2024 (11) TMI 1410 - AT - Central Excise

CENVAT Credit - whether a banking company would be entitled to avail CENVAT credit of service tax paid to Deposit Insurance and Credit Guarantee Corporation for insuring deposits? - HELD THAT - It needs to be noted that after the Larger Bench of the Tribunal answered the reference, a Division Bench of the Tribunal in M/S. SOUTH INDIAN BANK, BANK OF BARODA, CANARA BANK, CORPORATION BANK, KARNATAKA BANK, SYNDICATE BANK, CATHOLIC SYRIAN BANK LTD. VERSUS C.C.,C.E. S. T-CALICUT, C.C.E ST, MANGALORE, C.C. CE S.T, TRIVANDRUM, STATE BANK OF MYSORE 2020 (11) TMI 120 - CESTAT BANGALORE and against the decision of the Division Bench of the Tribunal, the department filed an appeal before the Kerala High Court. The reference made to the Larger Bench has, therefore, to be answered in the same terms as was answered by the Larger Bench of the Tribunal in M/S. SOUTH INDIAN BANK VERSUS THE COMMISSIONER OF CUSTOMS, CENTRAL EXCISE AND SERVICE TAX-CALICUT 2020 (6) TMI 278 - CESTAT BANGALORE - LB . It was held in the reference that ' The insurance service provided by the Deposit Insurance Corporation to the banks is an input service and CENVAT credit of service tax paid for this service received by the banks from the Deposit Insurance Corporation can be availed by the banks for rendering output services.' Conclusion - The insurance services necessary for statutory compliance in banking operations qualify as input services under the CENVAT credit rules. The appeal may now be placed before the Division Bench of the Tribunal for deciding the appeal on merits.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal question presented and considered in this judgment is whether a banking company is entitled to avail CENVAT credit of the service tax paid to the Deposit Insurance and Credit Guarantee Corporation for insuring deposits. This issue arose due to conflicting decisions in previous cases, necessitating a definitive interpretation by a Larger Bench.

2. ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents:

The primary legal framework involves the interpretation of CENVAT credit rules, particularly in the context of whether the insurance service provided by the Deposit Insurance Corporation qualifies as an "input service" for banks. The relevant statutory provision is Section 66D, which outlines the negative list of services exempt from service tax. The Larger Bench previously addressed this issue, determining that such insurance services are indeed "input services," allowing banks to claim CENVAT credit.

Court's Interpretation and Reasoning:

The court reaffirmed the Larger Bench's interpretation, emphasizing that the insurance services provided to banks are integral to their business operations. The court noted that the insurance service is necessary for conducting banking business, as banks are statutorily obligated to insure deposits. Therefore, the service tax paid on these insurance services can be availed as CENVAT credit for rendering "output services."

Key Evidence and Findings:

The court relied on the findings of the Larger Bench and the Kerala High Court, which had previously examined the issue in detail. The Kerala High Court's judgment supported the view that the insurance services are not part of the negative list under Section 66D and thus do not fall within the exempted category. This finding was crucial in concluding that the banks are entitled to CENVAT credit.

Application of Law to Facts:

The application of law focused on the relationship between the services availed by the banks (insurance services) and the services rendered by them (banking services). The court reasoned that there is a direct link between the two, as the insurance services are essential for the banks to fulfill their statutory obligations and continue their business operations. This linkage justifies the classification of insurance services as "input services," allowing for CENVAT credit.

Treatment of Competing Arguments:

The court addressed the revenue's arguments, which attempted to compartmentalize the activities of the banks to deny the CENVAT credit claim. The revenue argued that the acceptance of deposits is a distinct activity from the insurance of those deposits. However, the court dismissed this argument, stating that such a separation is artificial and contrary to the statutory obligations of banks. The court found the revenue's interpretation unpersuasive and aligned with the Larger Bench's and Kerala High Court's reasoning.

Conclusions:

The court concluded that the insurance services provided by the Deposit Insurance Corporation to banks qualify as "input services." Consequently, banks are entitled to avail CENVAT credit of the service tax paid for these services. The court's decision was consistent with the findings of the Larger Bench and the Kerala High Court, reinforcing the entitlement of banks to claim such credit.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning:

"The insurance service provided by the Deposit Insurance Corporation to the banks is an 'input service' and CENVAT credit of service tax paid for this service received by the banks from the Deposit Insurance Corporation can be availed by the banks for rendering 'output services.'"

Core Principles Established:

The judgment establishes that insurance services necessary for statutory compliance in banking operations qualify as "input services" under the CENVAT credit rules. This principle underscores the integration of such services into the broader context of banking activities.

Final Determinations on Each Issue:

The court determined that banks are entitled to avail CENVAT credit for the service tax paid on insurance services provided by the Deposit Insurance Corporation. This determination aligns with the prior decisions of the Larger Bench and the Kerala High Court, providing clarity and consistency in the application of CENVAT credit rules to banking operations.