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TMI Blog2024 (4) TMI 1149X X X X Extracts X X X X X X X X Extracts X X X X ..... NGALORE - LB] , the correctness of which was doubted by the Di vision Bench, has been upheld by the Kerala High Court and the Bombay High Court. Whether the Division Bench could refer the decision of three Members to a Larger Bench of five Members? - HELD THAT:- It transpires from a perusal of the reference order of the Division Bench that though the judgment of the Supreme Court of two Hon ble Judges in UNION OF INDIA VERSUS PARAS LAMINATES (P) LTD. [ 1990 (8) TMI 140 - SUPREME COURT] and of the Larger Bench of the Tribunal in COMMISSIONER OF C. EX., VADODARA VERSUS ASIA BROWN BOVERI LTD. [ 2000 (7) TMI 110 - CEGAT, NEW DELHI] were considered by the Division Bench, but the subsequent Constitution Bench judgments of the Supreme Court rendered by five Hon ble Judges in BHARAT PETROLEUM CORPORATION LTD. VERSUS MUMBAI SHRAMIK SANGHA AND OTHERS [ 2001 (4) TMI 81 - SC ORDER] ; Pradip Chandra Parija and others vs. PRADIP CHANDRA PARIJA AND OTHERS VERSUS PRAMOD CHANDRA PATNAIK AND OTHERS [ 2001 (12) TMI 71 - SUPREME COURT (LB)] ; UNION OF INDIA VERSUS HANSOLI DEVI AND OTHERS [ 2002 (9) TMI 799 - SUPREME COURT] respectively were not considered by the Division Bench of the Tribunal. It clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ming to the conclusion that the decision of the Larger Bench of three Members of the Tribunal requires re-consideration by a Larger Bench of five Members of the Tribunal. It has, therefore, to be examined whether the judgment of the Supreme Court in Dilip Kumar would have any application to the facts of the present appeals - It needs to be noted, and it is also clear from paragraph 1 of the judgment of the Supreme Court in Dilip Kumar, that the Constitution Bench was set up to decide what interpretative rule should be applied while interpreting a tax exemption provision or a notification when there is an ambiguity as to its applicability with reference to the entitlement of the assessee or the rate of tax to be applied. Paragraph 28 points out the core issue that was required to be examined and paragraph 41 answers the core issue. The Bench held that every taxing statute, including charging, computation and exemption clause at the threshold stage should be interpreted strictly, but in case of ambiguity in a charging provision, the benefit must necessarily go in favour of the assessee. The reference order of the Division Bench also observes that the judgment of the Karnataka High Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal of three Members in South Indian Bank. The Larger Bench decision of the Tribunal of three Members in South Indian Bank does not require re-consideration by a Bench of five Members of the Tribunal. In any view of the matter, there is no requirement of referring the matter to a Larger Bench of five Members of the Tribunal as the decision of the Larger Bench of the Tribunal in South Indian Bank has been upheld by the Kerala High Court and the Bombay High Court. The papers may now be placed before the Division Bench for deciding the appeals. - Hon ble Mr. Justice Dilip Gupta, President, Hon ble Mr. C. J. Mathew, Member (Technical) And Hon ble Mr. Ajay Sharma, Member (Judicial) For the Appellant : Shri Prasad V Paranjape, Advocate For the Department : Shri Suvir Misra, Authorized Representative INTERIM ORDER JUSTICE DILIP GUPTA: A Division Bench of the Mumbai Regional Bench of the Tribunal, while hearing Service Tax Appeal No. 88202 of 2019 and Service Tax Appeal No. 87659 of 2016 filed by Bank of America, National Association [Bank of America], expressed its inability to agree with the decision of the Larger Bench of the Tribunal comprising three Members in South Indian Ban ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f five Members of the Tribunal to answer the aforesaid three issues indicated by the Division Bench in the reference order; (ii) Whether the decision of the Larger Bench of the Tribunal of three Members in South Indian Bank requires re-consideration by a Larger Bench of five Members; and (iii) What would be the fate of the reference when the decision of the Larger Bench of the Tribunal in South Indian Bank, the correctness of which was doubted by the Division Bench, has been upheld by the Kerala High Court and the Bombay High Court. (i) Whether the Division Bench could refer the decision of three Members to a Larger Bench of five Members 5. The Larger Bench of the Tribunal of three Members was constituted to examine whether banks can avail CENVAT credit of the service tax paid by the banks for the services provided by the Deposit Insurance Corporation for the reason that divergent views had been expressed by Division Benches of the Tribunal on this issue. Though, the Principal Bench of the Tribunal had decided that the banks can avail the credit, but subsequently a Division Bench of the Tribunal at Mumbai without considering the aforesaid decision of the Principal Bench took a cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the President to make a reference to a larger Bench. (emphasis supplied) 8. The Larger Bench of the Tribunal in Asia Brown Boveri followed the judgment of the Supreme Court in Paras Laminates. 