2022 (12) TMI 1479 - HC - Central Excise

CENVAT Credit - input service or not - service availed by the assessee from Deposit Insurance Credit Guarantee Corporation (DICGC) - HELD THAT - The realm in which the controversy operates is after receiving the deposits from public the assessee is under statutory obligation to insure the deposits received for conducting the bank business and extends under law services on which service tax is paid. The services provided by the assessee are not falling within the negative list. Therefore there is relatability on a hostile consideration of business in banking between the services availed and services rendered. The suggestion of revenue would compartmentalise the activities in an odd way only to deny the claim of CENVAT credit and we are not persuaded firstly by the argument now canvassed before us and secondly upon taking note of are the applicable sections in this behalf. The payment of premium on insurance together with service tax for valid and correct reasons has been held by the larger bench in M/S. SOUTH INDIAN BANK VERSUS THE COMMISSIONER OF CUSTOMS CENTRAL EXCISE AND SERVICE TAX-CALICUT 2020 (6) TMI 278 - CESTAT BANGALORE holding that The insurance service provided by the Deposit Insurance Corporation to the banks is an input service and CENVAT Credit of service tax paid for this service received by the banks from the Deposit Insurance Corporation can be availed by the banks for rendering output services . The substantial questions raised are not tenable and the findings recorded by the larger bench have already considered these issues - the questions raised in the appeals are answered against the revenue and in favour of the assessee - appeal dismissed.

Summary

Issues Involved:
1. Whether the insurance service provided by the Deposit Insurance & Credit Guarantee Corporation (DICGC) to banks qualifies as an "input service" under the CENVAT Credit Rules, 2004.
2. Whether the CESTAT was correct in concluding that the insurance service falls within the main part of the definition of "input service" in Rule 2(1) of the CENVAT Credit Rules, 2004.
3. Whether CESTAT was correct in allowing CENVAT credit on deposit insurance after the omission of the general entry 'activities relating to business' from the inclusive part of the definition of input services, effective from 01.04.2011.

Detailed Analysis:

1. Insurance Service as "Input Service":
The primary issue is whether the insurance service provided by DICGC to banks can be considered an "input service" under the CENVAT Credit Rules, 2004. The Tribunal had previously held that the insurance service provided by DICGC is an "input service" and that banks can avail CENVAT credit for the service tax paid on the insurance premium. This decision was based on the statutory obligation of banks to insure deposits, which is essential for their business operations.

2. Interpretation of "Input Service":
The Tribunal's interpretation was that the insurance service provided by DICGC falls within the main part of the definition of "input service" in Rule 2(1) of the CENVAT Credit Rules, 2004. The Tribunal noted that the acceptance of deposits is a prerequisite for lending and investment activities, which are core banking functions. Without insurance coverage, banks would not be able to function effectively, thereby establishing a direct nexus between the insurance service and the output services provided by banks.

3. Effect of Omission of General Entry:
The Tribunal also addressed the impact of the omission of the general entry 'activities relating to business' from the inclusive part of the definition of input services, effective from 01.04.2011. The Tribunal concluded that despite this omission, the insurance service provided by DICGC still qualifies as an "input service" because it is mandatory and commercially expedient for banks to obtain this insurance to protect depositors' interests and maintain public confidence.

Conclusion:
The High Court upheld the Tribunal's decision, agreeing with the interpretation that the insurance service provided by DICGC is an "input service" and that banks are entitled to avail CENVAT credit for the service tax paid on the insurance premium. The Court found no merit in the Revenue's arguments and dismissed the appeals, affirming that the findings of the larger bench of the Tribunal in the South Indian Bank case were correct and applicable.

The judgment emphasized that the statutory and commercial necessity of obtaining deposit insurance, the direct nexus between the insurance service and the output services provided by banks, and the compliance with the CENVAT Credit Rules justified the allowance of CENVAT credit for the service tax paid on the insurance premium.