2018 (5) TMI 1217 - AT - Service Tax

Chargeability of service tax - Policy Administration Charges for the period prior to 1st May, 2011 - Held that - such levy have been introduced with effect from 1st May, 2011, when the definition in Section 65(105)(zx) was amended, and for the words in relation to the risk cover in the life insurance the words by an insurer, including re-insurer carrying on life insurance business where substituted. Thus evidently administrative charges also became taxable (being part of the insurance premium) with effect from 01/05/2011 - The period of dispute in the present appeal is July, 2010 to 31st March, 2011, which is prior to the amendment with effect from 01/05/2011 - administration charges are not subject to service tax prior to 01/05/2011 and accordingly the demand of ₹ 48,74,108/- set aside. Levy of service tax - notional fund management charges - Held that - no service tax can be demanded on such notional value which have not been collected and not charged by the service provider. Whether the appellants have provided exempted service, that is, the difference between the gross premium collected minus mortality charges, whether the same is in the nature of exempt service and is liable to reversal of input credit under the provisions of Rule, 6(1) of CCR, 2004? - Held that - the value on which Revenue has demanded amount (by reversal) under Sub Rule (3) of Rule 6 of Cenvat Credit Rules, 2004, does not represent value of exempted services. Appeal disposed off.

Summary

Issues Involved:
1. Taxability of Policy Administration Charges prior to 1st May, 2011.
2. Service tax liability on the nominal difference between approved and charged administrative charges.
3. Reversal of input credit under Rule 6(1) of CCR, 2004 for exempted services.

Analysis:

Issue 1: Taxability of Policy Administration Charges prior to 1st May, 2011
The primary contention in the appeal by the assessee was whether the demand of &8377; 48,74,108/- towards Policy Administration Charges for the period before 1st May, 2011, is taxable. The Tribunal observed that the amendment in Section 65(105)(zx) introducing service tax on administration charges came into effect from 1st May, 2011. Since the period in question was from July 2010 to 31st March 2011, predating the amendment, the administration charges were not subject to service tax. Consequently, the demand of &8377; 48,74,108/- was set aside.

Issue 2: Service tax liability on the nominal difference in administrative charges
Regarding the second issue of the nominal difference between the IRDA approved maximum rate and the charges collected by the appellant, the Tribunal held that no service tax could be demanded on the notional value that was not actually collected. Citing a judgment, the Tribunal emphasized that service tax is payable on the amount billed by the service provider to the recipient. Therefore, the demand of &8377; 38,43,656.92 based on this nominal difference was dismissed.

Issue 3: Reversal of input credit for exempted services
The appeal by Revenue questioned whether the difference between gross premium collected and mortality charges provided an exempt service, necessitating reversal of input credit under Rule 6(1) of CCR, 2004. Upon review, the Tribunal determined that the value demanded for reversal did not represent exempted services. Consequently, the appeal by the appellant was allowed, setting aside the impugned order, while the appeal by Revenue was dismissed. The appellant was granted consequential benefits as per the law.

In conclusion, the Tribunal ruled in favor of the appellant on both issues, highlighting the non-taxability of administration charges pre-amendment and the inapplicability of service tax on uncollected nominal differences. The judgment provides clarity on the interpretation and application of service tax laws in the insurance sector, ensuring compliance with legal provisions.