2025 (1) TMI 148 - AT - Service Tax

CENVAT Credit on tax paid in terms of Deposit Insurance Act - input services or not - HELD THAT - It is, worth-noting, that Mumbai Bench of this Tribunal had expressed its apprehension on the precedent value of M/S. SOUTH INDIAN BANK VERSUS THE COMMISSIONER OF CUSTOMS, CENTRAL EXCISE AND SERVICE TAX-CALICUT 2020 (6) TMI 278 - CESTAT BANGALORE - LB Larger Bench decision for the reason that observations of Hon'ble Supreme Court in several other cases including that of COMMISSIONER OF CUSTOMS (IMPORT) , MUMBAI VERSUS M/S. DILIP KUMAR AND COMPANY ORS. 2018 (7) TMI 1826 - SUPREME COURT (LB) concerning strict interpretation of taxation statute was not considered, for which suggestion was made for a reference to a still Larger Bench comprising of Five Members but that was negated by the same Three Members Larger Bench with reasoning noted in the said decision including affirmation of the decision of the Larger Bench made in South Indian Bank Ltd. by Hon'ble Kerala High Court and Hon'ble Bombay High Court. The decision of the Larger Bench made in South Indian Bank that insurance service provided by the Deposit Insurance Corporation to the banks is an input service and CENVAT Credit on Service Tax paid by this service received by the banks from the Deposit Insurance Corporation can be availed by the banks for rendering output service, still holds the field. Conclusion - The admissibility of CENVAT Credit on the Service Tax paid for insurance premiums under the Deposit Insurance Act upheld. Appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the CENVAT Credit availed by the appellant banking company on the Service Tax paid on insurance premiums to the Deposit Insurance Credit Guarantee Corporation is admissible.
Whether the insurance service provided by the Deposit Insurance Corporation to banks qualifies as an "input service" under the CENVAT Credit Rules, 2004.
Whether the decisions of the Larger Bench of the Tribunal and subsequent affirmations by the High Courts are applicable to the present case.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Admissibility of CENVAT Credit on Insurance Premium

Relevant legal framework and precedents: The CENVAT Credit Rules, 2004, particularly the definition of "input service," and precedents set by the Larger Bench in the South Indian Bank case and the Bank of America case.
Court's interpretation and reasoning: The Tribunal relied on the precedent that insurance services received by banks are mandatory and commercially expedient, forming part of the main definition of "input service."
Key evidence and findings: The Tribunal noted that without the insurance service, banks could not function or provide output services, as it is a legal requirement under the Deposit Insurance Act.
Application of law to facts: The Tribunal applied the legal reasoning from the Larger Bench decisions, affirming that the insurance service is integral to the banks' operations and qualifies as an input service.
Treatment of competing arguments: The Tribunal dismissed the respondent's argument that the service recipient was the depositor, emphasizing the necessity of the insurance service for the banks' operations.
Conclusions: The Tribunal concluded that the CENVAT Credit on Service Tax paid on the insurance premium is admissible.

Issue 2: Qualification of Insurance Service as "Input Service"

Relevant legal framework and precedents: The definition of "input service" under the CENVAT Credit Rules, 2004, and the precedents set by the Larger Bench in the South Indian Bank case.
Court's interpretation and reasoning: The Tribunal determined that the insurance service falls within the main part of the definition of "input service" since it is essential for banks to provide output services.
Key evidence and findings: The Tribunal cited the necessity of the insurance service for banks to accept deposits and provide financial services, which are taxable under the Finance Act, 1994.
Application of law to facts: The Tribunal applied the reasoning from the Larger Bench decisions, affirming that the insurance service is an input service used by banks to provide output services.
Treatment of competing arguments: The Tribunal rejected the argument that the insurance service is not an input service, emphasizing its necessity for the banks' operations.
Conclusions: The Tribunal concluded that the insurance service qualifies as an "input service" under the CENVAT Credit Rules, 2004.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "It cannot, therefore, be doubted that the insurance service received by the banks from the Deposit Insurance Corporation is not only mandatory but is also commercially expedient. In fact, without this service the banks may not be able to function at all."
Core principles established: The insurance service provided by the Deposit Insurance Corporation is an essential input service for banks, allowing them to function and provide taxable output services. CENVAT Credit on the Service Tax paid for such services is admissible.
Final determinations on each issue: The Tribunal allowed the appeals, setting aside the orders of the Commissioner and granting consequential relief to the appellant banking company.

In conclusion, the Tribunal upheld the admissibility of CENVAT Credit on the Service Tax paid for insurance premiums under the Deposit Insurance Act, affirming the decisions of the Larger Bench and the High Courts. The insurance service was deemed an integral input service necessary for banks to provide taxable output services.

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