2019 (2) TMI 688 - AT - Service Tax

CENVAT Credit - exempt service or not - investment in securities - whether the activity comes under the scope of Trading of goods or not - Rule 6 of CENVAT Credit Rules - Held that - Undisputedly, the appellant assessee is an Indian Insurance Company licensed by Insurance Regulatory Development Authority of India (IRDAI) to carry only on life insurance policies - the activity undertaken by the appellant assessee of issuing any unit linked insurance policy or scrips or any instrument is covered under life insurance business. The Insurance Act, 1938, in Section 27 thereof also mandates that it is obligatory on the part of the insurance company to have investments which are not less than the sum of its current and expected future liabilities towards policy holders. The Act also stipulates that not less than 25% of the sum should be in Government securities and the balance in approved investments, as specified in IRDA (Investment) Regulations 2000. It is not in dispute that w.e.f. 01.05.2011, not only the risk cover in the life insurance but also the amounts attributable to managing the investment of the policy holder are liable to be taxed under taxable head in the life insurance services, as specified in Section 65(105)(zx) of the Finance Act, 1994 - Indian Insurance Company like the assessee could only be undertaking life insurance business, it is also clear that investment in securities is an obligation that the insurer has to fulfil in order to render the life insurance services. Any insurance company which does not comply the requirements under the Insurance Act to undertake specified investments, could be disqualified from undertaking right insurance business. It is also clear from the amendment to the definition of taxable service under the head Life Insurance Service under the Finance Act, 1994, w.e.f. 01.05.2011, the premium attributable to the risk in life as also managing to investment was taxable. The investment activity undertaken by the appellant assessee is an integral part of life insurance service and cannot be divested from the same. As the service being rendered by the appellant is that of life insurance, which is a taxable service, it cannot be said that appellant is rendering any exempted service - even otherwise Rule 6 of CENVAT Credit Rules 2004, applies in a case where credit on inputs and input services i.e. common to rendition on taxable and exempted services has been availed of, in the instant case the only service that the appellant is rendering is life insurance service, which is taxable entirely - Thus, it cannot be said that appellant has availed any credit on input and input services which is common or attributable to rendition of any exempted services. In the case in hand, as the activity of managing investments suffers service tax liability under life insurance services, the same cannot be said to be an exempted service, warranting reversal of CENVAT Credit under Rule 6 of CENVAT Credit Rules 2004. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether the investment in securities by an insurance company can be considered an exempt service covered under "Trading of Goods" warranting reversal of CENVAT Credit under Rule 6 of CENVAT Credit Rules.
2. If reversal under Rule 6 is warranted, whether it should be on the presumptive value of 6% or 8% in terms of Rule 6(3)(i) or on a proportionate basis as indicated in Rule 6(3)(ii) read with Rule 6(3A) of CENVAT Credit Rules 2004.

Issue-wise Detailed Analysis:

1. Investment in Securities as Exempt Service:
The appellant, an Indian Insurance Company, argued that the investment in approved securities is a statutory requirement under the Insurance Act, 1938. The investment activity is integral to the life insurance business and is subject to service tax, thereby not constituting an exempt service. The Revenue countered that such investment amounts to trading, an exempted service, and thus, the appellant is ineligible for CENVAT Credit on input services used for trading activities.

The Tribunal found that the appellant is mandated by the Insurance Act to invest in securities to meet current and future liabilities towards policyholders. The premiums collected for life insurance policies, including those attributable to managing investments, are subject to service tax. Thus, the investment activity is an integral part of the taxable life insurance service. The Tribunal concluded that the appellant is not rendering any exempted service, and Rule 6 of the CENVAT Credit Rules, 2004, does not apply as the appellant's entire service is taxable.

2. Method of Reversal under Rule 6:
The Revenue's appeal questioned the adjudicating authority's method of determining the reversal of CENVAT Credit, arguing that it should be based on a presumptive value of 5% or 6% of the value of exempted services, rather than on a proportionate basis.

The Tribunal held that since the appellant is only rendering taxable life insurance services, there is no need for any reversal under Rule 6. The investment activity is part of the taxable service, and the premiums collected, including those for managing investments, are subject to tax. Therefore, the Revenue's appeal on the method of reversal is rendered academic and does not survive.

Conclusion:
The Tribunal allowed the appellant's appeal, holding that the investment activity is part of the taxable life insurance service and does not warrant reversal of CENVAT Credit under Rule 6. The Revenue's appeal was rejected as the issue of the method of reversal was deemed academic in this context.

Order:
The appeal filed by the appellant assessee is allowed, and the appeal filed by the Revenue is rejected.