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2020 (8) TMI 786 - AT - Service TaxCENVAT Credit - input services or not - input services, value of which not included in value of output services - insurance service - negative list regime - endowment and unit linked investment plan policies - circular no. 334/1/2008-TRU dated 29th February 2008 - HELD THAT - This issue came up before, and was decided by, the Tribunal in SBI LIFE INSURANCE COMPANY LTD VERSUS COMMISSIONER OF CENTRAL EXCISE, MUMBAI II 2019 (12) TMI 1127 - CESTAT MUMBAI . In this decision, it has been held that the main part of the definition of exempted service in rule 2( e) of CENVAT Credit Rules, 2004 clearly refers only to such taxable service as are exempt from the whole of the tax and, being fenced in by the definition of taxable services enumerated, for the disputed period, within section 65(105) of Finance Act, 1994, is not amenable to coverage of any service that is yet to be taxable. In consequence, it has been held that the inclusive component, pertaining, as they are, to services which is without definition, can only be intended for such activities as cannot be taxed by recourse to List I of the Seventh Schedule in the Constitution of India. That was considered to be the only harmonious construct of the definition taken in totality. As the receipts excluded from computation of assessable value are not consideration for exempt services or may even lie outside the scope of inclusion as consideration, by being returnable to the policy holder, the disputed input services does not come within the ambit of rule 6 of CENVAT Credit Rules, 2004. Appeal allowed.
Issues Involved:
1. Applicability of Rule 6(3A) of CENVAT Credit Rules, 2004. 2. Definition and scope of 'exempted services' under Rule 2(e) of CENVAT Credit Rules, 2004. 3. Taxability of 'unit linked insurance policy (ULIP)' and 'endowment policy' under service tax. 4. Maintenance of separate accounts for taxable and exempted services. 5. Legislative intent and interpretation of statutory provisions related to service tax. Issue-wise Detailed Analysis: 1. Applicability of Rule 6(3A) of CENVAT Credit Rules, 2004: The appeal by M/s TATA AIG Life Insurance Company Ltd challenges the invocation of Rule 6(3A) of CENVAT Credit Rules, 2004, which led to the confirmation of a demand for ?1,71,89,614 for the period from 1st April 2008 to 15th May 2008 and ?60,34,23,035 for the period from 1st April 2008 to 31st March 2011. The rule mandates maintaining separate accounts for taxable and exempted services, failing which liability arises for the non-compliance. 2. Definition and Scope of 'Exempted Services' under Rule 2(e) of CENVAT Credit Rules, 2004: The core issue was the extent to which the definition of 'exempted services' in Rule 2(e) could be stretched to deny the availment of credit of tax paid on 'input services' procured by providers of 'insurance service' before the transformation to the 'negative list' tax regime. The appellant argued that their services did not fall within the ambit of 'exempted services' as they were not entirely exempt from tax. The adjudicating authority considered components of the endowment policy as distinct services, which the appellant contested based on a clarification in circular no. 334/1/2008-TRU dated 29th February 2008. 3. Taxability of 'Unit Linked Insurance Policy (ULIP)' and 'Endowment Policy' under Service Tax: The Tribunal examined the taxability of ULIP and endowment policies. The ULIP, which includes both risk cover and investment returns, was brought entirely under the tax net with effect from 16th May 2008. The endowment policy, providing returns beyond mere risk coverage, continued to escape liability for assessment until 31st March 2011. The Tribunal noted that the insurance business inherently includes both risk cover and investment returns, which are essential to its marketability. 4. Maintenance of Separate Accounts for Taxable and Exempted Services: The Tribunal discussed the requirement under Rule 6 of CENVAT Credit Rules, 2004, for maintaining separate accounts for taxable and exempted services. The appellant's failure to do so led to the demand for reversal of credit. However, the Tribunal found that the services provided by the appellant did not fit the definition of 'exempted services' as per Rule 2(e), which includes services not leviable to tax under section 66 of the Finance Act, 1994. 5. Legislative Intent and Interpretation of Statutory Provisions Related to Service Tax: The Tribunal emphasized the legislative intent behind taxing only the insurance element in the product bouquet and not the entire premium. The Tribunal referred to previous decisions, including SBI Life Insurance Co Ltd v. Commissioner of Central Excise, Mumbai, and Max Life Insurance Co Ltd, to support the view that the invested portion of the premium does not represent a service. The Tribunal concluded that the subsequent taxability of a service does not imply its prior non-leviability and that the inclusive component of 'exempted services' refers to services that cannot be taxed by the Union. Conclusion: The Tribunal held that the receipts excluded from the computation of assessable value are not consideration for exempt services and do not fall within the ambit of Rule 6 of CENVAT Credit Rules, 2004. Consequently, the demand in the impugned order failed, and the appeal was allowed. The order was pronounced in the open court on 21/01/2020.
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