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2015 (5) TMI 143 - CESTAT MUMBAI

2015 (5) TMI 143 - CESTAT MUMBAI - TMI - General Insurance Business - deposit insurance services rendered by DICGC - DICGC is a subsidiary of RBI - exemption from service tax - Finance Ministry, who issued a clarification vide letter dated 24/2/2009 to the effect that the charges collected by DICGC are not taxable under the taxable service of General Insurance Service - CBEC, vide letter dated 20/9/2011 clarified that the insurance activity of DICGC falls within the ambit of section 65(105) (d) .....

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before the Parliament), there cannot be any doubt that Deposit Insurance is a social welfare measure to provide financial stability to the banking system in the country. The Corporation is engaged in the business of deposit insurance and credit guarantee functions assigned to it and is run on a commercial basis. The Corporation is assessed to Income Tax as a company. Thus the Corporation functions as an Insurer, the insured are the various banks who pay the insurance premium and the beneficiari .....

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- deposit insurance comes within the scope of miscellaneous insurance business. As per section 65 (49) of the Finance Act, general insurance business has the meaning assigned to it in clause (g) of section 3 of the General Insurance Business (Nationalisation) Act, 1972. As per section 65 (105)(d), taxable service means any service provided or to be provided to a policy holder or any person by an insurer or re-insurer, carrying on general insurance business in relation to general insurance busin .....

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appellant falls within the ambit of general insurance business as defined in section 65(49) read with 65(105)(d) of the Finance Act, 1994

Whether the activity of deposit insurance undertaken by the appellant is a sovereign/statutory function not amenable to service taxation or is it a commercial activity which can be subjected to tax - Held that:- only those functions of the State where the State cannot be sued in a court of law can be called sovereign functions. All other activitie .....

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roperty and to contract, and may, by the said name, sue or be sued . In view of this explicit provision in law, we find no merit in the contention that the activity of deposit insurance is a sovereign/statutory function not amenable to service taxation.

Whether deposit insurance is a contract of insurance/contract of indemnity or a contract of guarantee - held that:- deposit insurance activity undertaken by the appellant falls within the scope and ambit of general insurance business a .....

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of which is uncertain. In other words there should be some risk for which insurance is being sought. The uncertain event in the deposit insurance is liquidation or winding up of the insured bank.

One of the essential ingredients of an Insurance contract is that the insured must have an insurable interest in the subject matter of the contract. Insurance without insurable interest would be a mere wager and as such unenforceable in the eyes of law. The subject matter of the Insurance c .....

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be a contract of insurance.

Whether the appellant is eligible for the benefit of tax exemption under notification No. 22/2006-ST dated 31-5-2006 - Held that:- Since the exemption is available to the taxable services rendered by RBI, the exemption clause has to be strictly interpreted to see as to whether DICGC will fall within the said exemption. Since DICGC is both legally and functionally distinct and different from RBI, it will not be eligible for the exemption under notification .....

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e could be invoked to confirm the service tax demand - Held that:- The audited financial report of the appellant is put on the public domain and can be freely downloaded from the appellant s web-site. In these circumstances, we are unable to accept the contention of the Revenue that the appellant suppressed/withheld information from the department with an intent to evade service tax. Consequently, the invocation of extended period of time for demand of service tax cannot be sustained in law and .....

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. Ravindran, Member (Judicial) And Hon ble Shri P.R. Chandrasekharan, Member,JJ. For the Appellant : Shri V. Sridharan, Sr. Advocate with Shri S.S. Gupta and Shri Vinay Jain, Chartered Accountants For the Respondent : Shri P.R.V. Ramanan, Spl. Counsel ORDER Per: P.R. Chandrasekharan: There are 3 appeals arising from Orders in-Original Nos. 11/COMMR(BKS)/LTU-M/ST/2012 dated 10/01/2013 and 01-02/COMMR(WLH)/LTU-M/CX/2014 dated 11-4-2014 passed by the Commissioner of Central Excise & Service Tax .....

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11/COMMR(BKS)/LTU-M/ST/2012 dated 10.1.2013 01-02/COMMR(WLH)/LTU-M/CX/2014 dated 11.4.2014 Demand of service tax ₹ 2075, 64,65,926/- & ₹ 283,15,29,750/- Interest Not quantified. ₹ 19,17,54,309/-Rs. 12,12,383/- Penalties imposed (i) ₹ 2075,64,65,926/- + ₹ 283,13,29,750 u/s 78;Rs. 12,96,11,708/- u/s. 76 & ₹ 29,000/- u/s. 77 of the Finance Act, 1994. ₹ 8,19,481/- u/s. 76 & ₹ 10,000/- u/s. 70 of the Finance Act, 1994. (ii) ₹ 200/- per .....

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o the limit of ₹ 1 lakh of each deposit in a Bank. Deposits held by all commercial Banks, including branches of foreign banks functioning in India, Local Area Banks, Regional Rural Banks and all eligible co-operative banks as defined under the DICGC Act,1961 are covered by the Deposit Insurance Scheme. 2.2. The legal framework for DICGC is provided by the DICGC Act, 1961 and the DICGC General Regulations,1961. Pursuant to opting for Large Taxpayer Unit (LTU) membership for tax purposes by .....

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er dated 1/12/2008 confirmed that the services provided by DICGC were covered under General Insurance Business w.e.f. 01/05/2006. DICGC was reminded to furnish the information sought for from them by letter dated 16/10/2008. However, DICGC did not comply with the request but contested the levy by their letter dated 28/11/2008. Department addressed similar letters to DICGC on 10/12/2008, 1/1/2009 and 29/1/2009. 2.4. DICGC, by their letter dated 14/01/2009, took up the matter with Finance Ministry .....

