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TMI Blog2024 (11) TMI 471X X X X Extracts X X X X X X X X Extracts X X X X ..... brokers for underwriting the government security etc. and for making investments in securities to maintain mandatory Statutory Liquid Ratio in accordance with Banking Regulation Act, 1949. 2. Division Bench of this Tribunal has heard the Service Tax Appeal Nos. 87659 of 2016 and 88202 of 2019 respectively filed by Bank of America National Association but, vide its order dated 02.11.2020, expressed its inability to agree with the decision of the Larger Bench of the Tribunal in the matter of South Indian Bank vs. Commissioner of Customs, C.Ex & S.T., Calicut; 2020(41) GSTL 609 (Tri.-L.B.) on identical issues and therefore the said Division Bench referred the matter to the President of the Tribunal for constituting another Larger Bench of the Tribunal to resolve the following issues:- "(a) Whether the interpretation of the legal provisions contained in Sections 65 and 66 of the Finance Act, 1994 made in the decision of the CESTAT, in case of South India Bank, satisfy to the test laid down by the five member bench of Hon'ble Supreme Court in case of Dilip Kumar and Co., referred above. (b) Whether the Cenvat credit of the Service Tax paid on the services availed to fulfil a statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sal of case laws, vide Interim Order Nos. 14-18/2024 dated 30.4.2024 it has been held that the Larger Bench's decision of the Tribunal of three Members in the matter of South Indian Bank(supra) does not require re-consideration as the said decision of the Larger Bench has been upheld by the Hon'ble Kerala High Court in a challenge to the said decision and subsequently the Hon'ble Bombay High Court in yet another decision also agreed with the view taken by Hon'ble Kerala High Court of approving the said decision of the Larger Bench. 6. After the decision of the Larger Bench, these appeals have been listed before us. Learned counsel for the appellants submits that despite the Larger Bench's clear verdict that the insurance services provided by the DICGC to the banks, qualify as an 'input service' and despite the clear verdict therein approving the credit eligibility of DICGC's services, the Division Bench vide order dated 2.11.2020 doubted the decision of the Larger Bench and referred the matter to the President of the Tribunal to once again constitute another Larger Bench on the very same issues. He further submits that the Hon'ble Kerala High Court vide its order dated 5.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice where banks, acting as primary dealers, buy government securities in a primary auction and selling them to investors. The Appellant earns underwriting commissions from the RBI, on which service tax is paid. To manage these investments and to underwrite securities, the Appellant obtains brokerage services and claims credit for the service tax paid on these services. Learned Counsel submits that the brokerage services availed by the Appellant are although mandatory but commercially expedient as well. Without the said brokerage service and investments in government securities, the Appellant may not be able to function effectively. Therefore, in light of the ratio laid down by the South Indian Bank (supra), the Appellant is entitled for CENVAT credit on brokerage services. 9. According to learned counsel the issue, that the brokerage service received by the appellant qualifies as an input service, is no more res integra and in support of his submission, learned Counsel relied upon the decision of this Tribunal in Bank of Baroda vs. Commissioner of ST - I [2021 (9) TMI 536 - Tri. Mum], wherein it has been held that brokerage services received for compliance with SLR are eligible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e have no hesitation in holding that the issues involved herein are no longer res integra and is covered by the decision of Larger Bench in South Indian Bank (supra). It is not out of place to reproduce the relevant paragraphs/findings of the Larger Bench's interim order dated 30.04.2024 in the instant appeal, which are as under:- "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, expressed its inability to agree with the decision of the Larger Bench of the Tribunal comprising three Members in South Indian Bank vs. Commissioner of Customs, C. Ex. & ST, Calicut and by order dated 02.11.2020 referred the matter to the President of the Tribunal for constituting a Larger Bench of the Tribunal to decide: "a. Whether the interpretation of the legal provisions contained in Sections 65 and 66 of the Finance Act, 1994 made in the decision of the CESTAT, in case of South India Bank, satisfy to the test laid down by the five member bench of Hon'ble Supreme Court in case of Dilip Kumar and Co., referred above. b. Whether the Cenvat cre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . This Larger Bench has to decide whether the decision of the Larger Bench of the Tribunal in South Indian Bank is so incorrect that it requires a reference to a Bench of five Members of the Tribunal. 22. To examine this, it would be necessary to first examine the relevant facts. 23. The appellants herein are banking companies as defined under section 5(c) of the Banking Regulation Act, 1949. The Deposit Insurance Corporation is a subsidiary of the Reserve Bank of India and has been established under the Deposit Insurance and Credit Guarantee Corporation Act, 1961 for the purpose of insuring deposit and guarantee credit facilities. The Deposit Insurance Corporation transacts business of insuring the "deposits‟ accepted by the banks. It has to register every existing "banking company‟ as also a "new banking company‟ as an insured bank and the insured bank has to pay a premium to the Deposit Insurance Corporation at the rate notified by the Deposit Insurance Corporation. In the event of banking failure/winding up/liquidation of a bank, the Deposit Insurance Corporation protects the deposits of the customers up to a maximum of Rs. 1 lakh per depositor. The bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y if they accept deposits. It has been seen that without payment of insurance premium on the outstanding deposits, banks will not be able to function or render any output service of "banking and other financial services" and the licence granted to the banks by the Reserve Bank of India can be cancelled. 