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TMI Blog2019 (2) TMI 957X X X X Extracts X X X X X X X X Extracts X X X X ..... nded provision has to be read and understood. Hence, the argument that to commence and continue the banking business, insuring the deposits of customers is mandatory, accordingly, the service tax paid on such insurance premium, become an input service, in our opinion could not be sustained under the amended definition of input service brought into effect from 01.4.2012. Besides, it is not the business of the bankers which has been insured, but the deposit of the customers, with the social objective of the Government/RBI to protect the interest of small depositors, in the event the banks undergoing liquidation, the customers will be directly paid the insured amount. Interpretation relating to Rule 6(3B) of CENVAT Credit Rules, 2004 - Held that:- It is clear that irrespective of the situation whether common inputs or input services are used for providing output services and exempted services, a banking company and a financial institution is required to be 50% of the credit availed on the input and input services in that month. The argument of the appellant that they become eligible to avail credit of the service tax paid on insurance premium for deposits to DICGC, in view of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the concerned commissioners of central excise customs and service tax. All these appeals since involve common issues are taken up together for disposal. The amount of credit and penalty involved in each of the appeal is mentioned as below: Name of the Appellant Appeal No. Period of Dispute Amount of credit involved Rs. Amount of Penalty in Rs. ICICI Bank Ltd. ST/86237/2015 June, 2012 to Dec., 2013 30,10,85,994/- 3,00,00,000/- Bank of Baroda ST/86142/2015 March, 2013 to Nov., 2013 38,88,52,482/- 3,00,00,000/- State Bank of India ST/86060/2015 April, 2012 to Dec., 2013 141,99,92,593/- 10,00,00,000/- Bank of India ST/86176/2015 Nov., 2012 to Dec., 2012 18,18,33,981/- 2,00,00,000/- Dena Bank ST/86221/2015 April, 2012 to Nov., 2013 10,90,91,460/- 5,00,00,000/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of service tax. The appellant had been duly discharging their service tax liability wherever applicable and also they have been availing cenvat credit of service tax paid on various input services received and used in providing the taxable output service. In terms of rule 6(3B) of the Cenvat Credit Rules, 2004, the appellant was liable to reverse 50% of the total Cenvat Credit availed during a particular month, which they have been meticulously complying with during the relevant period. It is his contention that as per RBI norms, the appellant is required to have a capital adequacy ratio of 9% and should be registered with the Deposit insurance and credit guarantee Corporation (DICGC), a subsidiary of Reserve Bank of India. The DICGC protects small depositors, in the event of failure of bank, by way of ensuring return of the deposits up to ₹ 100,000/- per depositor. Every bank in India is mandatorily required to insure its deposits through DICGC. During the relevant period from July 2012 to March 2014 the appellant ICICI Bank Ltd. have paid ₹ 4,869,765,276/- towards insurance premium to DICGC on which they paid service tax amounting to ₹ 70,49,47, 822/-and conse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facture of goods in the definition of input service . Rule 2(l) of the cenvat credit Rules provides that input service means any service used by a provider of output service for providing an output service. It also provides that the input service means any service used by the manufacture in or in relation to the manufacture of final product. In other words, the definition of input service is wider for a service provider in comparison to a manufacturer. In support, the learned advocate referred to the Larger bench decision assessed at in the case of Jawarhar Mills Ltd Vs. CCE, Coimbatore 1999 (108) E LT 47(Trb.) wherein it is held that used for is wider than the phrase used in and used for would cover any of the goods if used for producing or bringing about any change in any substance for the manufacture of final product would be capital goods and thus qualify for input credit. Similarly the learned advocate has also referred to the judgement of this Tribunal in the case of Mundra Port Special Economic Zone Ltd. Vs. CCE, Rajkot 2009 (13) STR 178 (Tri.-Ahmd.), whereunder the credit of duty paid on cement and steel used in construction of jetty were held to be not admissible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Act 1994, hence not an output service, the Ld. Advocate has submitted that in the present case, the appellant while accepting deposits from the public under obligation to be insured. He has submitted that the theory of negative list has been misconstrued by the Department. Further, he has submitted that it is incorrect to look at the transaction of receiving deposits in isolation. The appellant is in the banking business whose activities comprise of accepting deposits and granting loans. Without the activity of receiving the deposits, the appellant would not be able to grant loans. Further, it is an undisputed fact that the appellant has discharged service tax on various charges/incomes earned in the course of providing loans such as documentation services, loan processing service, delay payment charges etc.. Acceptance of deposits was in the normal course of banking business. The same has been explained in the judgement of Indian Bank Ltd., Madras Vs. Commissioner of Income Tax, Madras 1959 3 SCC (Madras HC). 