9. It transpires from a perusal of the reference order of the Division Bench that though the judgment of the Supreme Court of two Hon ble Judges in Paras Laminates and of the Larger Bench of the Tribunal in Asia Brown Boveri were considered by the Division Bench, but the subsequent Constitution Bench judgments of the Supreme Court rendered by five Hon ble Judges in (i) Bharat Petroleum Corpn. Ltd. vs. Mumbai Shramik Sangha and Others [(2001) 4 SCC 448] ; (ii) Pradip Chandra Parija and others vs. Pramod Chandra Patnaik and others [2002 (144) E.L.T. 7 (S.C.)] and (iii) Union of India and another vs. Hansoli Devi and others [(2002) 7 SCC 273] rendered on 25.04.2001, 04.12.2001 and 12.09.2002 respectively were not considered by the Division Bench of the Tribunal 10. In Bharat Petroleum Corporation, the Constitution Bench of the Supreme Court observed as follows: 1. The order of reference to a Constitution Bench is dated 13.01.1998. Two learned judges of this Court have doubted the correctness of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch of three learned Judges setting out, as has been done here, the reasons why it could not agree with the earlier judgment. If, then, the Bench of three learned Judges also comes to the conclusion that the earlier judgment of a Bench of three learned Judges is incorrect, reference to a Bench of five learned Judges is justified. (emphasis supplied) 12. In Hansoli Devi, the Constitution Bench of the Supreme Court again held as follows: 2. According to the learned Judges, the three Judges Bench decision of this Court in Jose Antonio Cruz Dos R. Redriguese and Anr. v. Land Acquisition Collector and Anr., [1996] 6 SCC 746 requires reconsideration. At the outset, it may be stated that the Constitution Bench in Pradip Chandra Parija and Ors. v. Pramod Charndra Patnaik and Ors., [2002] 1 SCC 1, held that judicial discipline and propriety demands that a Bench of two learned Judges should follow a decision of a Bench of three learned Judges. But if a Bench of two learned judges concludes that an earlier Judgment of three learned Judges is so very incorrect that in no circumstances can it be followed, the proper course for it to adopt is, to refer the matter before it to a Bench of three Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t: 8. It is, therefore, appropriate, in view of the aforesaid Constitution Bench judgments of the Supreme Court, that the matter may be placed before a Larger Bench of three Members of the Tribunal to first decide whether the decision rendered by the Larger Bench of the Tribunal in M/s. South Indian Bank is incorrect and requires reference to a Bench of five Hon ble Members of the Tribunal. It is only when the Bench consisting of three Members of the Tribunal comes to a conclusion that it is unable to agree with the earlier judgment rendered by three Members, that a Bench of five Members can be constituted. 9. The matter may, therefore, be placed before a Bench of three Members of the Tribunal to be nominated by the President. 17. What is also important to notice is the fact that the Division Bench has placed great reliance in the reference order upon the Constitution Bench judgment of the Supreme Court in Commissioner of Cus. (Import), Mumbai vs. Dilip Kumar Company [2018 (361) E.L.T. 577 (S.C.)] to conclude that non-consideration of the principles laid down by the Supreme Court in Dilip Kumar would require examination of the issues by a Larger Bench of the Tribunal consisting of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents in Bharat Petroleum Corporation, Pradip Chandra Parija and Hansoli Devi. 20. The observations made in paragraph 2 of the said judgment of the Supreme Court in Dilip Kumar were, therefore, sufficient for the Division Bench to have also placed the matter before a Bench of three Members of the Tribunal, if the Division Bench felt that the decision of the Larger Bench of the Tribunal in South Indian Bank was so incorrect that it required re-consideration, and