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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 ..... Mumbai v. Dilip Kumar Company [ 2018 (7) TMI 1826 - SUPREME COURT] . It also observed that the decision of the Hon ble Karnataka High Court in the matter of Commissioner vs. PNB Metlife Insurance Co. Ltd. [ 2015 (5) TMI 68 - KARNATAKA HIGH COURT] relied upon by the Larger Bench in the matter of South Indian Bank [ 2020 (6) TMI 278 - CESTAT BANGALORE - LB] , has been rendered much prior to the decision of Dilip Kumar [ 2018 (7) TMI 1826 - SUPREME COURT] therefore the said referral Bench was not in agreement with the interpretation of the provisions given by the Larger Bench in the matter of South Indian Bank [ 2020 (6) TMI 278 - CESTAT BANGALORE - LB] Since now the Larger Bench vide its interim order in the matter of Bank of America v. Principal Commr., Mumbai [ 2024 (4) TMI 1149 - CESTAT MUMBAI] has confirmed the decision of the Larger Bench in the matter of South Indian Bank [ 2020 (6) TMI 278 - CESTAT BANGALORE - LB] and held that the earlier decision of Larger Bench needs no reconsideration, therefore we 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). There is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit 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 alongwith interest prior to the issuance of show-cause notice. Therefore as the payment of service tax along with applicable interest has already been deposited before the issuance of show cause notice the penalty of Rs.25.53 lakhs is not liable to be imposed on the appellant and is accordingly set aside. - MR. AJAY SHARMA, MEMBER (JUDICIAL) AND MR. ANIL G. SHAKKARWAR, MEMBER (TECHNICAL) Shri Prasad Paranjape, Advocate a/w Shri Kumar Harshwardhan, Advocate for the appellant Shri Suvir Mishra, Commissioner (AR) for the respondent ORDER Although the aforesaid appeals have been filed assailing different impugned orders but since the issue involved in these appeals are common therefore we are disposing of all of them by this common order. The issues involved are about the admissibility of Cenvat Credit of Service Tax on the insurance premium paid to Deposit Insurance Credit Guarantee Corporation [in short DICGC ] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 65B(44) of the Finance Act, 1994? (ii) If so, whether such services fall under the negative list under Section 66D? (iii) Whether the credit in respect of service tax paid on premium to insure the deposits can be considered as an input service for purpose of allowing the credit to bank? (iv) Whether Rule 6(3)(b) of the Cenvat Credit Rules be a factor for determining the eligibility to the credit in respect of services which otherwise do not qualify as input services under Rule 3 of the Cenvat Credit Rules? 4. In yet another matter viz. Service Tax Appeal No. 87289 of 2016 filed by Abhyudaya Co-operative Bank Ltd., while recording that the issue involved herein is also covered by the decision of the Larger Bench in the matter of South Indian Bank (supra,) which has been doubted in the matter of Bank of America National Association (supra), the Division Bench vide order dated 31.3.2021 considered it appropriate to refer this also to the President of the Tribunal for consideration in the Larger Bench alongwith the Appeal filed by Bank of America National Association (supra). 5. To resolve the issue a Larger Bench was constituted and after considering the submissions of both sid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Order-in- Original : a. DICGC credit b. Brokerage credit Rs. 1,05,63,561 Rs. 14,09,650 Rs. 2,39,39,687 Rs. 21,24,235 5. Penalties imposed : a. DICGC credit b. Brokerage credit c. Credit reversed and interest paid before SCN Rs. 1,05,63,561 Rs. 14,09,650 Rs. 25,73,795 Rs. 2,39,39,687 Rs. 21,24,235 Nil 8. Learned counsel submits that the Appellant invests in government securities due to statutory requirement under the Banking Regulation Act, 1949 to maintain requisite Statutory Liquidity Ratio ( SLR ) in respect of its net demand and liabilities (which includes deposit accounts). Depositing in these securities requires Appellant to obtain services of brokers who charge commission with service tax from the Appellant. The service tax so charged is availed as credit by the appellants which is disputed by the Revenue without realising that it is the statutory requirement for the Appellant to invest. He further submits that the Appellant also operates as a Primary Dealer ( PD ) authorized by the Reserve Bank of India ( RBI ) to underwrite securities. Underwriting of government securities by banks is a financial service where banks, acting as primary dealers, buy government securit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the decision in South Indian Bank (supra) has been passed without considering the decision of the Hon ble Constitution Bench of the Supreme Court in the matter of Commissioner of Customs (Import), Mumbai v. Dilip Kumar Company [2018 (361) ELT 577 (SC)]. It also observed that the decision of the Hon ble Karnataka High Court in the matter of Commissioner vs. PNB Metlife Insurance Co. Ltd.; 2015(39) S.T.R. 561 (Kar.), relied upon by the Larger Bench in the matter of South Indian Bank (supra), has been rendered much prior to the decision of the Hon ble Supreme Court in the matter of Dilip Kumar(supra) therefore the said referral Bench was not in agreement with the interpretation of the provisions given by the Larger Bench in the matter of South Indian Bank (supra). 12. Since now the Larger Bench vide its interim order dated 30.4.2024 in the matter of Bank of America v. Principal Commr., Mumbai; [2024(4) TMI 1149-Tri. Mum] has confirmed the decision of the Larger Bench in the matter of South Indian Bank (supra) and held that the earlier decision of Larger Bench needs no reconsideration, therefore we have no hesitation in holding that the issues involved herein are no longer res integra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l to be constituted in Bank of America. 