2023 (3) TMI 1276 - DELHI HIGH COURT

CENVAT Credit - input services - re-insurance services (Indian Business as well as Foreign Insurance) after the amendment in the definition of “Input Service” defined in Rule 2 (1) of the CENVAT Credit Rules w.e.f. 01.04.2011 - recovery of Rule 14 of the CENVAT Credit Rules read with proviso to Section 73 (1) and Section 73 (4) of the Finance Act.

Whether the respondent was entitled to avail CENVAT Credit on re-insurance premium in respect of insurance policies issued in respect of motor vehicles including motor third party insurance?

HELD THAT:- It is clear from the definition that the re-insurance is insurance of part of the insurer’s risks by another insurer. Thus, what the re-insurer, in effect, does is to insure the risks of another insurer. This is qualitatively different from the risks of the policy holder covered by the insurance policy issued by the insurer. The insurer, in fact, covers the risks of the policy holder - Re-insurance is a matter between one insurance company and another, where the former insurer company indemnifies the latter against part of the loss that the latter insurance company may sustain under policy or policies issued by it. Re-insurance is, essentially, to distribute the risks assumed by an insurance company. Thus, ensuring stability to the business of the insurance company that is covered by re-insurance.

There is merit in the contention that the insurance company that reinsures another insurance company covers the business risks of that insurance company; it does not cover the risk to the asset or other risks, covered by that insurance company.

In M/S SHRIRAM GENERAL INSURANCE COMPANY LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, JAIPUR [2020 (3) TMI 1295 - CESTAT NEW DELHI], the learned CESTAT had considered the question whether amendment to Rule 2(l) of the CCR with effect from 01.04.2012 would affect the eligibility of the appellant insurance company to avail CENVAT Credit in respect of re-insurance services availed during the relevant period.

There is no infirmity with the decision of the learned CESTAT that re-insurance services were not excluded from the definition of ‘input service’ as defined under Section 2(l) of the CCR with effect from 01.04.2011.

The allegation that re-insurance services were specifically excluded from the scope of input services by virtue of an amendment to Rule 2(l) of the CCR introduced with effect from 01.04.2011 – that is, by virtue of the exclusion contained in Clause (B) of Rule 2(l) of the CCR –is not one of the grounds clearly stated in the show cause notice.

The impugned order allowing OIC’s appeal is founded solely on the conclusion that re-insurance services were not excluded from the definition of ‘input services’ under Rule 2(l) of the CCR during the period in question (Financial Year 2011-2012) - the question projected by the Revenue in this appeal are answered against the Revenue and in favour of OIC.

The appeal is dismissed - decided against Revenue.