2017 (3) TMI 426 - AT - Service Tax

CENVAT credit - insurance premium - denial on the ground that the insurance is for the benefit of the customers and because the premium though paid by the respondent is collected from the customers and paid to the insurance company the respondent is acting as a pure agent - Held that - On perusal of the master policy which is furnished as part of the records, it is found that in one such master policy more than 20,000 members have been enrolled - the intention is to secure the loans advanced by the respondent - the credit of the service tax paid on the insurance premium, is eligible for credit, for the reason that it has direct nexus with the output services of the appellant who are engaged in financing activities - appeal dismissed - decided against Revenue.

Summary

Issues:
Department's appeal against setting aside of demand, interest, and penalty by Commissioner (Appeals) related to eligibility of credit for service tax paid on insurance premium by a non-banking finance company.

Analysis:
The appeal was filed by the department challenging the Commissioner (Appeals) order that set aside the demand, interest, and penalty imposed on the respondent non-banking finance company. The issue revolved around the eligibility of the respondent to take credit for the service tax paid on insurance premium collected from clients. The department contended that the insurance was for the benefit of customers, making the respondent ineligible for the credit. However, the respondent argued that the insurance policy was intended to secure the loans advanced to customers, and the amount collected was not paid to customers directly but used to secure the loans. The respondent maintained that the insurance services had a direct nexus with their output services, justifying the availed credit.

During the proceedings, the department reiterated its grounds of appeal, emphasizing that the insurance was customer-benefit oriented, thereby disqualifying the respondent from claiming credit. On the other hand, the respondent's consultants explained the nature of the policy, highlighting that it was a group insurance/master policy covering a significant number of members and intended to secure the loan advance. They clarified that in case of a customer's death, the insurance company would pay the loan amount to the respondent, securing the loan. The consultants argued that the insurance services were directly related to securing the loans advanced by the respondent, making them eligible for credit. They provided details of the administration charges collected and the portion used for insurance premium payment, supporting their claim for credit.

Upon reviewing the master policy and the scheme's conditions, the Member (Judicial) found that the insurance policy's primary purpose was to secure the loans advanced by the respondent, not directly benefiting the customers. In case of a customer's death, the sum assured was paid to the respondent, reinforcing the policy's intent to secure the loans. Consequently, the Member (Judicial) concluded that the credit for the service tax paid on the insurance premium was eligible as it had a direct nexus with the respondent's financing activities. Finding no fault in the Commissioner (Appeals) order, the appeal by the department was dismissed, upholding the decision to set aside the demand, interest, and penalty imposed on the respondent.