2018 (10) TMI 1252 - AT - Service Tax

CENVAT Credit - input services - re-insurance policies taken by them for making a cover for the insurance contract entered by them as an output service provider - Department has entertained a view that the insurance and re-insurance are two separate contracts and same are independent of each other - Held that - So far as the availment of Cenvat Credit of the Service Tax paid by the appellant on the premium of the re-insurance taken by them for providing the insurance service to their customers - the matter is no longer res integra as it has already been decided by this Tribunal and Hon ble High Court of Karnataka in case of Commissioner of Service Tax, Bangalore Vs PNB Metlife Insurance Co. Ltd. 2015 (5) TMI 68 - KARNATAKA HIGH COURT , where it was held that the transfer of a portion of the risk of the re-insurance has to be considered as having nexus with the output service, since the re-insurance is a statutory obligation and the same is co-terminus with the Insurance Policy - credit rightly availed. Demand of ₹ 37,83,124/- - excess paid Service Tax was utilized by them for payment of their Service Tax liability for the month of November, 2007 and during the month of January and March, 2008 - Held that - If any excess payment of service tax has been made by the appellant, they are certainly entitled to make adjustment of same in their liability of subsequent months as per the provisions of Service Tax Rules, however, this only needs meticulous verification of challans / payments and ST -3 returns at field level - the Commissioner has not applied his mind on this and routinely confirmed the demand of service tax without getting the claim of the appellant verified - the matter remanded to original adjudicating authority only with regard to the second demand of ₹ 37,83,124/- for necessary verification of the claim of the appellant and accordingly decided the same on the merits. Appeal allowed in part and part matter on remand.

Summary

Issues:
1. Availment of Cenvat Credit on Service Tax paid for re-insurance policies.
2. Alleged improper adjustment of excess Service Tax paid by the appellant.

Analysis:

Issue 1: Availment of Cenvat Credit on Service Tax for re-insurance policies
The appellant, a Government of Rajasthan Undertaking providing General Insurance Services, faced a service tax demand of &8377; 33,69,617 for availing Cenvat Credit on Service Tax paid for re-insurance policies. The department contended that insurance and re-insurance are separate contracts and re-insurance does not qualify as an 'Input Service' under Rule 2(a) of the Cenvat Credit Rules, 2004. The appellant argued that re-insurance is essential to cover risks of insurance provided to subscribers and cited a Tribunal order emphasizing the nexus between re-insurance and insurance services. The Tribunal and High Court had previously ruled in favor of considering re-insurance as an input service eligible for Cenvat credit. The Tribunal upheld the appellant's right to avail Cenvat credit on Service Tax paid for re-insurance, dismissing the service tax demand.

Issue 2: Improper adjustment of excess Service Tax
Another demand of &8377; 37,83,124 was raised against the appellant for allegedly wrongly adjusting excess Service Tax paid in one month towards subsequent periods, violating Rule 6(3) of the Service Tax Rules, 1994. The appellant argued that they properly adjusted excess payments in accordance with the rules, as evidenced by their Service Tax returns. The Tribunal noted that the Commissioner had not adequately verified the appellant's claims and remanded the matter for thorough verification of the appellant's adjustments and payments. The Tribunal emphasized that if the appellant had legitimately taken Cenvat credit in one month, they were entitled to utilize it in subsequent months. The Tribunal allowed this part of the appeal by remanding the issue for de-novo adjudication, highlighting the need for meticulous verification of the appellant's claims.

In conclusion, the Tribunal upheld the appellant's right to avail Cenvat credit on re-insurance policies but remanded the issue of improper adjustment of excess Service Tax for further verification and adjudication. The judgment emphasized the importance of following procedural rules and thoroughly verifying claims before confirming service tax demands.