2024 (6) TMI 1112 - AT - Service Tax

Denial of CENVAT Credit - input service or not - duty paid on re-insuring motor vehicle while providing General Insurance Service - HELD THAT - From the bare reading of Sub-Clause (BA) of Rule 2(l) of the CENVAT Credit Rules 2004 it can be said that Sub-Clause (BA) would apply to the Appellant s case and presence of two negatives namely but excludes in Clause 1 and except when used by in Sub-Clause (BA) would bring a positive meaning to the fact that the said input service is available to the provider of output service who are specified in Sub-Clause (D) of Clause 105 of Section 65 of the Finance Act 1994 who is by definition the insurer carrying on general insurance business in relation to General Insurance and providing service to a policy holder or to any other person. It has to be interpreted and understood in the manner two negatively worded statutes are to be understood. By definition itself General Insurance Company has been exclusively granted the right to use CENVAT Credit in relation to motor vehicles insured by them or reinsured by them but the learned Commissioner had committed a blunder in reproducing the section wrongly in his order and replacing provider of output service with provider of input service to reach at his findings that credit are not admissible. Therefore by definition available in the CENVAT Credit Rules 2004 under Rule 2(l) and to meet the statutory requirement in making itself eligible to provide insurance service as General Insurance Company Appellant is entitled to avail CENVAT Credit on re-insurance of motor vehicles and the credit availed by it during the relevant period from April 2011 to March 2012 on this score were all admissible credit. The order passed by the Commissioner of Service Tax-V Mumbai is hereby set aside - Appeal allowed.

Summary

Issues:
Denial of CENVAT Credit on re-insuring motor vehicle for General Insurance Service from April 2011 to March 2012.

Analysis:
1. Issue of Denial of CENVAT Credit: The appellant contested the denial of CENVAT Credit on re-insuring motor vehicles for providing General Insurance Service from April 2011 to March 2012. The appellant argued that re-insurance of motor vehicles is a statutory obligation under the Insurance Act, 1938, and compliance with such statutory obligations makes CENVAT Credit admissible against the tax component of the payment. The appellant cited various judgments, including those by the Tribunal and High Courts, supporting the admissibility of CENVAT Credit for re-insurance services. The appellant contended that the change in the definition of input services from April 2011 did not exclude re-insurance services from availing CENVAT Credit. The appellant emphasized that the Commissioner's order was unsustainable both in law and fact.

2. Contention of the Respondent: The Authorized Representative for the respondent argued in support of the Commissioner's order, stating that the exclusion clause under Rule 2A(BA) of the CENVAT Credit Rules, 2004, excludes re-insurance services from the purview of availing credit unless the motor vehicle is a capital good. The respondent contended that as a General Insurance Company insuring vehicles of other individuals, the appellant cannot claim CENVAT Credit on re-insurance services.

3. Analysis of Relevant Law and Precedent: The Tribunal analyzed the relevant provisions of the CENVAT Credit Rules, specifically Rule 2(l) during the disputed period. The Tribunal highlighted that the Commissioner had incorrectly mentioned the effective date of the provision, causing confusion. By interpreting Sub-Clause (BA) of Rule 2(l), the Tribunal concluded that the provision allows the provider of output service, which includes insurers engaged in general insurance business, to avail CENVAT Credit for re-insurance services related to motor vehicles. The Tribunal clarified that the negative wordings in the provision actually affirm the availability of CENVAT Credit for the appellant as a General Insurance Company. The Tribunal emphasized that the Commissioner's misinterpretation of the provision led to the erroneous denial of credit to the appellant.

4. Final Order: Considering the arguments, legal provisions, and precedents, the Tribunal allowed the appeal and set aside the Commissioner's order dated 31.05.2016, providing consequential relief to the appellant. The order was pronounced in the open court on 25.06.2024.