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2019 (2) TMI 957 - AT - Service TaxCENVAT credit - input services - banking company - limit of credit of 50% - deposit insurance service provided by Deposit Insurance and Credit Guarantee Corporation (DICGC) - premium paid on deposit insurance to DICGC, whether input services or not? - period after 01.4.2012. Held that - All services/activities which are required for promoting or running the business cannot be considered as input service ; the CENVAT Credit facility of the tax paid on such services, could be allowed only when it falls within the scope of the present definition of input service . Even though deposit is an activity relating to banking business but not a taxable service under the Finance Act, 1994, as the consideration for such service is exempted. The deletion of the expression activities relating to business post 01.4.2012 is with some significance and in that sense, the new amended provision has to be read and understood. Hence, the argument that to commence and continue the banking business, insuring the deposits of customers is mandatory, accordingly, the service tax paid on such insurance premium, become an input service, in our opinion could not be sustained under the amended definition of input service brought into effect from 01.4.2012. Besides, it is not the business of the bankers which has been insured, but the deposit of the customers, with the social objective of the Government/RBI to protect the interest of small depositors, in the event the banks undergoing liquidation, the customers will be directly paid the insured amount. Interpretation relating to Rule 6(3B) of CENVAT Credit Rules, 2004 - Held that - It is clear that irrespective of the situation whether common inputs or input services are used for providing output services and exempted services, a banking company and a financial institution is required to be 50% of the credit availed on the input and input services in that month. The argument of the appellant that they become eligible to avail credit of the service tax paid on insurance premium for deposits to DICGC, in view of the sub-rule (3B), in our opinion, is fallacious. The said sub-rule directs payment of 50% credit on the input or input services availed. In the aforesaid analysis, we came to the conclusion that the insurance premium paid on deposits to DICGC is not an input service, consequently, the service tax paid on such insurance premiums, cannot be available as credit to the appellant during a particular month. The payment of 50% credit means that it is from the admissible amount of credit on inputs or input services as defined under the cenvat credit rules, 2004. Penalty - Held that - It cannot be denied that there has been a lot of changes in the cenvat credit provisions after 01.4.2011 and also on introduction of negative list service tax regime from July 2012. Therefore, since the present issue relates to interpretation of law, and the demand notices have been issued for normal period, we do not find justification in imposing penalty on the appellants. Thus, the amount of service tax paid on the insurance premium relating to the deposits of customer to DICGC by the Appellant Banks cannot be considered as an input service accordingly, credit of the said amount is not admissible to the Appellants - The amount of 50% of the available credit in a month, required to be paid under Rule 6(3B) of CCR,2004 by the Appellants, cannot include the inadmissible credit of service tax paid on insurance premium paid to DICGC. Appeal allowed in part.
Issues Involved:
1. Eligibility of CENVAT Credit on Service Tax paid to DICGC. 2. Definition and scope of "input service." 3. Interpretation of Rule 6(3B) of CENVAT Credit Rules, 2004. 4. Applicability of penalties. Issue-wise Detailed Analysis: 1. Eligibility of CENVAT Credit on Service Tax paid to DICGC: The appellants, engaged in providing taxable banking services, availed CENVAT credit on service tax paid for deposit insurance services from DICGC. The core argument was that deposit insurance is essential for their banking operations and should be considered an "input service" under Rule 2(l) of the CENVAT Credit Rules, 2004. The Revenue countered that deposit insurance benefits depositors, not banks, and is not directly linked to the taxable output services provided by banks. The Tribunal held that the insurance service is not an "input service" as it does not directly relate to the provision of taxable output services. The service is for the benefit of depositors, and the banks are merely complying with a statutory obligation. 2. Definition and Scope of "Input Service": The definition of "input service" underwent significant changes post-01.04.2012, narrowing its scope. The Tribunal emphasized that the term "input service" should be interpreted strictly as per the amended definition, which excludes activities merely related to business. The Tribunal concluded that deposit insurance does not qualify as an "input service" under the amended definition, as it is not directly used for providing taxable output services. 3. Interpretation of Rule 6(3B) of CENVAT Credit Rules, 2004: The appellants argued that Rule 6(3B) allows them to reverse 50% of the total CENVAT credit availed, implying eligibility for the remaining credit. The Tribunal clarified that Rule 6(3B) pertains to the reversal of admissible credit and does not extend eligibility to credits that do not qualify as "input services." Since deposit insurance is not an "input service," the credit availed on it is inadmissible, and Rule 6(3B) cannot be invoked to claim such credit. 4. Applicability of Penalties: The Tribunal acknowledged the complexities and changes in CENVAT credit provisions post-01.04.2012 and the introduction of the negative list regime in July 2012. Given the interpretative nature of the issue and the absence of any malafide intent, the Tribunal found no justification for imposing penalties on the appellants. Conclusion: The Tribunal held that the service tax paid on deposit insurance premiums to DICGC does not qualify as an "input service," and thus, the credit availed on such tax is inadmissible. Rule 6(3B) does not provide a basis for claiming credit on ineligible services. However, no penalties were imposed due to the interpretative nature of the issue. The appeals were disposed of accordingly, with the impugned orders modified to set aside the penalties.
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