2021 (1) TMI 1039 - AT - Service Tax

CENVAT Credit - Reinsurance services obtained directly from the Indian reinsurers - Reinsurance service obtained under Indian Motor Third Party Insurance Pool - recovery of credit under Rule 14 of the CENVAT Credit Rules, 2004 read with proviso to Section 73(1) and Section 73(4) of the Finance Act, 1994 - interest under Section 75 of the Finance Act, 1994 - penalty imposed under rule 15(4) effective up to 26.02.2010 or 15(3) effective from 27.02.2010 of the CENVAT Credit Rules, 2004 read with section 78 of the Finance Act, 1994 - period subsequent April 01, 2011, when the definition of input service was amended by adding an exclusion clause in rule 2(l) of the CENVAT Rules - HELD THAT - A perusal of the exclusion clause shows that its scope is limited to those general insurance services, which relate to a motor vehicle. Use of the word a assumes significance here, also considering the exception drawn in the exclusion clause. In the instant case, the reinsurance services availed by the Appellant are for insuring its business risks and not in respect of any particular motor vehicle. Reinsurance, by its nature, pertains to the insurance of business of the Appellant. Reinsurance services have never been availed by the Appellant in respect of a particular motor vehicle. In such a case, the above exclusion clause has no applicability to the present case and denial of CENVAT credit on basis of such a clause is not sustainable. Thus, even after the amendment of the definition of input service in rule 2(l) of the CENVAT Rule w.e.f. April 01, 2011, the appellant would be eligible to avail CENVAT credit on both the aforesaid reinsurance services - It would, therefore, not be necessary to examine the contentions raised by the learned counsel for the appellant that by confirming the demand for the period w.e.f. April 01, 2011, the order has gone beyond the scope of the allegation made in the show cause notice or that extended period of limitation could not have been invoked in the facts and circumstances of the case. It is not possible to sustain that part of the order of the Commissioner that confirms the demand of CENVAT Credit of ₹ 196,46,97,360/- with interest and penalty - Appeal allowed.

Issues Involved:
1. Whether CENVAT Credit of ?627,17,96,523/- should be disallowed and recovered from the Appellant under Rule 14 of the CENVAT Credit Rules, 2004 read with proviso to Section 73(1) and Section 73(4) of the Finance Act, 1994.
2. Whether interest should be charged and recovered from the Appellant under Section 75 of the Finance Act, 1994.
3. Whether penalty should be imposed under Rule 15(4) effective up to 26.02.2010 or 15(3) effective from 27.02.2010 of the CENVAT Credit Rules, 2004 read with Section 78 of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Disallowance and Recovery of CENVAT Credit:
The Commissioner had confirmed the demand of CENVAT credit of ?196,46,97,360/- with interest and penalty and dropped the demand of ?430,70,99,163/-. The Appellant, a registered insurer, availed reinsurance services from Indian and foreign reinsurance companies. The Commissioner framed three questions for determination regarding the disallowance and recovery of CENVAT credit. The Commissioner differentiated between services rendered before and after April 01, 2011, due to an amendment in the definition of "input service" in the CENVAT Credit Rules, 2004.

For the period prior to April 01, 2011, the Commissioner found that reinsurance services had a nexus with the output service and thus fell within the ambit of "input service" as per Rule 2(l) of the CENVAT Rules. Consequently, the demand for this period was dropped. The Commissioner justified this decision based on the Tribunal's decision in Shriram General Insurance Company Ltd. vs. Commissioner of Central Excise, Jaipur-I, which held that reinsurance services qualify as "input service" for insurers.

For the period after April 01, 2011, the Commissioner noted that the amendment to Rule 2(l) excluded general insurance services related to motor vehicles from the definition of "input service." Thus, the Commissioner held that CENVAT credit availed during this period was incorrectly availed and confirmed the demand of ?196,46,97,360/-.

2. Charging and Recovery of Interest:
The Commissioner had ordered the recovery of interest on the disallowed CENVAT credit under Section 75 of the Finance Act, 1994. However, the Appellant contended that the denial of CENVAT credit for the period 2011-12 was beyond the scope of the show cause notice, and thus, the confirmation of the demand was not sustainable.

3. Imposition of Penalty:
The Commissioner imposed penalties under Rule 15(4) effective up to 26.02.2010 or 15(3) effective from 27.02.2010 of the CENVAT Credit Rules, 2004 read with Section 78 of the Finance Act, 1994. The Appellant argued that the extended period of limitation could not have been invoked, nor could penalties have been imposed in the facts and circumstances of the case.

Tribunal's Findings:
The Tribunal noted that the exclusion clause in the amended definition of "input service" was limited to general insurance services related to a motor vehicle. Since the reinsurance services availed by the Appellant pertained to insuring business risks and not any particular motor vehicle, the exclusion clause did not apply. The Tribunal held that the denial of CENVAT credit based on the exclusion clause was not sustainable.

The Tribunal also referenced the decision in Shriram General Insurance Company, which supported the eligibility of CENVAT credit on reinsurance services even after the amendment. The Tribunal concluded that the Appellant was eligible to avail CENVAT credit on reinsurance services provided by pool member companies under the insurance pool.

Conclusion:
The Tribunal set aside the part of the Commissioner's order that confirmed the demand of CENVAT credit of ?196,46,97,360/- with interest and penalty. The appeal was allowed, and the order was pronounced in open Court on January 28, 2021.

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