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(d) of Finance Act,1994 and is chargeable to service tax under general insurance business. DICGC were accordingly addressed letters on 22/9/2011, 5/10/2011 and 10/10/2011. 2.6. DICGC obtained Service Tax registration thereafter and started paying Service Tax w.e.f. the half year ending March 2013. They furnished the information on gross charges recovered up to 31/3/2011 on 13/10/2011 & 19/10/2011. 2.7. Show cause notice demanding Service Tax amounting to ₹ 2075.65 Cr. invoking extende .....

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ed and penalties imposed. Hence the appeals before us. 3. Submissions on behalf of the appellant The submissions advanced on behalf of the appellant are detailed below:- 3.1. Adverse Circulars withdrawing certain benefit/relief are prospective in operation. CBEC (Board in short) had vide letter dated 24/02/2009 clarified that the services provided by the appellants were not taxable. Subsequently the said clarification was revised vide letter dated 20-9-2011 wherein it was stated that the activit .....

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ed counsel for the appellant is covered by the recent judgment of this Court in Civil Appeal No. 4488 of 2005, Commissioner of Central Excise, Bangalore v. M/s. Mysore Electricals Industries Ltd., reported in 2006 (204) E.L.T. 517 (S.C.). In the said Judgment, this Court held that a beneficial circular has to be applied retrospectively while oppressive circular has to be applied prospectively. Thus, when the circular is against, the assessee, they have right to claim enforcement of the same pros .....

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ns were subsequently withdrawn by a clarification dated 28/01/2002. The period for which purchase tax was demanded was 1996-97. The Hon ble High Court concluded as follows:- 8.6.10. It is, therefore, clear that even though the clarification dated November 9, 1989 is executive in nature, the same is binding on the authorities till the concessions given to the petitioner under the clarification were withdrawn, which could be done only prospectively, viz., in the instant case, with effect from Janu .....

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or the benefit of the clarifications dated November 9, 1989 and December 27, 2000 till the same is withdrawn prospectively by the clarification dated January 28, 2002 and therefore, the impugned levy of purchase tax on the purchase turnover for the purchase of empty bottles from unregistered dealers under section 7-A of the Act is illegal. 3.1.3. Similar views have been taken in - (i) Simplex Castings Ltd. Vs. CC 2003 (155) ELT 5 (SC); and (ii) CCE Vs. Maruti Foam 2004 (164) ELT 394 (SC). In bot .....

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the period 01/05/2006 to 31/03/2011. The appellant had bona fide belief that they were a statutory corporation performing statutory functions and not rendering any services. The appellants were not engaged in the business as their activity did not involve any profit motive. The appellants were not executing any contract of insurance. Further, the very fact that the board itself issued conflicting circulars shows that the matter requires interpretation of statutory provisions. Further, CBEC circu .....

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t clarification is based on the review /change of opinion on part of the CBEC and not on account of any suppression on the part of the appellants. Hence, part of the demand is barred by limitation of time. 3.3. The transaction in the present case is one of guarantee and not of insurance. 3.3.1. The transaction in the present case is one of guarantee and not of insurance as alleged. The appellants are providing guarantee to the depositors that in the event of bank unable to pay to the depositors, .....

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her contract one of insurance or guarantee. It is often a difficult question whether a given contract is one of guarantee or of insurance and the matter has now come before the House of Lords in Trade Indemnity Co. V. Workington Barbour Board. There an insurance company for a financial consideration subscribed to a money bond conditioned for the performance of a contract, and it was held that the contract was a guarantee and not an insurance policy. This case, however, provides little guidance i .....

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not the same means. The insured generally puts the risk before the insurer as a business transaction, and the insurer on the risk stated fixes a proper price to remunerate him for the risk to be undertaken; and the insurer engages to pay the loss incurred by the insured in the event of certain specified contingencies occurring. On the other hand [in contracts of guarantee] the creditor does not himself go to the surety, or represent, or explain to the surety, the risk to be run. The surety ofte .....

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ble by the insurer, the contract is one of insurance. 3.3.3. In the present case also, the contract, if any, is one of guarantees as the present transaction satisfy all the ingredients of the contract of guarantees. Some of them are elaborated as under:- (i) In the present case, also there are three parties involved i.e. DICGC-guarantor, Bank- Debtor and Depositors Creditor. (ii) The appellants protect the depositors and not banks. (iii)There is already a subsisting debt between the bank and the .....

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al Insurance Business provided in section 65 (49) of the Finance Act, 1994 is as under:- (49) general insurance business has the meaning assigned to it in clause (g) of section 3 of the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972); The definition of the taxable service provided in section 65 (d) of the Finance Act, 1994 is reproduced as under:- (105) taxable service means any [service provided or to be provided], - d) to a policy holder or any person, by an insurer, includ .....

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s. The above definition also does not provide what the miscellaneous insurance business is. However, Section 3 (p) of the GIBA Act provide as under:- (p) words and expression used in the act but not defined herein and defined in the insurance Act, shall have the meaning respectively assigned to them in that act . Section 2(13B) of the Insurance Act, 1938 defines miscellaneous insurance business as:- miscellaneous insurance business means the business of effecting contracts of insurance which is .....

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omes in to existence immediately when loss is suffered by the happening of an event insured against, to be put by the insurer in to the same position in which the insured would have been had the event not occurred, but in to no better position. (ii) Srinivasan s Principal of Insurance Law , 8th Edition , 2006 1. Nature of the Insurance Contract Contract of insurance is basically governed by rules, which form part of the general law of contract. In a contract of Insurance, one party agrees to ind .....

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ntract of indemnity, even though it may be framed otherwise, in terms, whereof the insurer has certain other obligations too .. 3.4.3. On the perusal of the above definitions, the essential features of the contract of Insurance can be described as under:- i) There should be contractual relationship between the parties. ii) There should be some event the happening of which is uncertain. In other words there should be some risk for which insurance is being sought. iii) The insured must have an ins .....

