2024 (11) TMI 1226 - AT - Service Tax

Cenvat credit of service tax paid on deposit insurance premium to Deposit Insurance and Credit Guarantee Corporation - HELD THAT - Since there are conflicting views of various benches of the Tribunal, a Larger Bench of the Tribunal has been constituted in the matter of South Indian Bank 2020 (6) TMI 278 - CESTAT BANGALORE - LB in order to resolve the issue whether the insurance service received by the banks from DICGC can be considered as an input service ? Larger Bench of the Tribunal after examining various provisions of Finance Act, Cenvat Credit Rules, Deposit Insurance Act and the Regulations has answered the reference in the following terms The insurance service provided by the Deposit Insurance Corporation to the banks is an input service and Cenvat Credit of service tax paid for this service received by the banks from the Deposit Insurance Corporation can be availed by the banks for rendering output services . Following the Interim Order of the Larger Bench, the Tribunal 2020 (6) TMI 278 - CESTAT BANGALORE - LB allowed the appeal of South Indian Bank. The said order of the Tribunal was thereafter challenged by the Revenue before the Hon ble High Court of Kerala at Ernakulum by way of filing Central Excise Appeal No.1/2021 in the matter of Principal Commissioner of Service Tax and Central Excise, Kochi vs. South Indian Bank alongwith other connected appeals and the Hon ble High Court 2022 (12) TMI 1479 - KERALA HIGH COURT dismissed the appeal filed by Revenue and upheld the decision of the Tribunal in South Indian Bank (supra). Nothing has been brought to our notice to show that any appeal has been filed by the Revenue against the aforesaid decision of Hon ble Kerala High Court, therefore, it attained attained finality. The view taken by the Larger Bench in the matter of South Indian Bank Ltd. (supra) has further been affirmed by another Larger Bench of the Tribunal in the matter of Bank of America, National Association vs. Principal Commissioner, CGST Central Excise, Mumbai 2024 (4) TMI 1149 - CESTAT MUMBAI Allegation against the appellant that they have violated the provisions of Rule 4 (7) and 9(1) ibid by availing cenvat credit even before issuance of two invoices by DICGC - We do not see any irregularity in availment of cenvat credit by the appellant against invoices dated 20.9.2012 and 03.06.2013 respectively and there is no violation of Rule 4(7) or Rule 9 (1) ibid and therefore no interest can be imposed on the appellant. We are of the view that the registration of the banks with DICGC is not optional but compulsory. All Banks have to obtain a licence from Reserve Bank of India u/s 22 of the Banking Regulation Act without which no bank can function and all of them have also to compulsorily obtain registration with the DICGC in order to protect the interest of depositors. The registration can be obtained by the banks only on payment of premium to DICGC. If a Bank fails to pay premium to DICGC, its registration would be cancelled, which ultimately would result in cancellation of licence granted to the Bank by Reserve Bank of India. Which means without payment of insurance premium to DICGC, the Bank will not be able to function or provide any banking and other financial services. Therefore payment of insurance premium to DICGC is an integral part of banking and other financial services and is an input service for which Cenvat Credit can be availed by the banks. Accordingly the impugned orders are set aside and the appeals filed by the Appellant are allowed.

Summary

Issues Involved:

1. Entitlement of the appellant to avail Cenvat credit on service tax paid on deposit insurance premium to the Deposit Insurance and Credit Guarantee Corporation (DICGC).
2. Alleged violation of provisions of Rule 4(7) and 9(1) of Cenvat Credit Rules regarding the timing of availing Cenvat credit.

Issue-wise Detailed Analysis:

1. Entitlement to Avail Cenvat Credit on Deposit Insurance Premium:

The primary issue in these appeals is whether the appellant, a banking institution, is entitled to avail Cenvat credit for the service tax paid on deposit insurance premiums to DICGC. The appellant provides banking and financial services and had availed Cenvat credit on the service tax paid for the deposit insurance service provided by DICGC. The department contested this, arguing that the service did not qualify as an 'input service' under Rule 2(l) of the Cenvat Credit Rules, 2004.

The Tribunal noted that DICGC is a statutory body providing insurance coverage to bank deposits, and the payment of insurance premium to DICGC by banks is a statutory obligation. The Tribunal referenced the Larger Bench decision in the case of South Indian Bank, which clarified that the insurance service provided by DICGC to banks qualifies as an 'input service.' The decision emphasized that accepting deposits is a fundamental banking activity, and the insurance service is essential for banks to function and provide output services. The Tribunal highlighted that without paying the insurance premium, banks could not maintain their registration with DICGC, which is mandatory for their operation under the Banking Regulation Act. The Tribunal concluded that the insurance premium paid to DICGC is integral to banking services and qualifies as an input service, allowing the appellant to avail Cenvat credit.

2. Alleged Violation of Rule 4(7) and 9(1) of Cenvat Credit Rules:

The second issue pertained to the alleged violation of Rule 4(7) and 9(1) concerning the timing of availing Cenvat credit. The department alleged that the appellant availed Cenvat credit before the issuance of invoices by DICGC. The appellant clarified that DICGC typically issues invoices on the date of payment made by the bank. In the instances in question, there was a delay in issuing invoices by DICGC after the payment was made. The appellant requested DICGC to revise the invoice dates, which was accepted, and revised invoices were issued with appropriate dates.

The Tribunal found no irregularity in the appellant's actions, determining that there was no violation of Rule 4(7) or Rule 9(1). Consequently, no interest could be imposed on the appellant for this alleged violation.

Conclusion:

The Tribunal concluded that the registration of banks with DICGC is compulsory, and the payment of insurance premium to DICGC is an integral part of providing banking and financial services. This payment qualifies as an input service, allowing banks to avail Cenvat credit. The Tribunal set aside the impugned orders and allowed the appeals filed by the appellant.