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TMI Blog2023 (3) TMI 1276X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d insurer under the provisions of the Insurance Act, 1938 (hereafter the Insurance Act ). 4. The Commissioner, Central Excise Service Tax (hereafter the Commissioner ) issued a Demand-cum-Show Cause Notice dated 05.12.2014. The show cause notice was issued on the basis of a Modus Operandi, Circular No. 29/2013-14 dated 18.03.2014 issued by the Additional Director General, Directorate of Service Tax Mumbai. The said Circular was in respect of wrongful availment of CENVAT Credit in respect of service tax paid on re-insurance premium. It was alleged that insurance companies were wrongfully availing credit in respect of service tax paid on re-insurance premium for discharge of service tax payable on insurance services. According to the Revenue, the service tax on re-insurance premium was not covered within the definition of input service . It was alleged that insurance companies engaged in providing general insurance services were parties to the Indian Motor Third Party Insurance Pool and were availing input credit on the basis of invoices issued by re-insurers as well as invoices issued by members of the Indian Motor Third Party Insurance Pool, which was constituted to share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g output services; and fourth that the invoices issued by the insurance companies did not appear to be proper documents for availing CENVAT Credit. The relevant extract of the show cause notice is set out below: 10. From the foregoing it is cleared that reinsurance service in relation to a motor vehicle, which is not a capital goods has been included as an input service defined under Rule 2(l) of CCR, 2004 vice Notification No. 21/2012-CE (NT) dated 27.03.2012 as amended by Notification No.28/2012-CE (NT) dated 20.06 2012 from 01.04.2012 only and therefore the same cannot be treated as an input service for the period prior to 01.04.2012 for the following reasons:- (i) The reinsurance service is received by the service provider after rendering the output service namely insurance service to reduce risk /liabilities. (ii) Reinsurance service is not essential for providing of the insurance service which can be provided without receiving these services. (iii)The reinsurance services are not used directly or indirectly for providing output service namely insurance. (iv) The invoices issued by the insurance companies to the Noticee do not appear proper documents t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r providing an output service or used by the manufacturer in relation to the manufacture of the final product. The case set up in the show cause notice for denial of CENVAT Credit in respect of tax paid on re-insurance services was founded on, essentially, two propositions. First, that re-insurance services were obtained after OIC had performed the output services, that is, after it had issued the insurance policy; therefore, the same could not be considered as an input service, which was essential for providing output services. Second, that re-insurance services had no relationship with the output services provided by the service provider. 10. The Commissioner noted that the issue whether there was any nexus between re-insurance services and the insurance services provided by OIC was settled by the decision of the learned CESTAT in the case of PNB Metlife India Insurance Co. Limited v. Commissioner of Central Excise Service Tax and Customs, Bangalore 2014 (36) STR 891, which was upheld by the High Court of Karnataka in Commissioner of Central Excise, Bangalore v. PNB Metlife India Insurance Co. Limited 2015 (39 STR 561 (Kar.). The Commissioner concluded that, thus, in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ionary clause introduced in Rule 2(l) of the CCR. As stated above, the Commissioner had held that re-insurance services were not included in the definition of input service under Rule 2(l) of the CCR with effect from 01.04.2011. The learned CESTAT found the said view to be erroneous. The CESTAT held that such insurance services, which were in relation to a motor vehicle , were the only services excluded from the definition of input services and the same did not cover re-insurance services availed by OIC. The learned CESTAT referred to the decision in Shriram General Insurance Company Ltd. v. Commissioner of Central Excise, Jaipur-I Service Tax Appeal No. 54096 of 2014, decided on 04.03.2020., whereby the Tribunal had explained that motor vehicles had been excluded from the definition of capital goods and therefore, general insurance services relating to such motor vehicles was also excluded from the definition of input service . 