2020 (9) TMI 355 - AT - Service Tax

CENVAT Credit - input services - services of insurance agents when portion of premium amount (consideration towards output service) - reverse charge mechanism - service not liable to tax - credit has been denied solely on the premise that the insurance service (for sale of ULIP policies) is exempted service, since no service tax is paid on the premium pertaining to the investment component - HELD THAT - The Ld. Commissioner committed a fundamental error in assuming that the sale of ULIP policy by the appellant results into provision of exempted service. We are of the considered view that the appellant is only engaged in rendering the insurance services and merely for the reason that portion of the premium amount charged in respect of ULIP policies is not liable to tax, it cannot be said that the said service is exempted output service when tax is duly paid on the portion of premium collected on risk coverage. Merely for the reason that the break-up of premium amount is shown in the policy, the fact that remains is that the policy is one and single with the feature of both risk coverage and investment opportunity simultaneously. It cannot be said that the insured i.e. the subscriber to the policy has availed two separate policies. Neither there can be a question of extending the facility for subscribing to ULIP policy with only the investment portion, excluding the risk coverage and vice versa. Since no exempt service has been provided by the appellant, there is no application of Rule 6 of the Credit Rules in the instant case to deny the credit. Moreover, since there is no dispute that the services of insurance agents have been used in providing output service, the said service constitute eligible input service under Rule 2(l) and therefore, service tax paid thereon is clearly eligible for credit in the hands of the appellant. The impugned demand of service tax along with interest and penalty cannot be sustained and hence, set aside in entirety - Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Appellant filed an appeal against demand of service tax, denial of CENVAT credit, interest, and penalty.
- Whether appellant is eligible to avail CENVAT credit of service tax paid under reverse charge mechanism.
- Interpretation of Rule 6(5) of the Credit Rules.
- Application of Rule 3 and Rule 6(1) of the Credit Rules.
- Determination of exempted service and input service in the case of ULIP policies.

Analysis:
The appellant, an insurance company, appealed against the denial of CENVAT credit for the period from 1st April, 2005 to 15th May, 2008. The dispute arose from the treatment of premium collected for ULIP policies, where only the risk coverage portion was taxable. The Revenue contended that since service tax was not paid on the investment portion of ULIP, the appellant was not eligible for CENVAT credit on commission paid to agents. The Ld. Commissioner upheld the demand, citing Rule 6(5) of the Credit Rules, stating that the credit was used in exempted services. The appellant argued that they provided only insurance services, not exempt services, and rightly availed credit under Rule 6(5).

The Tribunal analyzed the definitions of input service and exempted service under the Credit Rules. It noted that the Ld. Commissioner erred in considering the sale of ULIP policies as exempted service solely based on the non-taxable investment portion of the premium. The Tribunal emphasized that the appellant provided insurance services, and the policy's single nature with both risk coverage and investment opportunity did not create two separate services. Referring to a Delhi Tribunal case, it highlighted that no separate identifiable service existed for the investment portion of the premium. Consequently, the Tribunal concluded that no exempt service was provided, and Rule 6 of the Credit Rules did not apply to deny the credit.

The Tribunal further determined that the services of insurance agents constituted eligible input services under Rule 2(l) and allowed the credit. It set aside the impugned demand of service tax, interest, and penalty, ruling in favor of the appellant. The appeal was allowed, providing consequential relief as per the law. The judgment was pronounced on 18/08/2020 by the Tribunal at CESTAT Bangalore, with detailed analysis and reasoning provided by the members hearing the case.