2025 (1) TMI 1094 - AT - Service Tax

Eligibility for availment of CENVAT credit of tax paid on premium mandatorily required for functioning as banks under the supervision of Reserve Bank of India - HELD THAT - The decision of 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 had settled the issue of eligibility by holding 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 eligibility for CENVAT credit of tax paid on such premium is beyond any controversy. Appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal issue in this judgment is whether banks are eligible to avail CENVAT credit on the service tax paid on the premium charged by the Deposit Insurance and Credit Guarantee Corporation (DICGC) for insurance services. This issue arises from the statutory requirement for banks to obtain insurance cover for small deposits under the supervision of the Reserve Bank of India (RBI).

2. ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents

The primary legal framework involves the CENVAT Credit Rules, 2004, and the Finance Act, 1994. The eligibility for CENVAT credit hinges on whether the service tax paid on DICGC premiums can be considered an "input service" for banks providing "output services" under the category of "banking and other financial services."

Precedents include the decision of the Larger Bench in South Indian Bank v. Commissioner of Customs, Central Excise and Service Tax, Calicut, which was upheld by the Kerala High Court and the Bombay High Court. These precedents established that the insurance service provided by DICGC is an "input service," allowing banks to avail CENVAT credit.

Court's Interpretation and Reasoning

The Tribunal relied heavily on the decision of the Larger Bench in South Indian Bank, which concluded that the statutory requirement for banks to obtain insurance from DICGC is integral to the provision of banking services. Therefore, the service tax paid on such premiums qualifies as an "input service," allowing for CENVAT credit.

Key Evidence and Findings

The Tribunal noted that the insurance service provided by DICGC is mandatory under RBI directives and is essential for banks to offer their services. The Tribunal also considered the acceptance of the Karnataka High Court's decision in PNB Metlife India Insurance Co. Ltd., which supported the view that statutory obligations linked to service provision are integral to the service process.

Application of Law to Facts

The Tribunal applied the legal principles established in the South Indian Bank case to the present facts, concluding that the service tax paid on DICGC premiums is indeed an "input service." This aligns with the statutory requirements and the continuous nature of the banking services provided by the appellant.

Treatment of Competing Arguments

The Tribunal addressed the respondent's reliance on contrary decisions, such as in ICICI Bank Ltd v. Commissioner of Service Tax, Mumbai-I, by emphasizing the binding nature of the Larger Bench's decision and subsequent High Court affirmations. The Tribunal dismissed the need for further referral to a larger bench, citing the comprehensive resolution of the issue by existing precedents.

Conclusions

The Tribunal concluded that the appellant is entitled to avail CENVAT credit on the service tax paid for DICGC premiums. The impugned order denying such credit was set aside, and the appeal was allowed with consequential relief.

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 statutory obligation for banks to obtain insurance from DICGC is integral to their service provision, qualifying as an "input service."
CENVAT credit is intended to prevent double taxation and should be available for statutory obligations linked to service provision.
Precedents supporting the eligibility for CENVAT credit on such premiums have been consistently upheld by higher judicial authorities.

Final Determinations on Each Issue

The Tribunal determined that the appellant is eligible for CENVAT credit on the service tax paid for DICGC premiums, setting aside the previous order and allowing the appeal with consequential relief.

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