only when a Bench of three Members of the Tribunal would doubt the correctness of the decision rendered by the three Members of the Tribunal in South Indian Bank that the matter can be placed before a Bench of five Members of the Tribunal. The Division Bench, however, proceeded to itself refer the three issues to the Larger Bench of five Members. The procedure adopted by the Division Bench is, therefore, in the teeth of the procedure laid down by the aforesaid three constitution Bench judgments of the Supreme Court and is also not in conformity with the procedure that was followed by the Supreme Court in Dilip Kumar, on which reliance was placed by the Division Bench in the reference order. (ii) Whether there is a requirement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Service Tax, Jaipur-I [2019-TIOL-558-CESTAT-DEL] decided on 11.01.2019 that the banks can avail such credit of service tax in view of the decision earlier rendered by the Mumbai Regional Bench of the Tribunal in DCB Bank Limited vs. Commissioner of Service Tax, Mumbai [2017 (6) G.S.T.L. 479 (Tri. - Mumbai)] and the decision rendered by the Principal Bench of the Tribunal in Punjab National Bank vs. Commissioner of Central Excise and Service Tax, Bhopal [2018-TIOL-1395-CESTAT-DEL]. However, a Division Bench of the Regional Bench of the Tribunal at Mumbai in ICICI Bank Limited vs. Commissioner of Service Tax [2019-VIL-108-CESTAT-MUM-ST], on an identical issue, disallowed the aforesaid credit by order dated 12.02.2019. It transpires that the decision of the Principal Bench of the Tribunal rendered on 11.01.2019 in State Bank of Bikaner was not considered by the Division Bench of the Tribunal at Mumbai in ICICI Bank. 26. It will, therefore, be appropriate at this stage to refer to the divergent views expressed by the Division Benches of the Tribunal on the issue involved in these appeals. 27. In State Bank of Bikaner that was decided on 11.01.2019, the Principal Bench of the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o protect interest of the bank being integrally connected with the business of banking, Cenvat credit of service tax paid claimed is allowable. Accordingly, appeal is allowed. (emphasis supplied) 29. The Division Bench also placed reliance on the decision of the Tribunal in Punjab National Bank, which decision had followed the earlier decision of the Tribunal in DCB Bank. 30. However, a Division Bench of the Tribunal at Mumbai in ICICI Bank took a contrary view on 12.02.2019. There is no reference to the decision of the Division Bench of the Tribunal in State Bank of Bikaner, though decisions of the Tribunal in DCB Bank and Punjab National Bank have been referred to but have been held to be per incuriam. The observations of the Division Bench are as follows : 38. The contention of the Advocates for the appellants that since lending is the core banking business and without accepting the deposit, lending business by the Bank since not possible, therefore, the activity of accepting deposit 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been rendered without consideration of the relevant statutory provisions. The observation of the Division Bench on this aspect in ICICI Bank is as follows : 42. On going through the case laws cited by the appellants and the revenue, we find that the same are pertaining to the definitions as was in existence period prior to 1-4-2011, hence could not be of much assistance and accordingly not applicable to 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 inasmuch as it has been passed without considering the relevant statutory provisions and hence cannot be considered as binding precedent. (emphasis supplied) 33. A Larger Bench of this Tribunal was, therefore, constituted to resolve whether the banks can avail CENVAT credit of service tax paid by the banks for the service provided by the Deposit Insurance Corporation, as conflicting views had been expressed by Division Benches of the Tribunal. 