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ot execute any contract with the bank, as the activity is statutory in nature. 3.5.2. There is no insurance policy as such which details out the terms of the insurance contract. Every bank has to compulsorily register and pay the premium. 3.5.3. In the present case there is no risk involved which is being insured by the appellants. The event insured in the present case, if any, is the inability of the bank to pay to the depositors . This is not the risk of the banks as they are otherwise liable .....

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company can refuse insurance on various grounds; however, DICGC cannot refuse insurance to insured banks. 3.5.7. In normal insurance, premium depends on the risk involved in each case whereas in the present case DICGC Act, the standard amount is paid by virtue of section 15 of the DICGC Act. 3.5.8. In normal insurance, the amount of claim is paid to policy holders and not to any other person whereas in the present case, DICGC shall pay the amount payable under sec 16 in respect of the deposit o .....

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ndhra Pradesh Vs. H. Abdul Bakshi and Bros. reported at (15) STC 644 (SC), inter alia, held as under: we are unable to agree with the view of the High Court. A person to be dealer must be engaged in the business of buying and selling or supplying the goods. The Expression business through extensively used in a word of indefinite import, in taxing statues it is used in the sense of an occupation , or profession which occupies the time, attention and labour of a person normally with the object of .....

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earning profit. To say that a business is being carried on, means no more than that profit is to be earned by a process of production. 3.6.2. The appellant is a statutory body carrying out functions as laid down by the statute. It collects the premium as per rate approved by Reserve Bank of India. The expenditure is incurred by appellant as per the statute. The investment in various securities is made as provided in the statute. Therefore, the appellants does not have profit motive and they cann .....

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cks will amount to undertaking of business. It was in that context the Hon ble Court observed that the in fiscal statues business should be construed widely. In the said case, the issue before Supreme Court did not relate to a question as to whether profit motive is necessary for treating an activity as business. The said decision has no application in the present case. 3.6.4. Similarly, reliance placed on the decisions in the case of Andhra Sugar [AIR 1968 SC 599] and others are also not applic .....

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limited question in all those cases was whether the contract was fulfilling the conditions of a valid contract viz. free consent etc. However, in the present case there is no contract at all between the appellants and the banks. 3.7. Reliance placed by the department on section 36 (e) of the GIBA Act to hold that the appellants are carrying on insurance business is misplaced. 3.7.1. Section 36 (e) of the GIBA act is 1972 reads as under:- 36. Exemptions. (1) nothing contained in this act shall a .....

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x-majoricautela provision. The Maxim is better explained in the Principles of Statutory interpretation by Justice G.P.Singh, Seventh Edition page 66. The relevant portion is reproduced as under:- Treating words or provisions as superfluous.-The Legislature sometimes uses superfluous words or provision or even tautologic expressions because of ignorance of law or as a matter of abundant caution. It is not so very uncommon in Act of Parliament , said Lord MACNAGHTAN, to find special exemptions whi .....

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e influence of what may be abundant caution. 3.7.2. The object of the GIBA act was to nationalize various companies who are engaged in the insurance business. There were many companies/corporation already owned by the Government either directly or indirectly. In the case of appellant, the RBI owns entire share capital of the appellant. The share capital of RBI is owned by the Government. Since the government entirely owns the appellant, there was no need to nationalize the appellant and hence th .....

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erroneous assumption of the existing law without directly amending or declaring the long is ineffective to change the law. The beliefs or assumptions of those who frame Acts of Parliament cannot make the law and a mere assumption exhibited in a statute as to the state of the existing law is ineffective to express an intention to change the law. If by such a statute the idea is to change the law, it will be said that the Legislature has plainly missed fire . As has been observed by S. K. Das, J : .....

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to conclude that the appellants are rendering insurance services. The appellants are not rendering insurance services. At best, the services if any provided by the appellants can be in the nature of the guarantee. The department ought to go into the real nature of the transaction and not merely into the nomenclature insurance used in preamble and other places of the DICGC Act. It is a settled principle of law that the nomenclature alone would not determine the nature of transaction. Reliance is .....

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nctions and hence no service tax is leviable: 3.9.1. The appellants are performing the statutory functions as mandated by the DICGC Act. In CBEC Circular No. 89/7/2006-ST dated 18.12.2006, it is clarified that statutory functions performed in terms of specific responsibility assigned to a sovereign/ public authority under law in force, does not constitute provision of taxable service to a person and therefore, no service tax is leviable on such activities. The appellants have been established un .....

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epositors. The amount charged by the appellants is not compensatory for the alleged services to be provided to the banks. Hence, premium collected by the appellants is in the nature of Statutory/regulatory fees. The appellants are performing their duties with a view to provide stability and guarantee to small depositors who have deposited their hard earned money with the bank. Thus, the activities of the appellants are in the nature of public interest. 3.9.3. In case of MIDC Vs. CCE 2014-TIOL- 2 .....

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s. The MIDC collect certain charges from the plot owners for providing the above facilities e.g. water charges, delay payment charges, service charges (for maintenance of street lights, roads, gardens, plantation, etc.). The service charges so collected by MIDC are for the purpose of maintenance of roads, street lights etc. Revenue alleged that the above activity falls under the category of Management, Maintenance or Repair Service'. After considering the various provisions of the MIDC Act, .....

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authority under the provisions of law are in nature of statutory obligations which are to be fulfilled in accordance with law. The fee collected by them for performing such activity is in nature of compulsory/statutory levy as per the provisions of relevant statute and it is deposited into the Govt. treasury. Such activity is undertaken as mandatory and statutory functions. These are not in nature of service to any particular individual or for any considerations. Performing of such activity by a .....

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ppellants, therefore they are not covered under the definition. 3.10.1. For the purposes of Finance Act, 1994, general insurance business shall have the same meaning as is assigned to that expression under clause (g) of section 3 of the General Insurance Business (Nationalisation) Act, 1972 (57 of 1972). However, section 36 (1) of the (GIBA reproduced supra) carved out an exception that nothing contained in the GIBA act will apply on the activities undertaken by DICGC. 3.10.2. When an earlier Ac .....

