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TMI Blog2022 (12) TMI 1479X X X X Extracts X X X X X X X X Extracts X X X X ..... (for short 'the Tribunal'). The appeals are filed under Section 35G of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994. The circumstances and the issues for consideration in the appeals are identical. For a reason thereof, the Tribunal disposed of the appeals filed by the respondents herein by the common order impugned before us. Hence, by the common judgment, we dispose of the appeals. There is no controversy on the circumstances leading to a controversy on the claim of the assessee for availing input tax credit under CENVAT Credit Rules, 2004 on the service availed by the assessee from Deposit Insurance & Credit Guarantee Corporation (for short ‚'DICGC') and payment of service tax while paying a premium for insuring the deposits accepted and retained by the assessee. Thereafter availed CENVAT credit against the input tax credit received from DICGC. C.E.Appeal No.1 of 2021 4. The instant appeal has been treated as the lead case for disposing of the batch of appeals. The limited circumstances surrounding the controversy are, fairly and in detail, narrated in the orders of the Tribunal and the primary authority. 5. We have taken note of the circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er contra, the Division Bench of the Tribunal at Mumbai had taken a different view. The said difference of opinion was referred to a larger bench and the larger bench in South Indian Bank v Commissioner of Customs, Central Excise & Service Tax, Calicut [2020 (41) GSTL 609] answered the reference as follows: "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". 6. The common order impugned in the appeals is rendered by the Tribunal by following larger bench in the South Indian Bank case. Hence the appeals at the instance of the Revenue. 7. The following substantial questions of law are raised: 1. Whether the insurance service provided by the Deposit Insurance & Credit Guarantee Corporation to the banks is an `input service' specifically for the purpose of CENVAT Credit Rules, 2004? 2. Was CESTAT right in concluding that the service rendered by the Deposit Insurance Corporation to the banks would fall in the main part of the definition of "input service" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplete answer to the questions now canvassed in the appeal. 11. We have taken note of the argument of revenue, and we will, first, refer to whether these aspects have fallen for consideration before the Larger Bench or not. The verification is taken up by excerpting the following paragraphs from the order dated 20.03.2020 of the Larger Bench. 39. It is in the light of the aforesaid provisions that it has to be examined whether the insurance service received by the banks from the Deposit Insurance Corporation can be considered to be an "input service". 40. Sub-rule (1) of rule 3 of the 2004 Rules provides that a provider of output service shall be allowed to take CENVAT credit of the service tax leviable under sections 66, 66A and 66B of the Finance Act. Sub-rule(4) of rule 3 provides that the CENVAT credit may be utilised for the payment of service tax on any output service. 41. "Input service", prior to 1 April, 2011, meant any service used by provider of taxable service for providing an output service, including amongst others, activities relating to business such as financing. However, with effect from 1 April, 2011, the definition was amended and the definition can conve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e percentage of how much the banks lend out of the deposits they have mobilised and also indicates how much of the core funds of the banks are being utilised for lending. A higher ratio indicates more reliance on deposits for lending. In such circumstances, the raising of deposits is an important function of the banks. In other words, the acceptance of deposits is not only a prerequisite for lending but is also necessary for the banks since the entire activity undertaken by the bank begins with the acceptance of deposits, without which the subsequent activities of lending or investment cannot be undertaken by the banks. 46. All banks have also to obtain a licence from the Reserve Bank of India under section 22 of the Banking Regulation Act. It also needs to be noticed that it is a compulsory for all banks who have obtained a licence from the Reserve Bank of India under section 22 of the Banking Regulation Act to register themselves with the Deposit Insurance Corporation. The registration of the banks with the Deposit Insurance Corporation is not optional for the banks. The payment of premium, therefore, to the Deposit Insurance Corporation is a statutory obligation of the banks. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for insuring the deposits, the registration with the Deposit Insurance Corporation can be cancelled and so would the interest of the depositors as their deposits will not have the cover of insurance. Thus, if the interest of the depositors is not sufficiently protected then under the third requirement the licence of the bank can also be cancelled by the Reserve Bank of India. 50. It cannot, therefore, be doubted that the insurance service received by the banks from the Deposit Insurance Corporation is not only mandatory but is also commercially expedient. In fact, without this service the banks may not be able to function at all. 51. Premium is paid by the banks to the Deposit Insurance Corporation for providing the insurance service for which the banks pay service tax. It is this service tax paid by the banks on the insurance service received by the banks from the Deposit Insurance Corporation that is the bone of contention between the parties. 52. It is not in dispute that after accepting the deposits there are number of services on which the banks have to pay service tax under "banking and other financial services". These services are in connection with both the "accepting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anks with the Deposit Insurance Corporation for calculating the premium payable. The banks cannot avail credit of service tax on any amount of interest earned on extending of deposits. It is, therefore, not possible to accept the contention of the Department that "accepting" of deposits is covered under section 66D(n) of the Finance Act. 55. The Assessable deposits, on which the premium is calculated, not only includes deposits such as savings, fixed, current, recurring, etc., but also certain balances appearing in the account of the banks such as credit balances in cash credit accounts, margin held against letters of credit, guarantees, bills purchased, etc., unpresented drafts and payment orders, provident fund balances relating to staff held by bank before they are transferred to Provident Fund Commissioner, amount representing pay orders/ bankers cheques/ demand drafts issued by closing deposit accounts with or without reference to depositors, but remaining unpaid etc. Thus, the contention of the Department that insurance premium is paid only on the deposits of the customers cannot also be accepted. 56. It has also been submitted by learned Counsel appearing for the banks t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Co. Ltd. [2015 (39) STR 561 (Kar.)] the issue that came up for consideration before the Karnataka High Court was whether an assessee can avail CENVAT credit of service tax paid on reinsurance services by treating the said service as an "input service". PNB Metlife India Insurance Company was carrying on life insurance business and on the insurance policy issued by it, service tax was charged from the customers. It also procured re-insurance service from overseas insurance companies 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 reinsurance policy from another company, which is a statutory requirement, is an integral part of the enti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... input service‟ eligible for Cenvat credit within the meaning of Rule 2(l) of the Cenvat Credit Rules, 2004. 7. We may further add that the Service Tax is levied for certain service rendered and the provision of giving the Cenvat credit is so that there may not be double taxation. If a person has collected service tax, no doubt the same has to be deposited, but if in the process of the same transaction he has paid some service tax, which is necessary for its business, then he is 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." 60. It needs to be noted that the aforesaid decision of the Karnataka High Court in PNB Metlife India has been accepted by the Central Board of Excise and Customs in the Circular dated 16 February, 2018. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not be said that the Appellant was rendering an exempted service. The Appellant was, therefore, held entitled to avail CENVAT credit. 63. It, therefore, follows from the discussion made above and the aforesaid decisions that banks can avail CENVAT credit of the service tax paid by the banks on the premium amount paid to Deposit Insurance Corporation for the insurance service rendered by the Deposit Insurance Corporation to the banks. 64. This view has been taken by the Tribunal in State Bank of Bikaner. However, in ICICI Bank a contrary view was taken. For all the reasons stated above, it is not possible to accept the view taken by the Division Bench of the Tribunal in ICICI Bank.' 12. We have examined the view from the perspective of questions raised before us. To conclude precisely, the larger bench has taken each one of the circumstances at both the ends i.e. while availing the services and providing services, the practice/procedure and the provisions of law had rendered the view on the entitlement of assessee for availing the credit. We are in full agreement with the view of the larger bench in all fours. 13. The argument of Mr.Sreelal Warrier disjuncts allied serv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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