4. Three issues that would arise for consideration, on a perusal of the aforesaid reference order of the Division Bench and on consideration of the submissions advanced on behalf of the appellant and the department, are: (i) Whether the Division Bench of the Tribunal, after disagreeing with the decision of the Larger Bench of the Tribunal consisting of three Members, could have itself referred the matter to the President of the Tribunal for constituting a Larger Bench of 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. xxx xxx xxx 21. This Larger Bench has to decide whether the decision of the Larger Bench of the Tribunal in South Indian Bank is so incorrect that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Finance Act, the CENVAT Rules, the Deposit Insurance Act and the Regulations as also the factual position and observed as follows: 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 of deposits and lending activity of the banks. Banks would be able to lend only 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for the credit availed on the insurance service provided by the Deposit Insurance Corporation as the banks have reversed 50% of the total Cenvat credit taken in terms of Rule 6(3B) of the 2004 Rules. ***** This sub-rule (3B) has, therefore, been introduced with a view to disallow the credit of input and input services attributable to interest/investment income earned by banking companies. Having regard to the fact that it is difficult to ascertain the actual amount of input and input services used in earning interest income, sub-rule (3B) provides for reversal of 50% of input and input services. 57. Thus, the reversal has been made, banks are entitled for credit of the entire amount of service tax paid on input service having nexus with the provisions of output service and it is irrelevant as to which part of the input service is used for provision of taxable output service and which part has been used for provisions of exempted service. Having made reversal under Rule 6(3B), the banks 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 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examine whether the service would be covered by the inclusive part of the definition. The Larger Bench also observed that the aforesaid service was not excluded from the definition of input service . The contention of the department that accepting of deposits is covered under section 66D(n) of the Finance Act, which contains the negative list, was also not accepted by the Larger Bench. xxx xxx xxx 49. The reference order of the Division Bench also observes that the judgment of the Karnataka High Court in PNB Metlife Insurance, which has a direct bearing on the issue involved in these appeals, would be of no benefit to the appellants since it was delivered prior to the judgment of the Supreme Court in Dilip Kumar. 50. The Karnataka High Court, in paragraphs 6 and 7, of the judgment rendered in PNB Metlife Insurance had explained that CENVAT credit is given to avoid double taxation and so if the credit of service tax collected by the insurer 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 Karna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion but would act contrary to the intended expressions in Section 66D. 14. It can be construed from a plain reading of section 66D that the negative list is compiled of the services stated therein and is relied on to bring the assessee within the negative list is clause-(n) i.e. services by way of extending deposits, loans, advances etc. in so far as the consideration is represented by way of interest or discount. The expression used in clause-(n) begins with the words extending deposits, loans or advances , and such activity is represented by way of interest or deposit of money. The determining word in the clause is extending deposits, loans or advances etc. `Extending deposits literally understood is the deposits, loans etc. extended by the assessee. The acceptance of deposits is a pure and simple money transaction. But the realm in which the controversy operates is after receiving the deposits from public, 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 relata ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lows: 9. We have heard learned counsel for the parties. We have also perused the record, the decision of the Larger Bench of CESTAT as cited before us, as also the decision of the Kerala High Court, and the impugned orders. We may at the outset observe that the issue in the present proceedings is certainly not different which fell for consideration of the Larger Bench in the case of South Indian Bank (supra). We find that the Larger Bench has taken into consideration the statutory scheme of DICGC as also the mandatory requirement under the Reserve Bank of India directives to be complied by the bank like the assessee and the compliances of which were mandatory. It is in the course of availing such insurance service for the benefit of the depositors, the petitioner was required to pay the premium on which service tax was paid, and of which, input tax credit was sought to be availed. In our 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 obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tra vs. Commissioner of CGST C. Ex., Pune-II and ICIC Bank Limited vs. Commissioner, GST CX., Bhiwandi , while examining the same issue as to whether banks can avail CENVAT credit on the insurance services provided by the Deposit Insurance Corporation to the banks, set aside the order passed by the department and remanded the matter to the Tribunal for a fresh consideration and passing of an order in confirmity with the order of the Larger Bench in South Indian Bank. 13. We have also noted that, the Hon ble Kerala High Court, upon a challenge by Revenue to the said decision in South Indian Bank (supra), vide its order dated 5.12.2022 reported in 2011 (12) TMI 1479 Kerala High Court, has upheld the decision of the Larger Bench in South Indian Bank (supra) by rejecting the appeal filed by revenue and recorded the findings as under:- 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 cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... put service under the provisions of Rule 2(l) of the Cenvat Credit Rules, 2004. 17. Now we take up the issue about the commission/brokerage paid to brokers for underwriting government securities or for making investments in securities to maintain mandatory statutory liquid ratio and all other remaining issues. There is no dispute that as per Reserve Bank of India s regulations, the banks are required to comply with the cash reserve ratio (CRR) and Statutory Liquid Ratio (SLR) and in order to maintain money supply according to the monetary policy of India from time to time. This activity cannot be separated from the banking and financial service by bank to its customers since it is a statutory requirement. The Larger Bench of the Tribunal in the matter of South Indian Bank (supra) has held that any activity, without 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 statutor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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