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ced into another Act, I think, it must be read in the sense it bore in the original Act from which it was taken, and that consequently it is perfectly legitimate to refer to all the rest of that Act in order to ascertain what the section meant, though those other sections are not incorporated in the new Act" Thus, if the provisions of clause (g) of the section 3 GIBA Act 1972 read with section 36 (e) is to be applied, it will lead an unanimous conclusion that the clause (g) of section 3 of .....

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s reproduced as under:- Reserve Bank of India Exemption to taxable services hereby exempts the following taxable services from the whole of the service tax leviable thereon under section 66 of the said Finance Act, namely :- (i) taxable services provided or to be provided to any person, by the Reserve Bank of India; The appellants are an extended arm of the RBI and discharging statutory functions under DICGC Act and therefore, the service provide by the appellants will also be exempt. 3.11.2. Ho .....

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an be a company established merely for the convenience of the members, conceived as an instrument to obey the mandate of the members. It can be readily conceded that an incorporated members' club, the legal personality of the club is utilised for securing an advantage and for discharging the mandates of the members. 3.11.3. The position of the appellants is identical to the above mentioned position. It was set up solely for servicing the RBI and Government of India for securing the interest .....

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1971 (4) SCC 599 (SC) 3.11.5. Similarly in the context of the present notification i.e. 22/2006 itself various tribunals have took a view that exemption available to RBI must be extended to their agent also. Reliance is placed on the following decision:- (i) Canara Bank Vs. CST -2012 (28) STR 369 (Tri-Ahd). In this case Canara Bank provided services of operating a bank account on behalf of government in respect of payment of pension, transactions of various government departments, public deposi .....

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to RBI vide Notification No. 22/2006 dated 13-4-2006. The tribunal inter alia held that the exemption available to RBI has to be extended to Canara Bank as well as Canara Bank is acting as agent of the RBI. Relevant portion of the order is reproduced herewith:- 13. The above observations of the Hon ble Supreme Court make it clear that exemption to the principal would be available to the agent also. For this purpose, since the agent is eligible for the exemption which is available to the principa .....

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ilable to the agent i.e. Canara Bank. The above decision was subsequently followed in the following decisions as well :- (i) HDFC Bank Ltd. Vs. CST -2014 TIOL -27 (Tri-Mum (ii) Union bank of India Vs CCE&ST 2013-TIOL-343. In the light of the above submissions, the ld. Counsel for the appellant pleads for allowing the appeal by setting aside the impugned order. 4. Submissions on behalf of Revenue The submissions made by Sri. P.R.V. Ramanan, Special Consultant, appearing for the Revenue, can b .....

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ry of General Insurance under 65(49) read with section 65(105) (d) of FA, 1994? 4.2.1. Section 65(105) (d) imposes Service Tax on General Insurance business ; Section 65(49) states that the term General Insurance business has the meaning assigned to it in Section 3(g) of General Insurance business (Nationalisation) Act,1975 [GIBA, 72]. As per the said section general insurance business, means fire, marine or miscellaneous insurance business, whether carried on singly or in combination with one o .....

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rms of an Act intended specifically for performing a regulatory function of deposit insurance. (b) Premia collected by DICGC from the banks is more in the nature of a regulatory fee or statutory fee. (c) Nothing in the Companies Act, 1956 or the Insurance Act, 1938 shall apply to DICGC in terms of section 43 of DICGC Act, 1961 (d) Deposit insurance is not a contract of Insurance; it is a guarantee 4.2.3. DICGC, though a subsidiary of RBI, is not performing any sovereign function. As ruled by the .....

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that such functions do not come within sovereign functions of the State.[AIR 2000 SC 3116]. On the other hand, DICGC is a statutory authority established under an Act of the Parliament. This does not mean that DICGC is performing a regulatory function. In fact SBI is set up under SBI Act, 1955 to do business as a Bank; similarly, the General Insurance Corporation was set up under Section 9 (1) of GIBA, 1972 as a Government Corporation to do general insurance business. Hence, the fact that DICGC .....

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e DICGC a sovereign or regulatory body. 4.2.4. Literature available in the public domain clearly indicates that agencies/authorities entrusted with administering a deposit insurance system are called as Deposit Insurers (DI). In fact there is a body called International Association of Deposit Insurers [IADI] , which provides guidance to individual countries and DI s. While in majority of countries DIs are public authorities, there are countries where Private organisations, Association of banks o .....

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all DIs are nothing but insurers falling within the category of General insurance . 4.2.5. In terms of the Preamble to the DICGC Act, 1961, DICGC is established for the purpose of insurance of deposits and guaranteeing of credit facilities. Parliament s intention is thus clear with regard to the nature of DICGC, namely that of an insurer . In terms of definitions as at section 2 (i) and (j) of the Act, the Bank which is required to get registered upon issue of licence under section 22 of BRA,194 .....

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idation of a bank. Insured banks pay premia on behalf of depositors for the risk of loss faced by them in respect of their property viz. deposits on account of winding up or liquidation of a bank. Thus, all the essentials of an insurance transaction, namely, the definition of the risk, duration of the risk, premium and amount of insurance are present in the deposit insurance activity of DICGC. Accordingly, DICGC has to be regarded as an insurer . 4.2.6. In key respects, deposit insurance is comp .....

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es, the statutory provisions have primacy. 4.2.7. Section 36 of GIBA, 1972 also refers to the activity of DICGC as insurance business. As an insurer , DICGC provides insurance service to the depositor and effects reimbursement- though may be in part- of a financial loss that would have been suffered by him. Since such insurance is other than life insurance, it is covered by the term General Insurance. 4.3. As regards the question as to whether the premia collected by DICGC from the banks is in t .....

