2025 (1) TMI 677 - AT - Service Tax

CENVAT Credit of service tax paid to Deposit Insurance And Credit Guarantee Corporation for insuring deposits - HELD THAT - The Larger Bench in M/S STATE BANK OF PATIALA VERSUS COMMISSIONER OF CENTRAL EXCISE AND SERVICE TAX, CHANDIGARH-II 2024 (11) TMI 1410 - CESTAT CHANDIGARH (LB) has observed ' 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 .' Appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

Whether the insurance service provided by the Deposit Insurance And Credit Guarantee Corporation to banks qualifies as an "input service" under the CENVAT Credit Rules.
Whether banks are entitled to avail CENVAT Credit of the service tax paid for insurance services received from the Deposit Insurance Corporation for rendering "output services."
Whether the activities related to the acceptance of deposits and the consequential insurance services provided by the bank fall within the negative list under Section 66D of the Finance Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Qualification of Insurance Service as "Input Service"

Relevant legal framework and precedents: The CENVAT Credit Rules allow for credit on input services used in the provision of output services. The definition of "input service" is central to this issue.
Court's interpretation and reasoning: The Larger Bench of the Tribunal interpreted that the insurance service provided by the Deposit Insurance Corporation is indeed an "input service" as it is necessary for the banks to conduct their business.
Key evidence and findings: The Tribunal considered the statutory obligation of banks to insure deposits as part of their business operations.
Application of law to facts: The Tribunal applied the definition of "input service" to conclude that the insurance service is integral to the banks' business of accepting deposits and providing loans.
Treatment of competing arguments: The Tribunal rejected the argument that such services fall under the negative list, emphasizing their necessity for the banks' operations.
Conclusions: The Tribunal concluded that the insurance service qualifies as an "input service," allowing banks to claim CENVAT Credit.

Issue 2: Entitlement to CENVAT Credit

Relevant legal framework and precedents: The entitlement to CENVAT Credit is governed by the CENVAT Credit Rules, which permit credit on input services used for providing taxable output services.
Court's interpretation and reasoning: The Tribunal, supported by the Kerala High Court's judgment, held that banks are entitled to avail CENVAT Credit for the service tax paid on insurance services.
Key evidence and findings: The Tribunal found that the insurance service is directly related to the banks' output services, thus qualifying for credit.
Application of law to facts: The Tribunal applied the rules to the specific context of banking operations, determining that the insurance service is essential for rendering output services.
Treatment of competing arguments: The Tribunal dismissed the Revenue's argument that such credit should be denied, as the services are not within the negative list.
Conclusions: The Tribunal concluded that banks are entitled to CENVAT Credit for the insurance services received.

Issue 3: Applicability of the Negative List

Relevant legal framework and precedents: Section 66D of the Finance Act outlines services included in the negative list, which are exempt from service tax.
Court's interpretation and reasoning: The Tribunal and the Kerala High Court interpreted that the insurance services do not fall within the negative list as they are not merely financial transactions but are essential services for banking operations.
Key evidence and findings: The courts found that the insurance service is not represented merely by interest or discount, thus not fitting the negative list's criteria.
Application of law to facts: The courts applied the negative list's provisions to the banking context, finding no basis for including insurance services.
Treatment of competing arguments: The courts rejected the Revenue's interpretation that the services are part of the negative list, supporting the banks' position.
Conclusions: The courts concluded that the insurance services are not part of the negative list, supporting the banks' entitlement to 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 banking operations qualify as input services, allowing for CENVAT Credit. It also clarifies that such services do not fall within the negative list.
Final determinations on each issue: The Tribunal, supported by the Kerala High Court, determined that banks are entitled to CENVAT Credit for insurance services, and these services are not part of the negative list.

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