2019 (2) TMI 868 - AT - Service Tax

Levy of service tax - difference between the fund value and the surrender value in case of pre-mature surrender/discontinuance of ULIP - whether the exercise of the right of the insurer to receive money is merely a transaction in actionable claim, so as to be out of the purview of service tax? Held that - The actionable claim as defined under Transfer of Property Act means a claim to any debt, secured by any beneficial interest in moveable property not in the possession, either actual or constructive, of the claimant. From the definition of actionable claim, the insurance policy or the surrender value thereof would become an actionable claim or otherwise was a matter of dispute in the Apex Court in the case of Union of India Vs. Sri Sarada Mills Ltd., 1972 (9) TMI 145 - SUPREME COURT wherein, it has been explained that right to receive insurance money is an actionable claim. While, it is true that the expression of Service under Section 65B(44) only w.e.f. 01.07.2012, however, even for the period prior thereto the transaction in question is a actionable claim and not a service. It has to be also noted that for the period prior to 01.07.2012, for an activity to be tax it had to qualify as a taxable service in one of the specified services - Since we are of the view, the transaction in question is not a service at all but the transaction in a actionable claim hence could not have been by any stretch of imagination covered under any of the specified taxable heads of service even for the period prior to 01.07.2012 - the demand of service tax on the surrender charges for the period in question is unsustainable. Demand of Interest on amount short paid - Held that - The appellant assessee, having not debited the CENVAT register for the period June, 2012, needs to pay the interest on the said amount till the liability of ₹ 91,92,096/- has been paid i.e. to say for the period from July, 2012 to April, 2013 till the date on which debit entry was made in CENVAT register, interest liability on the ₹ 91,92,096/-, needs to be worked out as per the provisions of Section 75 of the Finance Act, 1994 and paid by the appellant assessee - penalty need not be imposed - decided against assessee. Service tax demand of ₹ 8,17,779/- - Held that - The demand for the period needs to be upheld as appellant assessee is not able to show from the records that they had indicated the amount as other income in the service tax returns - demand with interest upheld - penalty set aside. Applicability of Rule 6 of the CENVAT Credit Rules - Held that - Revenue has not challenged the findings of the Adjudicating Authority on merits qua the applicability of Rule 6, on this count itself, the appeal filed by the Revenue deserves to be dismissed. The mere fact that service tax was payable on the part of the value of the services subject to tax, that part of the value on which tax being levied cannot be said to be an exempt service. Only to draw an analogy, abatement was granted from the levy of service tax in excess of 33% on construction services in terms of Notification No. 01/2006-ST, the grant of said abatement did not result in the construction service being an exempt service - the amounts attributable towards surrender charges are not towards rendition of any service hence service tax liability does not arise. Appeal allowed in part.

Issues Involved:
1. Liability to discharge service tax on surrender/discontinuance charges.
2. Liability to discharge interest on service tax amount of ?91,92,096/- due to omission in CENVAT return.
3. Confirmation of service tax of ?8,17,779/- without specifying the head of taxable service.
4. Compliance with Rule 6 of the CENVAT Credit Rules, 2004 regarding premium allocation charges, policy administration charges, etc.

Detailed Analysis:

1. Liability to Discharge Service Tax on Surrender/Discontinuance Charges:
The primary issue was whether the appellant was liable to discharge service tax on the difference between the fund value and the surrender value in the case of pre-mature surrender/discontinuance of ULIP. The appellant argued that the right to terminate the insurance policy and recover insurance money is an actionable claim, not a service, as per the Supreme Court judgments in Union of India Vs. Sri Sarada Mills Ltd., Sunrise Associates Vs. Government of NCT, Delhi, and LIC of India Vs. Insure Policy Plus Services Pvt. Ltd. The Tribunal held that the surrender/discontinuance charges are not consideration for any service rendered but represent the amount retained by the insurer when the insured exercises the right to receive the insurance money. Therefore, the transaction is an actionable claim, outside the purview of service tax under the Finance Act, 1994. The demand for service tax on surrender charges was set aside.

2. Liability to Discharge Interest on Service Tax Amount of ?91,92,096/-:
The appellant contended that there was no short payment as the applicable tax was discharged through cash and CENVAT credit, but an omission in the CENVAT return understated the credit utilization. The Tribunal found that the appellant had correctly indicated the tax liability and discharge in the ST-3 returns, and the omission was corrected in April 2013. However, since the CENVAT register was not debited for June 2012, the appellant was liable to pay interest on ?91,92,096/- from July 2012 to April 2013 as per Section 75 of the Finance Act, 1994. The Tribunal held that the appellant must discharge the interest liability but no penalty was necessary.

3. Confirmation of Service Tax of ?8,17,779/-:
The appellant argued that neither the notice nor the impugned order specified the head of taxable service under which the demand was raised. The Tribunal upheld the demand for ?8,17,779/- as the appellant could not show that the amount was indicated as other income in the service tax returns. The penalties imposed on this count were set aside.

4. Compliance with Rule 6 of the CENVAT Credit Rules, 2004:
The Revenue's appeal contested the adjudicating authority's decision that services rendered by the appellant were only taxable services and no exempt services were rendered. The Tribunal found that the charges towards policy administration, premium allocation, and surrender charges were attributable to the management of ULIP, which is a taxable service. The mere fact that service tax was payable on part of the value did not make the remaining part an exempt service. The Tribunal also noted that the amounts attributable to surrender charges were not towards the rendition of any service. Therefore, the Revenue's appeal was dismissed.

Conclusion:
The appeals filed by the appellant were partly allowed with consequential relief, and the appeal filed by the Revenue was rejected. The Tribunal concluded that the surrender/discontinuance charges were not taxable, the appellant was liable to pay interest on the short-paid service tax amount, the demand for ?8,17,779/- was upheld, and the Revenue's contention regarding Rule 6 compliance was dismissed.

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