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GC provides guarantees or indemnities to any credit institution in respect of credit facilities given by them, it levies a fee on the institution. Thus, the said Act itself makes a distinction between premium and fee. 4.4. As regards the contention that since nothing in the Companies Act, 1956 or the Insurance Act, 1938 shall apply to DICGC in terms of section 43 of DICGC Act, 1961, activities of DICGC are not covered within general insurance business , the Finance Act, 1994, has merely borrowed .....

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Rajasthan is cited as follows: Therefore, when only sub-section (2) of a section of an earlier Act was incorporated in a later Act, sub-section (1) which had a restrictive effect on the operation of sub-section (2 ) was not allowed to be read for purpose of construing sub-section (2) as incorporated in the later Act [1986 AIR SC 2146]. Thus, it is not permissible to apply the provisions of section 43 of DICGC Act,1961 to restrict the scope of section 65(49) of Finance Act, 1994, read with Secti .....

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eted in the light of the common parlance understanding. Viewed in this light, and drawing on section 3(g) of GIBA, 1972, the expression miscellaneous insurance business should cover all types of insurance other than life insurance, fire and marine insurance, capital redemption business and annuity certain business. Deposit insurance would thus be covered under section 65(49) of Finance Act,1994, even if the argument advanced by the appellant is conceded. 4.5. As regards the question as to whethe .....

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inconsistent with the existence of a contract ; hence, the definition of miscellaneous insurance business is not met in the case of DICGC. The Supreme Court has, in a catena of judgments [ AIR 1968 SC 599; AIR 1972 SC87; AIR 1978 SC 499- Vishnu Agencies; AIR 1988 SC 1487- Coffee Board], decided that transactions done under the compulsion of law i.e., under a statute are contractual transactions. In the context of the issue whether sales made under the Sugar Control Orders, which were mandatory u .....

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. Thus, consent under the law of contract need not be express, it can be implied. Reading sections 14, 15 to18 of Contract Act together, it is seen that compulsion of law is not coercion in terms of section 15 of the Contract Act. Accordingly, the transactions between the banks and DICGC, though brought about under a statute, constitute contractual transactions with consent of both parties. As held by the Apex Court, in statutory transactions there is implicit consent to contract and this consen .....

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mble to the DICGC Act, the definitions and provisions incorporated in that Act clearly point to the fact that the transactions between the banks and DICGC though, brought about under a statute, constitute contractual transactions of the nature of insurance. Further, there are separate and independent provisions in the said Act relating to guaranteeing operations of DICGC. The Act itself distinguishes between an insurance transaction and a guarantee transaction. Thus, the implied contract that ex .....

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that the said expression extends to all cases of work, which occupies the time, attention and labour of men for profit or otherwise. In re: Narain Swadeshi Mills v. Commr. of Excess Profits (AIR 1955 SC 176) the Apex Court explained the expression business as follows: Business connotes some real, substantial and systematic or organised course of activity or conduct with a set purpose. Further, Section 36 of GIBA, 1972 also refers to the activity of DICGC as insurance business. Hence, the deposi .....

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discussed in paras 3.4, 3.4.1,3.4.2, 3.4.3 and 3.4.4 of the order-in-original dated 10/01/2013. Findings recorded by the Respondent are reiterated. DICGC took inordinately long time to furnish the information sought by the department. They were also informed of the tax liability w.e.f 1/5/2006 soon as they applied for and came under the purview of LTU Mumbai. It may be relevant to mention here that the demand for the period from 01/4/2011 to 30/9/2011 amounting to ₹ 283.15 Cr. is, however, .....

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follows:- (1) Whether the activity undertaken by the appellant, DICGC, is insurance business or not and if so, does it fall within the ambit of general insurance business as defined in Section 65 (49) read with 65 (105) (d) of the Finance Act, 1994? (2) Whether the activity of DICGC is a business or not? (3) Whether the activity of deposit insurance undertaken by the appellant is a sovereign/statutory function not amenable to service taxation or is it a commercial activity which can be subjected .....

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ndertaken by the appellant, DICGC, is insurance business or not and if so, does it fall within the ambit of general insurance business as defined in Section 65 (49) read with 65 (105) (d) of the Finance Act, 1994? 5.1.1. In order to appreciate the rival contentions made, it will be useful to make a brief reference to the history of deposit insurance in India and the provisions of the Deposit Insurance and Credit Guarantee Corporation Act, 1961 and the Deposit Insurance Scheme in place on account .....

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and Credit Guarantee Corporation Act, 1961 (DICGC Act) and The Deposit Insurance and Credit Guarantee Corporation General Regulations, 1961 , framed by the Reserve Bank in exercise of the powers conferred by sub-section (3) of Section 50 of the said Act. As no credit institution is participating in any of the credit guarantee schemes administered by the Corporation, presently it is not operating any of the schemes and deposit insurance remains the principal function of the Corporation. (2) HIST .....

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r the failure of the Palai Central Bank Ltd., and the Laxmi Bank Ltd., in 1960. The Deposit Insurance Corporation (DIC) Bill was introduced in Parliament on August 21, 1961. After it was passed by Parliament, the Bill got the assent of the President on December 7, 1961 and the Deposit Insurance Act, 1961 came into force on January 1, 1962. Deposit Insurance Scheme was initially extended to all functioning commercial banks. This included the State Bank of India and its subsidiaries, other commerc .....

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the administration of the scheme, as an agent of the Central Government, under Section 17 (11 A)(a) of the Reserve Bank of India Act, 1934 and was designated as the Credit Guarantee Organisation (CGO) for guaranteeing the advances granted by banks and other credit institutions to small scale industries. The Reserve Bank operated the scheme up to March 31, 1981. The Reserve Bank also promoted a public limited company on January 14, 1971, named the Credit Guarantee Corporation of India Ltd. (CGCI .....

