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TMI Blog2020 (3) TMI 1295X X X X Extracts X X X X X X X X Extracts X X X X ..... cy is issued for a specific term and it is for whole term of the policy that the insurer assumes the risk on the insured subject. This business of the insurer is insured by any insurer called a re-insurer and for this purpose the insurer pays a premium to the re-insurer - both 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 form 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a motor vehicle manufactured by such person; and (b) an insurance company in respect of a motor vehicle insured or re-insured by such person. This exclusion clause cannot be read to cover reinsurance services, which are not insurance services in respect of a motor vehicle. What is excluded under the said exclusion clause is general insurance services in respect of a motor vehicle. Insurance services received by an owner of motor vehicle for insurance of such vehicle stands excluded from the definition of input service . However, a re-insurance service is not in respect of a motor vehicle, but is in respect of the assumed risks of an original insurer and thus, the aforesaid exclusion clause has no application to qualification of re-insurance services as input service . Whether the Appellant is eligible to avail CENVAT credit of re-insurance service provided by pool member companies under the Insurance Pool? - HELD THAT:- Under the pool arrangement, the Appellant deposits the whole premium 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, ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05.2014 Oct, 08 to March, 2012 115,78,81,098/- ST/52874/015 21.05.2014 28.02.2015 April, 12 To March, 2014 42,39,38,615/- ST/50690/2017 08.04.2016 23.01.2017 April, 2014 to March, 2015 2,27,37,344/- 4. The common reasons given in the impugned orders for denying the CENVAT credit on service tax paid on re-insurance services are as follows:- (a) Re-insurance service is not essential for providing insurance service as the Appellant can provide insurance service without obtaining re-insurance service; (b) Re-insurance services were obtained by the Appellant after issuance of insurance policies to the customers, i.e. after provision of "output services‟ and thus, the same cannot be said to have been used for rendering "output services‟; (c) Re-insurance services pertaining to motor vehicles have been included in the definition of "input service‟ only by way of an amendment of rule 2(l) of the CENVAT Credit Rules, 2004 Credit Rules w.e.f. April 01, 2012 and thus, prior to the said date, it does not qualify to be an "input service‟. Further, with the said amendment, re-insurance services pertaining to other than motor vehicles is also not eligibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iv) In Service Tax Appeal No. 52874 of 2015, there is a duplication of demand to the extent of CENVAT credit of ₹ 6,12,340/- and, therefore, confirmation of demand in the impugned order to that extent is liable to be set aside on this ground; and (v) In any view of the matter, the extended period of limitation could not have been invoked nor could penalties have been imposed in the facts and circumstances of the case. 6. The learned Authorised Representative of the Department has, however, supported the impugned orders and has contented that they do not suffer from any illegality. Learned Authorized Representative submitted that re-insurance service is not essential for providing insurance service and, therefore, the Appellant is not entitled to avail CENVAT credit of service tax paid on re-insurance services. The learned Authorized Representative also emphasized that since re-insurance services pertaining to motor vehicles have been excluded in the definition of "input service‟ only by way of amendment made in Rule 2(l) of the Credit Rules w.e.f. April 1 2012, it will not qualify to be "input service‟ prior to the said date. Learned Authorized Representative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. 10. 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. 11. Directions dated December 4, 2006, were issued by IRDA, in due exercise of powers conferred under section 34 of the Insurance Act, for creation of an Insurance Pool. All the general insurers, registered to carry on general insurance business (including motor insurance business) or general re-insurance business, were directed to collectively participate in a pooling arrangement to share all motor third party insurance business underwritten by any of the registered general insurers. It is in pursuance of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... three show cause notices resulted in three impugned orders dated May 19, 2014, February 28, 2015 and January 23, 2017. The aforesaid three appeals have, accordingly been filed to assail these impugned orders. 15. The first issue that arises for consideration in these three appeals is as to whether re-insurance services are used for provision of insurance services and, therefore, would qualify as "input service‟ for the Appellant. Section 65 (58) of the Finance Act, 1994 Finance Act defines "insurer‟ to mean any person carrying on general business or life insurance business and includes a re-insurer. Under section 65(80) of the Finance Act, "policy holder‟ has the meaning assigned to under section 2(2) of the Insurance Act. Under section 65(105)(d) of the Finance Act, "taxable service‟ means any service provided or to be provided to a policy holder or any person, by an insurer, including re-insurer carrying on general insurance business in relation to general insurance business. 