2019 (1) TMI 502 - AT - Service Tax

Insurance service or not - scheme of Life Insurance for the employees was started with a view to render financial assistance to the family members of the employee in case of death of the employee in service - whether service are sovereign in nature or not? - CBEC vide Circular No. 89/7/2006-ST dated 18.12.2006 - Held that - The activity undertaken by the appellants is mandatory and in discharge of statutory obligation in the performance of sovereign functions of the State Govt. Therefore, the appellant s case is squarely covered by the Circular as Life Insurance . Though, it was mentioned in the SCN that the appellants are providing General Insurance Service no case has been made out and no demand has been confirmed in this regard - Demand not sustainable - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Allegation of providing General Insurance Service and Life Insurance Service under the Finance Act, 1994.
2. Exemption claim based on sovereign nature of the activity.
3. Interpretation of statutory obligations in providing life insurance coverage to employees.
4. Applicability of Circular No. 89/7/2006-ST in determining tax liability for sovereign/public authorities.

Analysis:
1. The case involved an allegation against M/s. Karnataka Govt. Insurance Dept. for providing services falling under "General Insurance Service and Life Insurance Service" as per the Finance Act, 1994. The Commissioner of Service Tax confirmed a demand and imposed penalties under relevant sections of the Act.

2. The appellants argued that the insurance scheme for employees was a welfare scheme mandated for all Govt. employees, exempted from nationalization under specific acts. They contended that the activity was sovereign in nature, governed by statutory rules, and did not fall under the definition of 'insurance service' as per the Act. Reference was made to CBEC's stance on sovereign/public authorities not being subject to service tax.

3. The Tribunal considered the nature of the activity as a mandatory and statutory function, akin to a sovereign obligation. Citing a judgment of the Hon'ble High Court of Kerala and a circular from CBEC, the Tribunal concluded that activities performed by sovereign/public authorities as per law, fulfilling statutory obligations and for public interest, do not constitute taxable services. The Tribunal found the appellant's case aligned with the circular, specifically regarding "Life Insurance."

4. Ultimately, the Tribunal set aside the impugned order, allowing the appeal with consequential relief, if any. The decision was based on the understanding that the appellant's activity was mandatory, in discharge of statutory obligations, and in line with the principles outlined in Circular No. 89/7/2006-ST regarding tax liability for sovereign/public authorities.

This detailed analysis of the judgment showcases the Tribunal's consideration of the sovereign nature of the activity, statutory obligations, and the applicability of relevant circulars in determining the tax liability for the appellant.