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s of deposit insurance and credit guarantee, the two organisations, viz., the DIC and the CGCI, were merged and the Deposit Insurance and Credit Guarantee Corporation (DICGC) came into existence on July 15, 1978. The Deposit Insurance Act, 1961 was thoroughly amended and it was renamed as The Deposit Insurance and Credit Guarantee Corporation Act, 1961 . With effect from April 1, 1981, the Corporation extended its guarantee support to credit granted to small scale industries also, after the canc .....

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nce Scheme. All State, Central and Primary co-operative banks functioning in the States/Union Territories, which have amended their Co-operative Societies Act, as required under the DICGC Act, 1961, empowering Reserve Bank to order the Registrar of Co-operative Societies of the respective States/Union Territories (UTs) to wind up a co-operative bank or to supersede its committee of management and requiring the Registrar not to take any action for winding up, amalgamation or reconstruction of a c .....

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gulation Act, 1949. All Regional Rural Banks are required to be registered with the Corporation within 30 days from the date of their establishment, in terms of Section 11A of the DICGC Act. (ii) A new eligible co-operative bank is required to be registered with the Corporation soon after it is granted a licence by the Reserve Bank. (iii) When the owned funds of a primary cooperative credit society reach the level of ₹ 1 lakh, it has to apply to the Reserve Bank for a licence to carry on b .....

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ement of the Banking Laws (Application to Co-operative Societies)Act, 1965 or at any time thereafter, is to be registered within three months of its making an application for licence. However, a cooperative bank will not be registered, if it has been informed by the Reserve Bank, in writing, that a licence cannot be granted to it. In terms of Section 14 of the DICGC Act, after the Corporation registers a bank as an insured bank, it is required to send, within 30 days of such registration, intima .....

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per depositor for deposits held by him in the same capacity and in the same right at all the branches of a bank taken together. However, the Act also empowers the Corporation to raise this limit with the prior approval of the Central Government. Accordingly, the insurance limit was enhanced from time to time as follows: Effective from Insurance Limit (In Rs.) May 1, 1993 1,00,000 July 1, 1980 30,000 January 1, 1976 20,000 April 1, 1970 10,000 January 1, 1968 5,000 (6) TYPES OF DEPOSITS COVERED T .....

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from insured banks for administration of the deposit insurance system. The premia to be paid by the insured banks are computed on the basis of their assessable deposits. Insured banks pay advance insurance premia to the Corporation semi-annually within two months from the beginning of each financial half year, based on their deposits as at the end of previous half year. The premium paid by the insured banks to the Corporation is required to be borne by the banks themselves and is not passed ont .....

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ration of an insured bank if it fails to pay the premium for three consecutive half-year periods. However, the Corporation may restore the registration if the deregistered bank makes a request, paying all the dues in default including interest, provided the bank is otherwise eligible to be registered as an insured bank. Registration of an insured bank may be cancelled if the bank is prohibited from accepting fresh deposits; or its licence is cancelled or a licence is refused to it by the Reserve .....

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f a co-operative bank, its registration also gets cancelled if it ceases to be an eligible co-operative bank. In the event of the cancellation of registration of a bank, for reason other than default in payment of premium, deposits of the bank as on the date of cancellation remain covered by the insurance. (10) SETTLEMENT OF CLAIMS (i) In the event of the winding up or liquidation of an insured bank, every depositor is entitled to payment of an amount equal to the deposits held by him at all the .....

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or amalgamation is sanctioned for a bank by a competent authority, and the scheme does not entitle the depositors to get credit for the full amount of the deposits on the date on which the scheme comes into force, the Corporation pays the difference between the full amount of deposit and the amount actually received by the depositor under the scheme or the limit of insurance cover in force at the time, whichever is less. In these cases too, the amount payable to a depositor is determined in res .....

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off, in such a manner as may be specified by the Corporation and certified to be correct by the liquidator, within three months of his assuming charge as liquidator (iv) In the case of a bank/s under scheme of amalgamation / reconstruction, etc. sanctioned by competent authority, a similar list has to be submitted by the chief executive officer of the concerned transferee bank or insured bank, as the case may be, within three months from the date on which the scheme of amalgamation/ reconstruct .....

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ly makes payment of the eligible claim amount to the liquidator/ chief executive officer of the transferee/insured bank, for disbursement to the depositors. However, the amounts payable to the untraceable depositors are held back till such time as the Liquidator/Chief Executive Officer is in a position to furnish all the requisite particulars to the Corporation. (11) RECOVERY OF SETTLED CLAIMS In terms of Section 21(2) of the DICGC Act read with Regulation 22 of the DICGC General Regulations, th .....

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ce premia and guarantee fees respectively and are applied for settlement of the respective claims. The authorised capital of the Corporation is ₹ 500 million which is entirely subscribed to by the Reserve Bank. The General Fund is utilised for meeting the establishment and administrative expenses of the Corporation. The surplus balances in all the three Funds are invested in Central Government securities. Inter-Fund transfer is permissible under the Act. The books of accounts of the Corpor .....

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each House of the Parliament. The Corporation follows mercantile system of accounting and it has been adopting the system of actuarial valuations of its liabilities from the year 1987 onwards. The Corporation has been paying income tax since the financial year 1987-88. The Corporation is assessed to Income Tax as a company as defined under the Income Tax Act, 1961. Moreover, the Corporation has obtained service tax registration and has started paying service tax on premium income accrued from Oc .....

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question of establishing a statutory corporation for insuring deposits in commercial banks has been under consideration for some time. Various suggestions or the proposals in this connection, including the recommendations made by the Shroff Committee on Finance for the private sector which reported in 1954, have been examined in consultation with the Reserve Bank and the representatives of the commercial banks, and it is now considered desirable that the scheme should be implemented at a very ea .....

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val of the Central Government. The premium rate will be determined by the Corporation from time to time with the previous approval of the Central Government. The maximum rate for which provision is being made in the Bill is 15 naye paise per hundred rupees per annum. The Corporation's liability will arise and be discharged in the event of the liquidation of a bank or the enforcement in relation to it of a scheme of compromise or arrangement or reconstruction or amalgamation. The payments due .....

