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2023 (3) TMI 1276 - HC - Service TaxCENVAT Credit - input services - re-insurance services (Indian Business as well as Foreign Insurance) after the amendment in the definition of Input Service defined in Rule 2 (1) of the CENVAT Credit Rules w.e.f. 01.04.2011 - recovery of Rule 14 of the CENVAT Credit Rules read with proviso to Section 73 (1) and Section 73 (4) of the Finance Act. Whether the respondent was entitled to avail CENVAT Credit on re-insurance premium in respect of insurance policies issued in respect of motor vehicles including motor third party insurance? HELD THAT - It is clear from the definition that the re-insurance is insurance of part of the insurer s risks by another insurer. Thus, what the re-insurer, in effect, does is to insure the risks of another insurer. This is qualitatively different from the risks of the policy holder covered by the insurance policy issued by the insurer. The insurer, in fact, covers the risks of the policy holder - Re-insurance is a matter between one insurance company and another, where the former insurer company indemnifies the latter against part of the loss that the latter insurance company may sustain under policy or policies issued by it. Re-insurance is, essentially, to distribute the risks assumed by an insurance company. Thus, ensuring stability to the business of the insurance company that is covered by re-insurance. There is merit in the contention that the insurance company that reinsures another insurance company covers the business risks of that insurance company; it does not cover the risk to the asset or other risks, covered by that insurance company. In M/S SHRIRAM GENERAL INSURANCE COMPANY LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, JAIPUR 2020 (3) TMI 1295 - CESTAT NEW DELHI , the learned CESTAT had considered the question whether amendment to Rule 2(l) of the CCR with effect from 01.04.2012 would affect the eligibility of the appellant insurance company to avail CENVAT Credit in respect of re-insurance services availed during the relevant period. There is no infirmity with the decision of the learned CESTAT that re-insurance services were not excluded from the definition of input service as defined under Section 2(l) of the CCR with effect from 01.04.2011. The allegation that re-insurance services were specifically excluded from the scope of input services by virtue of an amendment to Rule 2(l) of the CCR introduced with effect from 01.04.2011 that is, by virtue of the exclusion contained in Clause (B) of Rule 2(l) of the CCR is not one of the grounds clearly stated in the show cause notice. The impugned order allowing OIC s appeal is founded solely on the conclusion that re-insurance services were not excluded from the definition of input services under Rule 2(l) of the CCR during the period in question (Financial Year 2011-2012) - the question projected by the Revenue in this appeal are answered against the Revenue and in favour of OIC. The appeal is dismissed - decided against Revenue.
Issues Involved:
1. Whether the respondent was entitled to avail CENVAT Credit on re-insurance services after the amendment in Rule 2(l) of the CENVAT Credit Rules w.e.f. 01.04.2011. 2. Whether the CENVAT Credit availed by the respondent is liable to be disallowed and recovered. 3. Whether the respondent is liable to be charged with interest and imposed with a penalty. Summary: Issue 1: Entitlement to CENVAT Credit on Re-insurance Services Post Amendment The appellant challenged the final order of the CESTAT, which held that the respondent (OIC) was entitled to avail CENVAT Credit on re-insurance services. The Revenue argued that Rule 2(l) of the CENVAT Credit Rules, 2004, as applicable during the period 01.04.2011 to 20.07.2012, excluded insurance services related to motor vehicles from the definition of 'input service.' The CESTAT found that only general insurance services related to a motor vehicle were excluded, not re-insurance services. The Tribunal referred to the decision in Shriram General Insurance Company Ltd. v. Commissioner of Central Excise, Jaipur-I, which clarified that re-insurance services are not in respect of a motor vehicle but are related to the assumed risks of an original insurer. The High Court upheld this view, finding no infirmity with the CESTAT's decision. Issue 2: Disallowance and Recovery of CENVAT Credit The Commissioner had initially disallowed CENVAT Credit for the period from April 2011 to 30.06.2012, concluding that re-insurance services were excluded from the definition of 'input service.' However, the CESTAT found this conclusion erroneous, holding that re-insurance services were not excluded. The High Court agreed, noting that re-insurance services mitigate the insurer's business risks and do not directly relate to a motor vehicle. Therefore, the CENVAT Credit availed by the respondent was not liable to be disallowed or recovered. Issue 3: Interest and Penalty The Revenue's contention that the respondent should be charged with interest and imposed with a penalty was contingent on the disallowance of CENVAT Credit. Since the High Court upheld the CESTAT's decision that re-insurance services were not excluded from 'input services,' the questions of interest and penalty became moot. The High Court noted that there was no concealment or suppression of facts by the respondent, and the extended period of limitation under Section 73(1) of the Act was not applicable. Conclusion The High Court dismissed the Revenue's appeal, affirming that re-insurance services were not excluded from the definition of 'input service' under Rule 2(l) of the CCR during the relevant period. The appeal was dismissed, and the parties were left to bear their own costs.
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