2013 (9) TMI 291 - AT - Service Tax

Applicability of service tax - Insurance Service - The appellant was registered with the Service Tax department under Insurance Auxiliary Service , Life Insurance Service , Renting of Immovable Property and Business Support Services - the appellant had not included income earned in the nature of (a) Recovery of Agency Processing Fees, (b) Lapse Charges, (c) Back Dating Alteration Charges, (d) recoveries on Look in and (e) Policy Reinstatement Fees, in the gross taxable value - Held that - When the Service Tax levy was imposed on life insurance policy, the Hon ble Finance Minister in his budget-speech before the Parliament had categorically stated that he was imposing Service Tax on life insurance service to the extent of risk premium - The instructions issued by the CBE&C at the time of imposition of Service Tax on life insurance service also made it clear that Service Tax was leviable on that portion of the service, which pertains to the risk element ad in the case of composite policy - the taxes were applicable only on the risk premium and not on the premium for saving. In 2008 also at the time of introduction of Investment Management Service provided under ULIP, it was clarified that consideration for management of the segregated fund can be computed as the difference between the total premium and the sum of premium for risk cover plus amount of segregated fund - It was also pointed out that in the case of ULIP, risk premium attributable to risk cover was taxed under Insurance Service and management of investment was taxed under the new levy of Investment management Service . The budget-speech of the Hon ble Finance Minister and the circulars issued by the Board at various points of time, what emerged so far as the life insurance is concerned is that prior to 1.5.2011 the Service Tax was leviable on the risk premium and nothing else - If that be so, the various charges collected by the insurer in addition to the risk premium cannot be taxed under Life Insurance Service . Various contentions raised by the appellant had not been examined in detail by the adjudicating authority - who had simply made a sweeping observation that the agency processing fees, lapse charges, backdating alteration charges and policy reinstatement charges were recovered in relation to the life insurance service provided by the noticee and these charges were linked to the risk cover of the policy the observation of the adjudicating authority was without examining the matter in detail and without taking into account the IRDA guidelines on the subject. Commissioner of Central Excise, Guntur Vs. Andhra Sugar 1988 (10) TMI 38 - SUPREME COURT OF INDIA - Due weightage should be given to the clarifications given by the administrative department, when a new levy was imposed - The adjudicating authority had not examined the matter in proper perspective taking into account the instructions issued by the Board from time to time - the matter had to go back to the adjudicating authority for fresh consideration in the light of the observation made after considering all the submissions made by the appellant - Since the matter was being remanded waiver from pre-deposit was granted Decided in favour of Assessee.

Summary

Issues:
- Applicability of Service Tax on various charges collected by the appellant in addition to the risk premium for life insurance services rendered.

Analysis:
The judgment revolves around the applicability of Service Tax on charges collected by the appellant, a life insurance company, in addition to the risk premium for services rendered. The appellant contested the levy of Service Tax on various charges, including Recovery of Agency Processing Fees, Lapse Charges, Back Dating Alteration Charges, recoveries on Look in, and Policy Reinstatement Fees. The appellant argued that Service Tax should only be paid on the risk premium, as clarified by the Finance Act and related circulars issued by the Board over the years.

The appellant's counsel relied on Section 65(105)(zx) of the Finance Act, 1994, which defined taxable service as related to the risk cover in life insurance. The counsel highlighted that prior to May 1, 2011, Service Tax was payable only on the risk premium and not on other charges. Various circulars issued by the Board reiterated that the levy of Service Tax on life insurance covered only the risk element, excluding other charges collected by insurers.

Regarding the specific charges, the appellant argued that Agency Processing Fees, Lapse Charges, Back Dating Alteration Charges, recoveries on Look in, and Policy Reinstatement Fees were not linked to the risk premium and, therefore, should not be subject to Service Tax. The appellant contended that these charges were collected for administrative purposes, penalties, or policy reinstatement, as per guidelines from the Insurance Regulation and Development Authority (IRDA).

The Revenue, represented by the Commissioner, supported the findings of the adjudicating authority and emphasized the substantial amount involved in the case. However, the Tribunal, after careful consideration of both sides' submissions, found that the adjudicating authority had not adequately examined the matter. The Tribunal noted that the authority's observations lacked detailed analysis and failed to consider the relevant Board instructions and IRDA guidelines.

Consequently, the Tribunal allowed the appeal by remanding the matter back to the adjudicating authority for a fresh examination. The Tribunal directed the authority to provide a comprehensive analysis of each contention raised by the appellant and to issue a speaking order. Additionally, the Tribunal granted a waiver from pre-deposit of the dues adjudged in the impugned order due to the remand. The stay application was also disposed of in light of the remand decision.