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CGC Act, 1961, which would throw light on the matter. Section 2 of the Act deals with definitions and some of the relevant clauses are extracted below:- (g) deposit means the aggregate of the unpaid balances due to a depositor (other than a foreign Government, the Central Government, a State Government, a corresponding new bank, Regional Rural Bank or a banking company or a co-operative bank) in respect of all his accounts, by whatever name called, with a corresponding new bank or with a Regiona .....

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a corresponding new bank to which the provisions of clause (a) of sub-section (1) of section 13 apply, or (ii) a co-operative bank referred to in clause (a) or clause (b) of section13C, the registration whereof has been cancelled under section 13; or as the case may be, under section 13C; (j) insured deposit means the deposit or any portion thereof the repayment whereof is insured by the Corporation under the provisions of this Act; (l) premium means the sum payable by an insured bank under sect .....

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n 16 deals with the liability of the Corporation in respect of insured deposits and the relevant extracts are as below: 16. (1) Where an order for the winding up or liquidation of an insured bank is made, the Corporation shall, subject to the other provisions of this Act, be liable to pay to every depositor of that bank in accordance with the provisions of section 17 an amount equal to the amount due to him in respect of his deposit in that bank at the time when such order is made: Provided that .....

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f an insured bank a scheme of compromise or arrangement or of reconstruction or amalgamation has been sanctioned by any competent authority and the said scheme provides for each depositor being paid or credited with, on the date on which the scheme comes into force, an amount which is less than the original amount and also the specified amount, the Corporation shall be liable to pay to every such depositor in accordance with the provisions of section 18 an amount equivalent to the difference bet .....

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signed to it and is run on a commercial basis. The Corporation is assessed to Income Tax as a company. Thus the Corporation functions as an Insurer, the insured are the various banks who pay the insurance premium and the beneficiaries are the depositors of the insured banks. 5.1.6. From the pre-amble to the DICGC Act as well as from the Statement of Objects and Reasons thereto, the Corporation was established for insuring deposits in commercial banks . 5.1.7. The legal provisions contained in Se .....

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ny scintilla of doubt in this regard. Any contention to the contrary has to be rejected outright and in toto and we do so. 5.1.9. The next question to be addressed is whether the appellant is carrying on general insurance business as defined in the Finance Act, 1994. Finance Act, 1994 has defined general insurance business by reference to section 3(g) of the General Insurance Business (Nationalisation) Act, 1972, (GIB Act in short). The meaning and scope of referential legislation has been laid .....

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of an enactment which for purposes of convenience, refers to or incorporates a provision of another. These have been discussed in various earlier decisions viz, Secretary of State v. Hindustan Cooperative Insurance Society Ltd., [1931] 58 I .A. 259, Collector of Customs v. Nathella Sampathu Chetty & another, [1962] 3 S.C.R. 786, Ram Sarup v. State, [1963] 34 SCR 858. Ram Kirpal v. State. [1970] 3 S.C.R, New Central Jute Mills Co. Ltd. v. The Assistant Collector. [1971] 2 SCR 92, State of Ma .....

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n which incorporates within itself a provision of another statute. In the former case, the provisions of the second statue, along with all its amendments and variations from time to time, should be read into the first statute. In the later case, the position will be as outlined in Narasimhan, [1976] 1 S.C.R. where after referring to Secretary of State v. Hindustan Cooperative Insurance Society Ltd., [1931] 58 I.A. 259, this Court summed up the position thus: "On a consideration of these aut .....

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ference has been succinctly explained by Lord Esher M R in In re Wood s Estate(1886) 31. Ch. D.607 in the following words: It is to put them into the Act of 1885, just as if they had been written into it for the first time. If a subsequent Act brings into itself by reference some of the clauses of a former Act, the legal effect of that, as has often been held, is to write those sections into the new Act just as if they had been actually written in it with the pen, or printed in it, and, the mome .....

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to the Corporation, the Corporation cannot be construed as carrying on general insurance business as defined in section 3(g) of the General Insurance Business (Nationalisation) Act, 1972, (GIB Act in short) as such business is carried on by companies registered under the Companies Act, 1956, is not tenable for the following reason. As per section 3(g) of the GIB Act, general insurance business means fire, marine or miscellaneous insurance business, whether carried on singly or in combination wi .....

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section 3 of the General Insurance Business (Nationalisation) Act, 1972. As per section 65 (105)(d), taxable service means any service provided or to be provided to a policy holder or any person by an insurer or re-insurer, carrying on general insurance business in relation to general insurance business . In the preceding paragraphs, we have held that DICGC is in the business of providing deposit insurance service to banks on payment of insurance premium. Nowhere in section 65(49) or 65(105)(d) .....

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[cited with approval in Income-tax Officer v. T.S. Devinatka Nadar [1968] 68 ITR 252 (SC); AIR 1968 SC 623] as follows: ".....,...in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." In the light of the above, it is clear that deposit insurance undertaken by the appellant .....

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urities is made as provided in the statute. Therefore, the appellants does not have profit motive and they cannot be said to have been engaged in any business. Reliance has been placed on a number of case laws in support of this contention. 5.2.2. The above contention is both factually and legally incorrect. As per section 3 of the DICGC Act, extracted below,- 3. (1) The Central Government shall, by notification in the Official Gazette, establish a Corporation by the name of the Deposit Insuranc .....

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y crores of rupees. (2) The issued capital for the time being of the Corporation shall be fully paid-up and shall stand allotted to the Reserve Bank. 5. The general superintendence, direction and the management of the affairs and business of the Corporation shall vest in a Board of directors which may exercise all powers and do all acts and things which may be exercised or done by the Corporation. Thus the DICGC has been established as a body corporate with power to acquire, hold or dispose of p .....