53. Thus, the service rendered by the Deposit Insurance Corporation to the banks would fall in the main part of the definition of "input service", which is any service used by a provider of output service for providing an output service. ***** 54. The contention of the Department is that "accepting" of deposits is covered under Section 66D(n) of the Finance Act which contains the negative list. As noticed above, the negative list comprises, under sub-clause (n) of Section 66D, services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount. The issue is whether extending deposits would mean the activity of accepting deposits. The activity of accepting deposits would be an activity where the banks receive deposits from the customers in the form of savings account, recurring deposits, for which the banks pay i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have duly complied with the 2004 Rules and hence they are entitled to avail Cenvat credit on the insurance service received from the Deposit Insurance Corporation." (emphasis supplied) xxx xxx xxx 36. The Larger Bench of the Tribunal thereafter answered the reference in South Indian Bank in the following terms: "65. The reference is, accordingly, answered in the following terms : "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'."" (emphasis supplied) xxx xxx xxx 45. In the present appeals, the issue that arises for consideration is whether the banks can avail credit of the service tax paid by the banks for the service provided by the Deposit Insurance Corporation. This is for the reason that the service provided by the Deposit Insurance Corporation to the banks for insuring the deposits of public with the banks is considered by the banks to be an 'input service' and CENVAT credit of service tax paid by the banks for this service has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r while selling insurance policy is not given while procuring a policy of re-insurance mandatorily required in law, the same would be against the ethos of CENVAT credit policy as the same would amount to double taxation. This decision of the Karnataka High Court was not followed by the Division Bench in the reference order, even though it had been followed by the Larger Bench of the Tribunal in South Indian Bank, for the reason that it was delivered before the judgment of the Supreme Court in Dilip Kumar. The decision of the Supreme Court in Dilip Kumar, as noticed above, has no application to the facts of the present case. The decision of the Karnataka High Court in PNB Metlife Insurance could not have been ignored by the Division Bench. 51. There is, therefore, no good reason to hold that the decision of the Larger Bench of the Tribunal in South Indian Bank requires reconsideration by a Larger Bench of five Members of the Tribunal. 52. In any view of the matter, the decision of the Larger Bench of the Tribunal in South Indian Bank has been upheld by the Kerala High Court in The Principal Commissioner of Central Tax & Central Excise, Cochin vs. M/s. South Indian Bank and by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is under statutory obligation to insure the deposits received for conducting the bank business and extends under law services on which service tax is paid. The services provided by the assessee are not falling within the negative list. Therefore, there is relatability on a hostile consideration of business in banking between the services availed and services rendered. The suggestion of revenue would compartmentalise the activities in an odd way only to deny the claim of CENVAT credit and we are not persuaded, firstly, by the argument now canvassed before us and secondly, upon taking note of are the applicable sections in this behalf. The payment of premium on insurance together with service tax for valid and correct reasons has been held by the larger bench as follows: ***** 15. The substantial questions raised are not tenable, and the findings recorded by the larger bench have already considered these issues. Two questions argued before this Court are answered against the Revenue and in favour of the assessee. Hence C.E. Appeal No.1 of 2021 is dismissed." (emphasis supplied) 54. It would be seen from the aforesaid judgment of the Kerala High Court th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur opinion, the CESTAT has rightly observed that the issue stands squarely covered by the decision of the Larger Bench. 10. We are also in agreement with the view taken by the Division Bench of the Kerala High Court in approving the decision of the Larger Bench. We may note hereunder the relevant observations of the Division Bench of the Kerala High Court in the case of "The Principal Commissioner of Central Tax/Central Excise vs. M/s. South Indian Bank (supra), to which we subscribe:- ***** 11. In the above context, we do not find ourselves persuaded to accept the case of the appellant/revenue that the questions of law as framed would at all arise. The revenue is also not before us to contend that there is some issue which has not been addressed by the Division Bench of the Kerala High Court or has missed its attention on issue of law and which would be relevant in the context of the present proceedings. The revenue also is unable to urge any contention as to why the decision of the Kerala High Court accepting the decision of the Larger Bench of CESTAT ought not to be accepted. 12. In view of the above discussion, we are of the clear opinion that no substantial questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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. xxx xxx xxx 14. ......... The payment of premium on insurance together with service tax for valid and correct reasons has been held by the larger bench 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". 15. The substantial questions raised are not tenable, and the findings recorded by the Larger Bench have already considered these issues. Two questions argued before this Court are answered against the Revenue and in favour of the assessee. Hence C.E. Appeal No. 1 of 2021 is dismissed.' 14. There is no information about any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the existence of the assessee as provider of taxable service is jeopardized, cannot but be an essential input service and is eligible for credit. The same view is also followed by this Tribunal in the matter of Bank of Baroda Ltd. vs. Commissioner of Service Tax-I; 2021 (9) TMI 536-CESTAT MUMBAI. In our opinion such services, which are necessary to fulfill statutory obligation, would certainly be qualified as input services and in the light of the settled legal position, we are of the view that the appellant is entitled for the Cenvat credit of the service tax paid by them for such services including the payment made to the brokers. 18. Learned counsel for the appellant-Bank of America, National Association has also made a submission that they have paid the service tax amount alongwith applicable interest even before the issuance of show cause notice in relation to the inadvertent availment of Cenvat Credit for a brief period but still the penalty has been imposed on them. This fact has not been denied anywhere by revenue, therefore we are of the view that in terms of Section 73(3) of the Finance Act, 1994 no penalty is to be imposed when short paid Service Tax is deposited ..... X X X X Extracts X X X X X X X X Extracts X X X X
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