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2020 (10) TMI 580 - AT - Service TaxCENVAT Credit - non-reversal of proportionate credit availed on input services that was attributable, mathematically, to rendering of services by the appellant on which tax liability was not required to be discharged - endowment policy and unit linked insurance plan (ULIP) policy - period between 2008-09 to 2010-11 - HELD THAT - Considering that it has been held in INDIAN NATIONAL SHIPOWNERS' ASSOCIATION VERSUS UNION OF INDIA 2009 (3) TMI 29 - BOMBAY HIGH COURT by the Hon ble High Court of Bombay, and duly affirmed by the Hon ble Supreme Court in UOI VERSUS INDIAN NATIONAL SHIPOWNERS ASS. ORS. 2010 (12) TMI 12 - SUPREME COURT , that no taxable service can, by inference, be presumed to exist until specifically enumerated in section 65 (105) of Finance Act, 1994, this proposition advanced by, and on behalf of, the adjudicating authority fails the test of judicial confirmation. Consequently, the inference that the service described in section 65 (105) (zx) of Finance Act, 1994 is a bundle from which one has been isolated for tax till 1st May 2011 is also not tenable; this should have been amply evident from the absence of a new entry to describe such service identified for levy of tax. Neither does the tax on management of segregated fund in section 65 (105) (zzzzf) of Finance Act, 1994 with effect from 16th May 2008 obtain support for it as this freshly incorporated taxable service is a fiction designed by law through a deeming provision. Hence, it is abundantly clear that the expansion of the taxable value through the two amendments supra did not bring new services into existence. Even if it did, the subsequent existence of such service could not enable assumption that these were exempted till then. From application of the definition of exempted services in rule 2 (e) of CENVAT Credit Rules, 2004, to the facts leading to the impugned order, there are no doubt that the amendments in section 65 (105) of Finance Act, 1994 in relation to endowment policies and unit linked insurance plan (ULIP) policies cannot be held to have established exempted services warranting any restriction on availment of CENVAT credit of input services as provided for in the rule 6 of CENVAT Credit Rules, 2004. Appeal allowed - decided in favor of appellant.
Issues Involved:
1. Confirmation of tax liability under rule 6(3) of CENVAT Credit Rules, 2004. 2. Charging of interest under section 75 of Finance Act, 1994. 3. Imposition of penalty under section 78 of Finance Act, 1994. 4. Definition and treatment of 'exempted services' under CENVAT Credit Rules, 2004. 5. Segregation of premium for 'endowment policy' and 'unit linked insurance plan (ULIP)'. Issue-Wise Detailed Analysis: 1. Confirmation of Tax Liability Under Rule 6(3) of CENVAT Credit Rules, 2004: The appellant, Life Insurance Corporation of India, disputed the confirmation of a tax liability amounting to ?11,68,65,080. This liability arose due to the non-reversal of credit availed on 'input services' attributed to services on which tax liability was not required. The proceedings were initiated concerning two products: 'endowment policy' and 'unit linked insurance plan (ULIP)' policy. For the disputed period between 2008-09 to 2010-11, the premium paid by policyholders was not fully covered by the taxable service definition under section 65(105)(zx) of the Finance Act, 1994. The authorities argued that the portion of the premium, other than towards 'risk cover,' was consideration for 'exempted services,' necessitating an adjustment of credit on input services used for both taxable and exempted services. 2. Charging of Interest Under Section 75 of Finance Act, 1994: The impugned order also included the charging of appropriate interest under section 75 of the Finance Act, 1994. However, the appellant contended that the recovery lacked the authority of law. It was argued that life insurance is a single contract for a single service, and the segregation of the premium for tax purposes was merely a contrivance for tax collection, not an actual bifurcation of services. 3. Imposition of Penalty Under Section 78 of Finance Act, 1994: The order imposed a penalty equivalent to the confirmed tax liability under section 78 of the Finance Act, 1994. The appellant challenged this imposition, arguing that the tax on 'management of segregated fund' was a legal fiction and not a new service. They further argued that the entire premium amount for 'endowment policies' was vested in the appellant, making it inapplicable as consideration for a service. 4. Definition and Treatment of 'Exempted Services' Under CENVAT Credit Rules, 2004: The appellant argued that 'exempted service' as defined in rule 2(e) of CENVAT Credit Rules, 2004, refers to services entirely free from tax. They cited the decision in Ambejogai Co-op Bank Ltd v. [2016 (41) STR 450 (Tri-Mumbai)] to support this plea. The Tribunal noted that the definition of 'exempted services' includes services not leviable to tax under section 66 of the Finance Act, 1994. It was determined that the legislative intent was not to include services that may be subject to tax in the future. 5. Segregation of Premium for 'Endowment Policy' and 'Unit Linked Insurance Plan (ULIP)': The Tribunal examined whether the premium paid for 'endowment policies' and 'ULIP' policies could be considered as consideration for 'exempted services.' It was concluded that the amendments to section 65(105) of the Finance Act, 1994, did not establish 'exempted services' warranting any restriction on the availment of CENVAT credit on 'input services.' The Tribunal referred to previous decisions, including Shriram Life Insurance Company v. Commissioner of Customs, Central Excise & Service Tax, Hyderabad, and Max New York Life Insurance Co Ltd v. Commissioner of Central Excise & Service Tax (LTU), Delhi, which supported the appellant's position that no separate identifiable exempt service existed within the premium structure. Conclusion: The Tribunal set aside the impugned order, concluding that the recovery of the tax liability, interest, and penalty lacked authority of law. The appeal was allowed, affirming that the amendments to section 65(105) did not retrospectively create 'exempted services' and thus did not justify restrictions on CENVAT credit. Order Pronounced: The order was pronounced in the open court on 11/09/2020.
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