15. The learned CESTAT accepted that re-insurance services were not excluded from the ambit of input services under Rule 2(l) of the CCR with effect from 01.04.2011 as the re-insurance services could not be construed as relating to a mot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or re-insurance. As stated above, the Commissioner had accepted that there was no qualitative difference between input tax credit in respect of service tax paid on re-insurance premium to Indian re-insurer; input credit in respect of re-insurance business paid under Reverse Charge Mechanism (to insurance companies located overseas); and input credit on service tax paid to the members of the Indian Motor Third Party Insurance Pool. 21. The Adjudicating Authority had also accepted that re-insurance services would be covered under the definition of input services under Rule 2(l) of the CCR for the period prior to 01.04.2011. There is also no cavil that re-insurance services would be covered under the definition of input services for the period after 30.06.2012. 22. The questions whether re-insurance services cannot be considered as input services for the reason that the same are rendered after the output services; whether the same are essential for rendering output services; and whether the same have a nexus with the output services, are no longer res integra. These questions are covered by the decision of the Karnataka High Court in PNB Metlife India Insurance Co. Limited 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y a provider of taxable 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 modernisation, 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; 28. The definition of input services under Rule 2(l) of the CCR was amended vide Notification no. 3/2011 -CE (NT) dated 01.04.2011 to specifically exclude certain services under Clause (B). The relevant extract of Rule 2(l) of the CCR, as it read post April 2011, is set out below: 2(l) input service means any service,- (i) used by a prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share registry, security, business exhibition, legal services, inward transportation of inputs or capital goods and outward transportation upto the place of removal but excludes,- (A) . (B) specified in sub-clauses (o) and (zzzzj) of clause (105) of section 65 of the Finance Act, in so far as they relate to a motor vehicle which is not a capital goods; or (BA) specified in sub-clause (d) and (zo) of Section 65 of the Finance Act, in so far as they relate to a motor vehicle which is not capital goods, except when used by (a) a manufacturer of a motor vehicle in respect of a motor vehicle manufacture by him, or (b) a provider of output service as specified in sub clause (d) of clause (105) of Section 65 of the Finance Act, in respect of a motor vehicle insured or reinsured by him; 30. Rule 2(l) of the CCR was further amended by a Notification no. 28/2012 CE(NT) date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amendment in Rule 2(l) of the CCR, as introduced with effect from 01.04.2011, input service in relation to the services specified in Clause (d) of Sub-section (105) of Section 65 of the Act 1 , insofar as it relates to motor vehicles, was excluded from the scope of input service. The only exception being when the services were used for provision of taxable services for which credit on motor vehicles was available as capital goods. 32. According to OIC, the re-insurance services availed by it could not be stated to be in relation to a motor vehicle . The re-insurance premium was paid by the respondent for re-insurance to mitigate its risks. The quintessential difference being that whereas the respondent had issued policies relating to a motor vehicle, the re-insurance premium was paid for re-insurance to cover or mitigate its risks. 33. Section 2(16B) of the Insurance Act, 1938 defines re-insurance as under: 2(16B) re-insurance means the insurance of part of one insurer s risk by another insurer who accepts the risk for a mutually acceptable premium; 34. It is clear from the definition that the re-insurance is insurance of part of the insurer s risks by anoth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... surance 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. 40. As noted above, OIC had challenged the Order-in-Original dated 19.02.2016 before the CESTAT on other grounds as well. Prima facie, we find substance in the contention that the extended period of limitation under Section 73(1) of the Act was not available in this case. There was no concealment or suppression of any fact. It is OIC s assertion that re-insurance services were not excluded from the scope of input services and therefore, there is no reason for OIC to not avail CENVAT Credit in relation to re-insurance services. There is no allegation that OIC had not maintained records of such input services or had otherwise not disclosed it in its accounts. It is well settled that the proviso to Section 73(1) is attracted only if material facts have been mis-stated or have been deliberately suppressed with an intent to evade taxes. 2 41. OIC s contention that the Adjudicating Authority had travelled outside the show cause notice is also not insubstantial. The show cause notice had proceeded on basis that the re-insurance services a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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