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TMI Blog2021 (1) TMI 1039X X X X Extracts X X X X X X X X Extracts X X X X ..... spect 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. - SERVICE TAX APPEAL NO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstituted IRDA with a view to protect the interest of holders of insurance policies and to regulate, promote and ensure orderly growth of the insurance industry. The Appellant claims that because of the requirement set out under section 101A of the Insurance Act and as a prudent business practice it has been availing re-insurance services from Indian as well as foreign reinsurance companies in respect of the insurance policies. 3. Section 114A of the Insurance Act empowers the IRDA to make regulations in respect of various matters including matters relating to re-insurance under sections 101A and 101B of the Insurance Act. In due exercise of the aforesaid powers, IRDA has issued the Re-insurance Regulations for re-insurance of general insurance business. 4. Section 146 of the Motor Vehicles Act, 1988 [MV Act ] mandates taking of an insurance cover against third party risks by a person using a motor vehicle in a public place. The rate for third party insurance premium is regulated by the Insurance Act. It is stated that problems were faced by companies in issuing insurance cover against these policies as very high risks arose therefrom. 5. Directions dated December 4, 2006 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Credit of ₹ 627,17,96,523/- (Six Hundred Twenty seven Crores Seventeen Lakh Ninety Six Thousand Five Hundred Twenty Three Only) should be disallowed and recovered from the Noticee 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; ii. Whether interest as applicable should be charged and recovered from them under Section 75 of the Finance Act, 1994; iii. 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. 9. CENVAT Credit of ₹ 627,17,96,523 proposed to be disallowed for the period 2008-09 and 2011-12 in the show cause notice comprises following components: a. Reinsurance services obtained directly from the Indian reinsurers. b. Reinsurance services obtained directly from the foreign reinsurers. c. Reinsurance service obtained under Indian Motor Third Party Insurance Pool. 10. The Commissioner drew a distinction between the aforesaid services rendered prior to April 01, 2011 and w.e.f. April 01, 2011 for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrectly availed CENVAT Credit during the period from 2008-09 tom 2010-11 on the reinsurance service in relation to general insurance services as the said reinsurance service is covered within the ambit of the definition of input service as given under Rule 2(1) of CENVAT Credit Rules, 2004 and also has a nexus with the output service being provided by the Noticee. The quantum of CENVAT Credit correctly availed by the Noticee is as follows:- Year Input Credit for service tax paid on reinsurance Indian business (Rs.) Input Credit for reinsurance business paid under reverse charge (Rs.) Input Credit on Service tax paid to Indian Motor Third Party Pool Members (Rs.) 2008-09 628766032 358929311 0 2009-10 696772459 368066377 0 2010-11 621662417 471976774 1160925793 Total 1947200908/- 1198972462/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th insurance and re-insurance services are covered under the scope of the general insurance service classifiable under section 65(105)(d) of the Finance Act and chargeable to service tax. The Appellant has stated that it has paid service tax on the output service rendered by it. The re-insurers providing re-insurance services also pay service tax on output re-insurance service rendered by them to the Appellant and charge service tax from the Appellant. It is, therefore, clear that such reinsurance services are used by the insurer for providing output insurance service. Without the use of such re-insurance services, it may not be commercially prudent for any insurance company to assume such high risks under the original insurance policies. It is the assumed risks of the original insurer that are insured under the re-insurance policies. It is, therefore, difficult to hold that reinsurance services are not used by the insurer for providing the output services . It would also not be correct to hold that since reinsurance services are availed after the provision of insurance services, CENVAT credit of service tax paid on re-insurance services cannot be availed. The insurance po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dering general insurance services from the definition of input service , thus, I hold that for period from 01st April, 2011 to 30th June, 2012, the said reinsurance service cannot be considered as an input service and according, the CENVAT Credit availed by the Noticee in respect of the same has been wrongly and incorrectly availed. The quantum of CENVAT Credit wrongly and incorrectly availed by the Noticee is as follows:- Year Input Credit for service tax paid on reinsurance Indian Business (Rs.) Input Credit for reinsurance business paid under reverse charge (Rs.) Input Credit on service tax paid to Indian Motor Third Party Pool Members (Rs.) 2011-12 706065972 427172874 831458514 Grand Total 1964697360/- (emphasis supplied) 17. Shri B.L. Narasimhan, learned Counsel of the appellant assisted by Shri Narender Singhvi made the following submissions: (i) The Order, in denying CENVAT credit to the Appellant for the period 2011-12, has go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 22. 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. 23. The submission made by the learned Counsel for the appellant, therefore, deserves to be accepted. The contention also finds support from of the decision of Tribunal in Shriram General Insurance Company . The Bench examined whether the amendment made in the definition of input service w.e.f. April 01, 2011 in rule 2 (l) of the CENVAT Rules would affect the eligibility of the Appellant to CENVAT credit on reinsurance services. The observations are as f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... emium collected by it in the pool account and based on the prescribed formulae, the GIC determines the amount of re-insurance premium due to each member as against the other members. Thus, in effect, each company pays the re-insurance premium after deducting the amount due from the other member companies. The service tax liability stands discharged on the whole re-insurance premium paid to the other members. It cannot be, therefore, be urged by the Department that the invoices that are issued by the pool member companies are not for any provision of service or without any payment. The re-insurance services are provided by the pool member companies and it is for this reason that the Insurance Pool was formed by IRDA. Clause 3 of the direction dated December 4, 2012 (should be 2011) are relevant and are reproduced below:- 3. Pooling Mechanism: The pooling of business among all insurers will be achieved through a multi-lateral reinsurance arrangement between the underwriting insurer and all the other registered insurers carrying on general insurance business (including motor insurance business) and general insurance reinsurers. xxxxxxxxxx 28. Thus, it cannot be doubt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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