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TMI Blog2024 (6) TMI 1420X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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.' Thus, the insurance service provided by the Deposit Insurance Corporation to the appellant is an input service and CENVAT credit of the service tax paid by the appellant for this service received by the appellant from the Deposit Insurance Corporation can be availed by the appellant for rendering output services . The two appeals may now be placed for hearing before the Division Bench of the Tribunal. - 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 Rajeev Dinkar Waglay, Advocate For the Respondent : Shri Suvir Misra, Authorized Representative ORDER JUSTICE DILIP GUPTA: The two issues that have been referred to the Larger Bench of the Tribunal are: (i) Whether insurance premium paid by the Banking Institutions to DICGC to secure deposits of the customer comes within the definition of service for which service tax is to be paid by the Bank, which is not insuring its own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eposit Insurance Act and the Regulations it was held: 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 service of banking and other financial services and the licence granted to the bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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) 6. The Larger Bench thereafter considered and followed the judgment of the Karnataka High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insurance premium on the deposits outstanding, cannot render any output service of banking and other financial service . (emphasis supplied) 7. The Larger Bench answered the reference 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) 8. Subsequently, this issue was again examined by a Larger Bench of the Tribunal in Bank of America, National Association vs. Principal Commissioner, CGST Central Excise Service Tax Appeal No. 88202 of 2019 decided on 30.04.2024 and the conclusions arrived at by the earlier Larger Bench of the Tribunal in South Indian Bank were reiterated. The observations are as follows: 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 provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rger 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 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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