2024 (12) TMI 283 - AT - Service Tax

CENVAT Credit of service tax paid - input services - appellant on deposit insurance premium to Deposit Insurance and Credit Guarantee Corporation (DICGC) - HELD THAT - The registration of the banks with DICGC is not optional but compulsory. All Banks have to obtain a licence from Reserve Bank of India u/s 22 of the Banking Regulation Act without which no bank can function and all of them have also to compulsorily obtain registration with the DICGC in order to protect the interest of depositors. The registration can be obtained by the banks only on payment of insurance premium to DICGC. If a Bank fails to pay premium to DICGC, its registration would be cancelled, which ultimately would result in cancellation of licence granted to the Bank by Reserve Bank of India. Which means without payment of insurance premium to DICGC, the Bank will not be able to function or provide any banking and other financial services. Therefore payment of insurance premium to DICGC is an integral part of banking and other financial services and is an input service for which Cenvat Credit can be availed by the banks. The impugned orders are set aside - the appeals filed by the Appellant are allowed.

Issues Involved:

1. Admissibility of CENVAT credit on service tax paid on deposit insurance premium to Deposit Insurance and Credit Guarantee Corporation (DICGC).
2. Whether the insurance premium paid by banks to DICGC qualifies as an "input service" under Rule 2(l) of the Cenvat Credit Rules, 2004.

Issue-wise Detailed Analysis:

1. Admissibility of CENVAT Credit on Service Tax Paid on Deposit Insurance Premium to DICGC:

The core issue in these appeals was the admissibility of CENVAT credit for the service tax paid by the appellant, a co-operative bank, on the deposit insurance premium to DICGC. The department contended that the appellant wrongly availed CENVAT credit for this service, asserting it did not qualify as an "input service" under Rule 2(l) of the Cenvat Credit Rules, 2004. Two separate show cause notices were issued, which were confirmed by the Adjudicating Authority and upheld by the Commissioner (Appeals). However, the matter was referred to a Larger Bench due to conflicting decisions from different Tribunal Benches. The Larger Bench, after examining relevant laws and regulations, concluded that the insurance service provided by DICGC is indeed an "input service," allowing the appellant to avail CENVAT credit for the service tax paid.

2. Whether the Insurance Premium Paid by Banks to DICGC Qualifies as an "Input Service":

The Tribunal's Larger Bench addressed whether the insurance premium paid by banks to DICGC for securing customer deposits falls within the definition of "input service." The Tribunal relied on the precedent set in South Indian Bank vs. Commissioner of Customs, which determined that the insurance service from DICGC is not only mandatory but commercially necessary for banks to function. The Tribunal noted that without paying the insurance premium to DICGC, banks could not operate or provide "banking and other financial services," as their licenses could be revoked by the Reserve Bank of India. The Tribunal also referenced the Karnataka High Court's decision in PNB Metlife India Insurance Co. Ltd., which established that mandatory reinsurance services are integral to providing output services and thus qualify as "input services." Consequently, the Tribunal held that the insurance service from DICGC is an "input service," and banks are entitled to CENVAT credit for the service tax paid on it.

Conclusion:

The Tribunal allowed the appeals, setting aside the impugned orders, and confirmed that the insurance premium paid to DICGC is an integral part of banking services, qualifying as an "input service" for which CENVAT credit can be availed. This decision aligns with the view that registration with DICGC is compulsory for banks, and the insurance premium is essential for their operation, thus entitling them to the credit.

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