34. The Larger Bench of the Tribunal in South Indian Bank, examined at length the provisions of the Finance Act, the CENVAT Rules, the Deposit Insurance Act and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case where in the course of banking activities, one bank makes a deposit with another bank for which it receives consideration in the form of interest. It is this consideration received by the banks in the form of interest which has been specified under Section 66D(n) of the Finance Act in the negative list of services. Thus, in case of accepting deposits, the banks have to pay interest to the customers, whereas while extending deposits, the banks receive interest from other banks. It is for this reason that inter-bank deposits are not included in the returns filed by the banks 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. ***** 56 . It has also been submitted by Learned Counsel appearing for banks that even if it is assumed that some part of the deposit is not used for providing output service , then too the banks are still entitled for the credit availed on the insurance service provided by the De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Central Board of Excise and Customs in the Circular dated 16 February, 2018. The relevant paragraphs 8 and 8.1 are reproduced below : 8. Decision of the Hon ble High Court of Karnataka at Bangalore dated 9-4-2015 in the case of M/s. PNB Metiife India Insurance Company Ltd. Bangalore [2015 (39) S.T.R. 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, insurance and whether Cenvat Credit taken on re-insurance service is admissible. Hon ble High Court held that re-insurance is a statutory obligation and the same is co-terminus with the insurance policy. Issuance of insurance policy by insurer, and then taking of reinsurance by it, is a continuous process. Re-insurance is, therefore, an input service. 61. In the present appeals also, in order to render any output service under the category of banking and other financial services , it is necessary for a bank to register itself with the Deposit Insurance Corporation and pay premium after registration. A bank, without obtaining registration and with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the loans advanced through a separate insurance scheme. All these facts point that what has been insured is not the bank or the banking business, but the deposits made in the bank, by the depositors, and against that the reason why section 16(1) of the Deposit Insurance Act, provides that the corporation will be liable to pay to every depositor of that bank. Thus the manner in which the scheme operates is to mitigate the risk faced by the depositor while making the deposits with the bank and not the risk which bank or banking business incurs. (emphasis supplied) 37. After referring to various paragraphs of the judgment of the Karnataka High Court in PNB Metlife, the Division Bench held that it would not be applicable as it was rendered prior to the judgment of the Supreme Court in Dilip Kumar. The observations are: 4.6 The larger bench has while deciding the case of South India Bank relied heavily on the decision of the Karnataka High Court, in case of PNB Metlife Insurance. ***** ***** 4.7 From the facts, as narrated in the case of reinsurance the insurance company was mitigating its risk by seeking the insurance from the certain other foreign based insurance company. To mitigat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliance upon the judgment of the Supreme Court in Dilip Kumar for coming to the conclusion that the decision of the Larger Bench of three Members of the Tribunal requires re-consideration by a Larger Bench of five Members of the Tribunal. 40. It has, therefore, to be examined whether the judgment of the Supreme Court in Dilip Kumar would have any application to the facts of the present appeals. 41. It needs to be noted, and it is also clear from paragraph 1 of the judgment of the Supreme Court in Dilip Kumar, that the Constitution Bench was set up to decide what interpretative rule should be applied while interpreting a tax exemption provision or a notification when there is an ambiguity as to its applicability with reference to the entitlement of the assessee or the rate of tax to be applied. Paragraph 28 points out the core issue that was required to be examined and paragraph 41 answers the core issue. The Bench held that every taxing statute, including charging, computation and exemption clause at the threshold stage should be interpreted strictly, but in case of ambiguity in a charging provision, the benefit must necessarily go in favour of the assessee. However, in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the citizens without authority of law. It is axiomatic that taxation statute has to be interpreted strictly because State cannot at their whims and fancies burden the citizens without authority of law. In other words, when competent Legislature mandates taxing certain persons/certain objects in certain circumstances, it cannot be expanded/interpreted to include those, which were not intended by the Legislature. (emphasis supplied) 43. The Supreme Court also pointed out that when words in the statute are clear, plain and unambiguous and only one meaning can be inferred, the Courts are bound to give effect to the said meaning irrespective of the consequences. 