11. The Ld. advocate assailing the observation that the insurance services were received by the depositor and not by the Bank, hence credit of the service tax paid on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the adjudicating authority erred in observing that the insurance service was in relation to exempted supply and is also for exempted output service, therefore, payment of Service Tax on such insurance is not admissible as credit being exempted from Service Tax. Referring to the definition of Banking under the Banking Regulation Act, 1949, he has submitted that such definition prescribes that the deposit is accepted for the purpose of lending, hence, acceptance of deposit is to provide the output services of lending. Thus, the acceptance of deposit is directly linked to the output supply of lending. Further, he has submitted that there are various types of deposits, which are made by customers, namely, fixed deposit, saving account, current account etc. When the customer open an account and operates the said account, various charges like, issuance of Demand Draft, RTGS charges, Cheque Book issue charges, Debit-credit card issue charges etc. are collected by the Bank from the customers, which are chargeable to Service Tax. These charges are collected on supply of service made to the customers only when he opens the account for deposit. Therefore, the acceptance of de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to admissibility of credit on deposit insurance premium is settled in their favour by two judgments of this Tribunal reported as DCB Bank Ltd. 2017 (6) GSTL 479 (Tri-Mum) and M/s Punjab National Bank 2018-TIOL-1395- CESTAT-DEL. Further, he has submitted that no penalty is imposable as the issue relates to interpretation of statutes. 17. Similar arguments have been advanced on behalf of other appellants. 18. Per contra, learned Commissioner (AR) Shri Roopam Kapoor for the Revenue has submitted that there are two issues involved in the present case: - (i) Whether the transaction between DICGC and the Banks falls within the definition of input service particularly when the definition of the output service is read in conjunction with the definition of input service; (ii) Whether service is being received by the Bank or by the depositor. 19. Elaborating his argument, he has submitted that so far as scope of input service for availing CENVAT Credit under the CENVAT Credit Rules is concerned, clause (eee) of sub-section (2) of Section 94 of the Finance Act, 1994 empowers the Central Government to frame Rules pertaining to the credit of Service Tax paid on the servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterpretation making a legislative provision redundant must be avoided and as the legislature has given an extended meaning to the definition of input service for the manufacturer in clause (ii) of the definition and a restrictive meaning to that a service provider clause (i) should be appreciated. Further, he has submitted that since the activities of advancing principal amount of loans cannot be treated as output service , insurance premium paid for depositors cannot be considered as input service. Answering the argument that deposit is basically as input service for all other activities undertaken by the Bank, the learned AR has submitted that it is not correct in so far as deposit are solely transaction in money and are raised for providing loan, which is also a transaction in money not covered within the scope of Service Tax or excluded as per Section 66B being not a taxable service. He has further submitted that there are host of other services provided by the Banks, namely, safe deposit vault, issuance of DD against cash, issuance of cheque books for transferring money, providing Bank Guarantee etc. In all such cases, common input services namely, hiring of premises, secu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compliance with Rule 6(3B) of CCR,2004 the learned AR has submitted that the terms input and output service have already been defined and if the tax paid on the invoices does not fall within the scope of the input services , thus credit could not have been availed on the same. It is his contention that in the present case if the service provided by the DICGC is held not to be covered within the scope of input service then irrespective of Rule 6(3B), the credit of the same cannot be availed. He has submitted that the provision of law is to be read in harmony and even the interpretation which is inconsistent with the legal provision ought to be avoided. He has submitted that interpretation advanced by the appellant that since they have already been allowed to avail credit by depositing 50% of the credit availed, therefore, the credit availed on Service Tax paid on insurance premium automatically admissible to them, is incorrect inasmuch as a person can avail credit of input service and not all services that were used in running the business. Accordingly, irrespective to the scope of Rule 6(3B), the credit of the Service Tax paid on insurance premium to DICGC by the Bank not admis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th, therefore, accepting deposits from the public be considered as a service and the appellants are eligible to avail CENVAT Credit on the Service Tax paid on premium amount of insurance paid to DICGC. 27. Revenue s contention on the other hand is that accepting deposits from the customers by the appellants is not a service as defined under Section 65B(44) of the Finance Act, 1994; the activity of lending is also not a service, as the consideration in the form of interest finds a place under the negative list enumerated under Section 66D of the Finance Act, 1994; also it falls under the exclusion sub-clause (iii) of the clause (a) of the said definition, being a transaction in money. It is their further argument that once the activity of accepting deposit is not a service, consequently cannot come within the scope of output service as defined under Rule 2(p) of CENVAT Credit Rules, 2004. Hence, the definition of input service laid down at Rule 2(l) of the CENVAT Credit Rules, 2004 is also not satisfied. It is also contended that Section 94(eee) of the Finance Act, 1994, empowers to make rules in relation to the credit of service tax paid on the services consumed, accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh the objective has always been to avoid cascading effect, but simultaneously through various parameters/restrictions including by way of laying down the definition of inputs , capital goods, input services, and other provisions prescribing necessary procedure, the extent of credit of the tax/duty paid as admissible to off set against the duty/tax liability on the goods manufactured or service provided has been legislated under the rulemaking power. It has never been the intention of the legislator that whatever duty or tax paid on any of the inputs, capital goods, input services which has been used/consumed in or in relation to the manufacture of finished goods or for