurance Business (Nationalisation) Act. It concluded that life insurance coverage provided by the petitioner to state government employees is exempt from service tax. However, general insurance coverage for institutions with government financial interest may not be exempt unless it is purely statutory and not contractual.

5. Consideration of Exemption Application under Section 93 of the Finance Act, 1994:
The petitioner had applied for exemption under Section 93 of the Finance Act, 1994, which was still pending. The court directed the central government to consider this application, particularly in light of similar exemptions granted to other state government departments, such as the State of Rajasthan. The court ordered the central government to pass appropriate orders within three months and stayed further coercive proceedings against the petitioner until a final decision is made.

Conclusion:
The court allowed the writ petitions in part, holding that the life insurance coverage provided by the petitioner is not a taxable service, while general insurance coverage for institutions with government financial interest may attract service tax unless exempted. The central government was directed to consider the petitioner's exemption application and issue a decision within three months. All further proceedings related to the contested notices and orders were stayed pending this decision.