44. The reference was ultimately answered by the Supreme Court in the following manner: 52. To sum up, we answer the reference holding as under (1) Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. (2) When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6D(n) of the Finance Act, which contains the negative list, was also not accepted by the Larger Bench. 48. A Division Bench of the Tribunal in M/s. Tamil Nadu State Apex Co-Operative Bank vs. The Commissioner of GST CE [2021 (50) G.S.T.L. 437 (Tri. Chennai)] correctly appreciated that the decision of the Supreme Court in Dilip Kumar would have no relevance to the controversy involved in South Indian Bank and the relevant paragraph of this decision is reproduced below: 6. The Learned AR has relied upon the decision of CESTAT Bench at Mumbai in the case of M/s. Bank of America (supra). The very same issue has again been referred to the Hon ble President to resolve the issue by constituting a Larger Bench. The reason for such reference and doubting of the order rendered by the Larger Bench is that the decision rendered by the Hon ble Apex Court in Dilip Kumar Co. (supra) was not considered by the Larger Bench and therefore the Larger Bench decision is per incuriam. When the issue has been decided by Larger Bench, judicial discipline binds us to follow the same. Further, the judgment in Dilip Kumar Co. (supra) is with regard to interpretation of exemption notifications and would not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in The Commissioner of CGST Central Excise, Mumbai Central Commissionerate vs. Yes Bank Ltd. and Indusind Bank Ltd. [2023 (9) TMI 1378 Bombay High Court]. 53. It needs to be noted that Service Tax Appeal No. 20747 of 2015 filed by South Indian Bank was ultimately decided by the Division Bench of the Tribunal on 23.09.2020 on the basis of the order dated 20.03.2020 passed by the Larger Bench answering the reference. The department filed an appeal before the Kerala High Court to assail the order dated 23.09.2020 passed by the Tribunal. The Kerala High Court, after reproducing paragraphs 39 to 64 of the order dated 20.03.2020 of the Larger Bench of the Tribunal in South Indian Bank, observed as follows: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the department against the decision of the Larger Bench of the Tribunal were not accepted and the appeal was dismissed holding that the High Court was in full agreement with the views expressed by the Larger Bench of the Tribunal. The Kerala High Court further held that the Larger Bench of the Tribunal, for valid and correct reasons, held that 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. 55. The correctness of the view expressed by the Larger Bench of the Tribunal in South Indian Bank also came up for consideration before the Bombay High Court in Yes Bank and Indusind Bank. The order dated 15.09.2020 passed by the Division Bench of the Tribunal in the Appeal filed by Yes Bank as also the order dated 29.09.2020 passed by the Division Bench of the Tribunal in the appeal filed by Indusind Bank were challenged before the Bombay High Court. In the impugned orders before the Bombay High Court, the Division Bench of the Tribunal had relied upon the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Both the appeals are accordingly dismissed. No costs. (emphasis supplied) 56. It is seen that the Bombay High Court not only agreed with the view taken by the Kerala High Court in approving the decision of the Larger Bench of the Tribunal in South Indian Bank, but the Bombay High Court also observed that the Revenue could not contend before the High Court that there were still some issues which had not been addressed by the Division Bench of the Kerala High Court and which would be relevant. The Bombay High Court also observed that the Revenue was also not able to urge any contention to substantiate why the decision of the Kerala High Court in accepting the decision of the Larger Bench of the Tribunal should not be accepted. 57. The two judgments of the Kerala High Court and the Bombay High Court also reveal that the department had not raised any issue before the Kerala High Court and the Bombay High Court while assailing the decision of the Larger Bench of the Tribunal in South Indian Bank that the Tribunal committed an error in not considering the Constitution Bench judgment of the Supreme Court in Dilip Kumar, even though they were decided after the reference was made on 02.11. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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