providing taxable service would be eligible as credit to offset the liability of duty/tax payable on the manufacture of final products or taxable services rendered, as the case may be. 30. In the present case, the central point of dispute is admissibility of CENVAT Credit of the Service Tax paid on insurance premium by the appellant bankers to DICGC insuring the small investors which is mandatory under the DICGC Act, 1961. Payment of such Service Tax whether comes within the definition of input service or oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for providing an output service; or (ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal, and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, and security, inward transportation of inputs or capital goods and outward transportation upto the place of removal ; After 01.4.2012: (l) input service means any service, - (i) used by a provider of [output service] for providing an output service; or (ii) used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal, and includes services used in relation to mod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e inclusive portion of the definition which is common to both service provider and manufacturer, enumerates the specific services which are used in various activities both by the service provider as well as the manufacturer; finally, the exclusion clause enumerates various services, which in any case, shall not be considered as input services. Therefore, it can safely be concluded that all or any of services that suffers service tax in the hands of the service providers or the manufacturer, as the case may be, cannot said to be an input service as defined under Sec. 2(l) of CCR,2004 and eligible to credit. 33. To appreciate the true meaning and scope of the input service , which means any service , it is necessary to refer to the meaning of service , and the scope of negative list of services, as defined under Finance Act,1994; output service , exempted service as defined under the Cenvat Credit Rules,2004. Sec. 65B(44) service means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include- (a) an activity which constitutes merely,- (i) a transfer of title in goods or immovable property, by wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the activity of loans or advances provided by the Banks as service providers to the customers out of the deposits received from the public, the consideration thereof received by the Banks as interest from the borrower is placed in the negative list defined under Section 66D of the Finance Act, 1994, accordingly, falls outside the scope of output service ; and consequently also falls outside the scope of input service . The argument of the appellant banks, on the other hand, is that deposit is an activity/ service which has a direct bearing/nexus on the core banking function i.e. lending and borrowing, also it is being mandatory to insure the small investors/depositors under the DICGC Act, 1961, therefore, insuring the deposits ought to be considered as an input service. 35. Considering the arguments vis- -vis the statutory provisions and keeping in mind the concept of credit facility of the tax paid on services used for discharging Service Tax, it cannot be denied that all services/activities which are required for promoting or running the business cannot be considered as input service ; the CENVAT Credit facility of the tax paid on such services, could be allowed only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sit be considered as provision of service for the core business of the banking. Also, the argument of the appellants is that compliance of the provisions of DICGC Act, 1961 as per the RBI guidelines is mandatory and to commence and continue the business of banking, therefore, it is an input service used for providing output service. Both these arguments would not also hold good, firstly, in view of the above analysis that deposit by customers does not involve any service by the bank to the customer, and interest against loans or advances covered under the provisions of Section 66D of the Finance Act, 1994; secondly, this plea would have some basis under the definition of input service as was in force prior to 01.4.2012, which, interalia in the inclusive portion contained the expression the activities relating to business . With the deletion of the said expression, all the activities which contribute to the commencement and continuation of the banking business may not be relevant for bringing the same within the fold of definition of input service post amendment era. It is settled principle of interpretation that the specific words or expression used in the provision carrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration from the factory. Explanation 2: Value of non-excisable goods for the purposes of this rule, shall be the invoice value and where such invoice value is not available, such value and where such invoice value is not available, such value shall be determined by using reasonable means consistent with the principles of valuation contained in the Excise Act and the rules made thereunder.] [(2) Where a manufacturer or provider of output service avails of CENVAT credit in respect of any inputs services and manufactures such final products or provides such output service which are chargeable to duty or tax as well as exempted goods or services, then, the manufacturer or provider of output service shall maintain separate accounts for- (a) the receipt, consumption and inventory of inputs used- (i) in or in relation to the manufacture of exempted goods; (ii) in or in relation to the manufacture of dutiable final products excluding exempted goods; (iii) for the provision of exempted services; (iv) for the provision of output services excluding exempted services; and (b) the receipt and use of input services- (i) In or in relation to the manufacture of exem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sively in or in relation to the manufacture of exempted goods or for provision of exempted services and on input services used exclusively in or in relation to the manufacture of exempted goods and their clearance upto the place of removal or for provision of exempted services. Explanation III: NO CENVAT credit shall be taken on the duty or tax paid on any goods and services that are not inputs or input services.] (3A) .. [(3B)] Notwithstanding anything contained in sub-rules (1), (2) and (3), a banking company and a financial institution including a non-banking financial company, 3[engaged in providing services by way of extending deposits, loans or advances] shall pay for every month an amount equal to fifty per cent. of the CENVAT credit availed on inputs and input services in that month. .. 