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2020 (10) TMI 578 - AT - Service TaxCENVAT Credit - exempt service or not - portion of payments (premium) received by the assessee that remains untaxed at the appropriate rate - subsequent failure in neutralizing the credit to the extent of not being attributable to taxable output services - rule 6(3) of CENVAT Credit Rules, 2004 - HELD THAT - The present dispute has its genesis in not subjecting the entirety of premium to tax from the time that service in relation to life insurance was incorporated in section 65(105) of Finance Act, 1994 but was, by a series of amendments, expanded within the premium payable by the policy holder. Even after the last of the changes before that tax regime ended on 30th June 2012, the entirety of premium was not subject to tax as a certain portion therein could not be attributed to service. Even the two inclusions, effected in 2008 and 2010, could not be said to have incorporated a new service for taxation as the former depended on deeming of service for coverage by a new enumeration without going beyond the premium and the latter, too, not only did not travel beyond the premium but also remained within life insurance as the activity under coverage. Hence, new identifiable taxable services were not the subject of the impugned levy. Even if these were to considered as new taxable services the question of harmonizing the proposition of Revenue with the scheme of tax arises. Finance Act, 1994 is concerned with taxable service and not service and it is only upon incorporation within section 65(105) that that a new taxable service can be acknowledged. Rule 6 of CENVAT Credit Rules, 2004 is concerned with exempted service to the extent that input services are deployed for rendering such exempted services and credit has been availed thereon. The legislative intent of the inclusive aspect of exempted service did not contemplate subsequent incorporation as the test of exemption. Nevertheless, we must travel on to ascertain the legislative intent. There are certain activities that may well be beyond the competence of the Union to tax and, thereby, beyond contemplation for inclusion in section 65(105) of Finance Act, 1994. Trading is one which comes to mind immediately and yet another is works contract with a catena of decisions based on exclusion of competence to tax by the Union - In the absence of a definition of service , this is the interpretation that is doctrinally satisfying and but for which the inclusive component is otiose. Likewise, in a scheme of levy that enumerates the taxable activities, it is only by statutory incorporation that a service is acknowledgeable in law and any service that may be legislated within Finance Act, 1994 can be considered as exempted only through notification under statutory authority. There is only one service and that is risk cover with attendant payouts contingent upon death or maturity; subsequent taxation by creating a service within, and assigning a value to it, was not intended to cover a new service. Both were extractions from the expenditures incurred by the insurer in relation to the policy. The inclusive portion of the definition of exempted service is restricted to certain services - Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Taxability of risk cover and investment management in life insurance policies. 2. Allegation of providing exempted services and the subsequent implications on CENVAT credit. 3. Applicability of Rule 6 of CENVAT Credit Rules, 2004. 4. Validity of the demands raised by the service tax authorities. 5. Interpretation of "exempted services" under CENVAT Credit Rules, 2004. Detailed Analysis: 1. Taxability of Risk Cover and Investment Management in Life Insurance Policies: The core issue revolves around the taxability of life insurance policies, specifically the risk cover and investment management components. The Finance Act, 1994, through sections 65(105)(zx) and (zzzzf), rendered risk cover and investment management taxable. The service tax authorities contended that portions of the premium attributable to investment policies were not taxed until the amendments and thus constituted exempted services. 2. Allegation of Providing Exempted Services and Subsequent Implications on CENVAT Credit: The authorities alleged that a portion of the premiums received represented consideration for exempted services, leading to implications under rule 2 of CENVAT Credit Rules, 2004. The appellants were accused of failing to neutralize the credit taken on input services not attributable to taxable output services. The show cause notice highlighted significant amounts of premium on which tax liabilities were not discharged, leading to substantial demands under rule 14 of CENVAT Credit Rules, 2004, along with interest and penalties. 3. Applicability of Rule 6 of CENVAT Credit Rules, 2004: The dispute focused on whether the appellants maintained separate accounts for taxable and exempted services, as mandated by Rule 6. The authorities invoked Rule 6(3) for compensatory reversals of credit. The appellants argued that the services on which liability was discharged were solely in relation to eligible output services. They contended that the exercise of option for neutralization under Rule 6 should be at the discretion of the assessee. 4. Validity of the Demands Raised by the Service Tax Authorities: The appellants challenged the demands, arguing that the tax liability was discharged on the entire value of endowment policies, thus rendering the definition of exempted services inapplicable. They cited several judicial precedents supporting their stance that the fastening of liability at prescribed rates in excess of the credit taken was disproportionate. The authorities, however, maintained that the appellants provided both taxable and exempted services, warranting the application of Rule 6(3). 5. Interpretation of "Exempted Services" under CENVAT Credit Rules, 2004: The tribunal examined the definition of exempted services, emphasizing that it must be a taxable service first. The inclusive aspect of the definition was intended to encompass services not leviable to tax. The tribunal concluded that the inclusive portion of the definition of exempted services is restricted to certain services and does not extend to services that may be taxed subsequently. Conclusion: The tribunal held that the invested portion of the premium does not represent a service and that the legislative intent did not contemplate subsequent incorporation as the test of exemption. The appeals were allowed, setting aside the impugned orders, and the demands raised by the service tax authorities were invalidated. The tribunal emphasized the importance of judicial consistency and precedent in reaching its decision.
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