16. An insurer issues insurance policy to insure and assumes the risks arising thereunder. The insurance of such risks assumed by the insurer by another insurer is called re-insuran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies and availed CENVAT credit of service tax paid on such services received by it. This CENVAT credit was denied by the Department for the reason that re-insurance service cannot be considered as an "input service" since it takes place after the insurance policy is issued. The Karnataka High Court examined whether CENVAT credit availed and utilized by the insurance company on service tax paid for re-insurance service is an "input service" for the "output service" of insurance that the company was providing and held that the process of issuance of the policy by the insurer and subsequent procurement of re-insurance policy from another company, which is a statutory requirement, is an integral part of the entire process and the insurance process does not come to end merely on the issuance of the insurance policy since it continues till the existence of the term of the policy. The High Court noted that since reinsurance has to be taken under section 101A of the Insurance Act, it is a statutory obligation and, therefore, has to be considered as having nexus with the "output service" and, therefore, would be an "input service", for which CENVAT credit can be availed. The portion of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entitled to the CENVAT credit to the extent of service tax which has been paid by it. In the present case, if the entire Service Tax which is collected by the Insurer, while selling its insurance policies, has to be deposited without being given the credit of the tax which is paid by it while procuring a policy of reinsurance as (mandatorily required in law), the same would be against the ethos of CENVAT credit policy, as the same would amount to double taxation, which is not permissible in law." 19. It needs to be noted that the aforesaid decision of the Karnataka High Court in PNB Metlife India was accepted by the Central Board of Excise and Customs in the Circular dated February 16, 2018. The relevant paragraphs 8 and 8.1 of the Circular are reproduced below: "8. Decision of the Hon‟ble High Court of Karnataka at Bangalore dated 09.04.2015 in the case of M/s PNB Metlife India Insurance Company Ltd. Bangalore [2015 (39) STR 561 (Kar.)] 8.1. Department has accepted the aforementioned order of the Hon‟ble High Court of Karnataka. The issue examined in the order was, whether Reinsurance is an input service which is used for providing output service, namely, insuranc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to conclude that reinsurance is a statutory obligation and the reinsurance is integrated with the insurance policy and therefore has nexus with the output service of insurance. This aspect has also been clarified by CBEC New Delhi in its Circular No. 120(a)/2/2010-S.T. dated 16.04.2010. Further in the said circular it is also clarified that, it is the reinsurer which provides insurance service to the insurance company. Thus there is no doubt that re-insurance service is an input service for providing in insurance services. Further, these aspects have also been discussed by the Hon‟ble CESTAT in case of PNB MetLife India Insurance Co. Ltd. Vs CCE, ST& CUS. Bangalore-2014(36)STR891(Tri-Bang.) xxxxxxxx." 22. In such circumstances, the Department cannot take a contrary stand in these Appeals as was held by the Tribunal in Shri Niraj Prasad. 23. The second issue that arises for consideration is whether the amendment to the definition of "input service‟ in rule 2(l) w.e.f. April 1, 2012 would affect the eligibility of the Appellant to CENVAT credit on reinsurance services during the relevant period. It needs to be noted that motor vehicles have been excluded from the defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been granted to an insurance company in respect of motor vehicle insured or reinsured by them. Meaning thereby that this exclusion and its exception are not in any way restricting the CENVAT credit of general insurance services pertaining to "Other than Motor vehicle‟ which in real terms is not a subject matter of said exclusion and its exception clause. It may further be added that the exclusion to the definition of "input service‟ has been introduced and are related to only those general insurance services which are in respect of a motor vehicle, not being in the nature of a capital goods. Thus, the applicability of this exclusion in Clause-B A is limited only to services received in respect of motor vehicles and does not extend to services received in respect of "Other than Motor vehicle‟. Therefore, this amendment, in no way, deals with insurance or reinsurance services received in respect of "other than motor vehicles‟. Therefore, the allegation of the show cause notice that on the basis of such an exclusion clause, contained in Clause (BA) (supra), the services of insurance or re-insurance relted to "Other than Motor vehicle‟ would be exclude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor insurance business) and general insurance reinsurers." 27. This position is also clear of the from the observation made in the paragraph 38 of the impugned order which are as follows:- "38. …. It is observed that such participation in the pool is also sharing of risk and is also a kind re-insurance among the pool members. Therefore, whether it is re-insurance got done by an insurance company with another insurance company or participation in the pool for motor third party insurance, in both the cases it is re-insurance and have to examined and dealt in similar manner." 28. Thus, it cannot be doubted that re-insurance services are rendered by pool member companies to each other and payment of premium takes place with the pooling of the original premium into the pool. The Appellant would, therefore, be eligible to avail the CENVAT credit of service tax paid thereon. The impugned orders denying such CENVAT credit cannot, therefore, cannot be sustained. 29. Thus, when the impugned orders are being set aside for the aforesaid reasons, it would not be necessary to examine whether the extended period of limitation could have been invoked in the facts and circumstances of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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