40. A plain reading of the aforesaid sub-rule (1) reveals that CENVAT Credit is not admissible of the service tax paid on inputs used in the manufacture of exempted goods or for providing exempted service. The subsequent sub-rule (2) prescribes that in the event common inputs are used both for taxable and exempted services, sepa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the facts of the present case. The finding by SMC of this Tribunal in DSC Bank Ltd. s case which was followed subsequently in Punjab National Bank s case(supra) is per incuriam in as much it has been passed without considering the relevant statutory provisions and hence cannot be considered as binding precedent 43. On the issue of penalty, it cannot be denied that there has been a lot of changes in the cenvat credit provisions after 01.4.2011 and also on introduction of negative list service tax regime from July 2012. Therefore, since the present issue relates to interpretation of law, and the demand notices have been issued for normal period, we do not find justification in imposing penalty on the appellants. 44. To sum up, the amount of service tax paid on the insurance premium relating to the deposits of customer to DICGC by the Appellant Banks cannot be considered as an input service accordingly, credit of the said amount is not admissible to the Appellants. The amount of 50% of the available credit in a month, required to be paid under Rule 6(3B) of CCR,2004 by the Appellants, cannot include the inadmissible credit of service tax paid on insurance premium paid to DIC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s/banks. Banks need these deposits for the purpose of conducting their business and in turn for receiving deposits, paid certain amounts as interest to the depositors. Thus banks are not receiving any consideration for deposits taken by them from the depositors. Even otherwise the DICGC Act provides for protection of the interest of the depositors and not the bank in case the bank goes worst. In absence of any consideration from the depositors to the bank for the activity of accepting deposits, the same cannot be considered as a service in terms of Section 65B(44). 47.4 If that be so, any service tax paid in relation to the premium for insuring interest of the depositors cannot be considered as an input service as defined under Rule 2 of the Cenvat Credit Rules, 2004. (The definition has been reproduced in para 30. 48. Further, Cenvat Credit Rules for the purpose of service tax has been made in terms of Section 94(eee) of the Finance Act, 1994. Any rules framed in terms of the said section need to be interpreted in terms of the said section and for purpose of carrying out the same section. Section 94(eee) of the Finance Act is as follows:- the credit of service tax pai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Legislature itself acted. Realising that Section 67, dealing with valuation of taxable services, does not include reimbursable expenses for providing such service, the Legislature amended by Finance Act, 2015 with effect from May14, 2015, whereby Clause (a) which deals with consideration is suitably amended to include reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service. Thus, only with effect from May 14, 2015, by virtue of provisions of Section 67 itself, such reimbursable expenditure or cost would also form part of valuation of taxable services for charging service tax. Though, it was not argued by the learned counsel for the Department that Section 67 is a declaratory provision, nor could it be argued so, as we find that this is a substantive change brought about with the amendment to Section 67 and, therefore, has to be prospective in nature. On this aspect of the matter, we may usefully refer to the Constitution Bench judgment in the case of Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Private Limited8 wherein it was observed as under: 27. A legisl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later. 50. Rule 3 of the Cenvat Credit Rules provides that credit of taxes paid on input services can be allowed only if it is used for providing an output service. In case there is no output service which is taxable or is falling under the category of exempted services or fall outside the definition of the service itself, CENVAT credit is not taxable except in a situation when the same common input service is being used for providing both taxable and non-taxable output service. In the present case the service tax paid for which credit is sought is in respect of the services which,- firstly, do not fall within the definition of service. Secondl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules, 2004 cannot be used for extending the benefit of ineligible credit and thus allowing reversal of 50% of eligible and ineligible credit availed by the appellants during the month. 54. Thus the four questions posed in para 46.1 are answered as follows: i. The activity of taking the deposits by Bank/ Financial Institution, is not covered by the term service as defined by section 65B(44) of the Finance Act, 1994. ii. The question becomes irrelevant as the deposits taken by the bank without any consideration are not covered by the term service as stated in i. above. iii. Since deposits have been held not to be service, they go out of the definition of output services as defined by Rule 2 of CENVAT Credit Rules, 2004, the CENVAT Credit in respect of the input/ input services exclusively in relation to such deposits is not admissible. iv. Rule 6(3B) of CENVAT Credit Rules, 2004 casts an obligation and specifies the quantum of eligible credit to be reversed by the person specified in the said rule. It does not create any eligibility to credit. 55. In light of above observations, I concur with the order of the learned brother Member (Judicial). (Sanjiv Sr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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