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2022 (2) TMI 11 - HC - Service TaxCENVAT Credit - input service or not - re-insurance being pooled through a mechanism provided by IRDA - respondent who is an insurance company, had been depositing its service tax on the amount of insurance premium - HELD THAT - In case of PNB Metlife 2015 (5) TMI 68 - KARNATAKA HIGH COURT which judgment has been accepted by the department, the High Court has held that the service tax paid on re-insurance would be allowable as input service under the CENVAT Credit Rules, 2004 - In the present case, we are concerned with such re-insurance being pooled through a mechanism provided by IRDA. These directives had statutory force and the act of the insurance companies to create such a pool was not a voluntary act. The tribunal correctly therefore was of the opinion that this pooling system is nothing but a form of re-insurance. The term reinsurance has been defined under Section 2(16B) of the Insurance Act, 1938 as to mean the insurance of portion of one insurer s risk by another insurer who accepts the risk for a mutually acceptable premium. Section 101A of the Act makes it compulsory for every insurer to re-insure such percentage of the sum insured on each policy as may be specified by the authority with a previous approval of the Central Government. Appeal dismissed.
Issues:
- Challenge to the judgment of Customs, Excise and Service Tax Appellate Tribunal regarding service tax paid on re-insurance as allowable input service. - Interpretation of the definition of input service under Rule 2(l) of the CENVAT Credit Rules, 2004. - Applicability of the judgment of the Division Bench of the Karnataka High Court in a similar case. - Distinction between simple re-insurance and pooling mechanism in the insurance industry. - Examination of statutory requirements and directives under the Insurance Act, 1938 regarding reinsurance and pooling arrangements. Analysis: The appeal before the High Court challenged the Customs, Excise and Service Tax Appellate Tribunal's judgment concerning the eligibility of service tax paid on re-insurance as an input service. The Commissioner had denied the input service credit to the respondent-insurance company based on the definition of input service under Rule 2(l) of the CENVAT Credit Rules, 2004. The Tribunal, relying on a Karnataka High Court judgment, allowed the appeal, emphasizing the continuous nature of insurance processes beyond policy issuance. The High Court concurred with the Tribunal, stating that re-insurance is an integral part of the insurance process, eligible for CENVAT credit to prevent double taxation. The revenue objected to the applicability of the Karnataka High Court judgment, arguing that the pooling mechanism used by the respondent and other insurers was not a statutory requirement. However, the Tribunal highlighted the statutory provisions of the Insurance Act, 1938, empowering the IRDA to regulate reinsurance matters, including pooling arrangements. The IRDA's directive mandated all general insurers to participate in a pooling arrangement, similar to the scenario in the Karnataka High Court case, where re-insurance was considered an allowable input service. The High Court found little distinction between the two cases, emphasizing that the pooling system mandated by the IRDA was a form of re-insurance with statutory backing. The definition of reinsurance under the Insurance Act, 1938, and the compulsory nature of re-insurance under Section 101A further supported the conclusion that the pooling mechanism constituted re-insurance. Consequently, the High Court dismissed the appeal, upholding the Tribunal's decision and reaffirming the eligibility of re-insurance as an input service under the CENVAT Credit Rules, 2004.
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