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be any doubt or dispute on the fact that the power to acquire, hold or dispose of property and to enter into contract in this regard comes within the ambit/scope of commercial/business transaction which is undertaken with a profit motive. It is also an admitted position, as evident from para 12 of the Annual Report of the appellant Corporation that the appellant Corporation is assessed to Income Tax as a company as defined under the Income Tax Act, 1961 and has been paying income tax since the f .....

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word business extends to all cases where work, involving the recourse of numerous persons to the premises, is done for payment, or even without payment where the result is in effect the same as if a charge were made. The making of profit is not essential to constitute a business; nor, on the other hand, does payment necessarily constitute one. [Halsbury, 4th Edn. Vol.27, para 325, p. 273]. In Narain Swadeshi Mills v. Commissioner of Excess Profits Tax [AIR 1955 SC 176], the hon ble Apex Court e .....

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llant Corporation is engaged in the business of insuring deposits for a consideration with a profit motive. 5.3. Whether the activity of deposit insurance undertaken by the appellant is a sovereign/statutory function not amenable to service taxation or is it a commercial activity which can be subjected to tax? 5.3.1. To understand what a sovereign function is and whether statutory functions can be subjected to service tax, we shall refer to two classical decisions on the concept of sovereign fun .....

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ishment was imposed in violation of the principles of natural justice. The appellant Board raised a preliminary objection before the Labour Court that the Board, a statutory body performing what is in essence a regal function by providing the basic amenities to the citizens, is not an industry within the meaning of the expression under section 2(j) of the Industrial Disputes Act, and consequently the employees were not workmen and the Labour Court had no jurisdiction to decide the claim of the w .....

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the issues before us are extracted below:- The term "sovereign should be reserved technically and more correctly for the sphere of ultimate decisions. Sovereignty operates on a sovereign plane, of its own. Only those services which are governed by separate rules and constitutional provisions such as Articles 310 and 311 should, strictly speaking be excluded from the sphere of industry by a necessary implication. The State today increasingly undertakes commercial functions and economic acti .....

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of "industry". If it be true that one must have regard to the nature of the activity and not to who engages in it, it is beside the point to enquire whether the activity is undertaken by the State, and further, if so, whether it is undertaken in fulfilment of the State's constitutional obligations or in discharge of its constitutional functions. In fact, to concede the benefit of an exception to the State's activities which are in the nature of sovereign functions is really to .....

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in the discharge of its statutory functions or, on the other, by the State itself in the exercise of its inalienable functions. If the water supply and sewerage schemes or fire fighting establishments run by a Municipality can be industries so be the manufacture of coins and currency, arms and ammunition and the winning of oil and uranium. The fact that these latter kinds of activities are, or can only be, undertaken by the State does not furnish any answer to the question whether these activiti .....

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h are industries and they are substantially severable, then they can be considered to come within sec. 2(j). Constitutionally and competently enacted legislative provisions may well remove from the scope of the Act categories which otherwise may be covered thereby. 5.3.3. The second decision pertains to N. Nagendra Rao & Co vs State Of A.P [1994 AIR 2663, 1994 SCC (6) 205]. The relevant paras from the said decision are extracted below: Is the State vicariously liable for negligence of its of .....

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s Act, 1955 . But for determining correctness of the view taken by it, the High Court granted certificate under Article 133(1) of the Constitution of India as the case involved "substantial questions of law, of general importance". Although the claim of the appellant was negatived mainly on the sovereign power of the State, but, that was only one of the reasons, as the High Court further held that the goods of the appellant having been seized in the exercise of statutory power for viol .....

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lves the State from any claim for the loss or damage suffered by the owner for the goods which are directed to be released or returned to it. It was dissented to by the Madras High Court in Secretary of State for India in Council v. Hari Bhanji and it was observed that Nobin Chunder Dey did not properly comprehend the law laid down in Peninsular. The Chief Justice of the Madras High Court, after dealing with Peninsular and its erroneous application in Nobin Chunder Dey, observed that defence of .....

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by that law, yet there are cases in which the supreme necessity of providing for the public safety compels the Government to acts which do not pretend to justify themselves by any canon of municipal law. Acts thus done in the exercise of sovereign powers but which do not profess to be justified by municipal law are what we understand to be the acts of State of which municipal courts are not authorised to take cognizance." The doctrine or the defence by the "act of State", is not .....

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to acquire and retain territory, are functions which are indicative of external sovereignty and are political in nature. Therefore, they are not amenable to jurisdiction of ordinary civil court. No suit under Civil Procedure Code would lie in respect of it. The State is immune from being sued, as the jurisdiction of the courts in such matter is impliedly barred. As far back as 1956, the First Law Commission in its Report on the liability of the State in tort, after exhaustive study of the law an .....

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unched huge irrigation and flood control schemes. The production of electricity has practically become a Government concern. The State has established and intends to establish big factories and manage them. The State carries on works departmentally. The doctrine of laissez-faire which leaves everyone to look after himself to his best advantage has yielded place to the ideal of a Welfare State which implies that the State takes care of those who are unable to help themselves." The Commission .....

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liability where the State, either directly or through incorporated public authorities engages in activities of a commercial, industrial or managerial character. The proper test is not an impracticable distinction between governmental and non-governmental functions, but the nature and form of the activity in question'. 5.3.4. From the decisions of the apex court discussed in the preceding paragraphs, it is clear that only those functions of the State where the State cannot be sued in a court .....

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o the provisions of this Act, to acquire, hold or dispose of property and to contract, and may, by the said name, sue or be sued . In view of this explicit provision in law, we find no merit in the contention that the activity of deposit insurance is a sovereign/statutory function not amenable to service taxation. Accordingly we reject this contention as completely devoid of merits and hold that service tax is leviable on the deposit insurance activity under the taxable service category of gener .....

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s in a normal contract of insurance, only two parties are involved, that is the insurer and the insured. Since service tax levy is a contract based levy, deposit insurance will not come under the purview of service tax. It has also been argued that deposit insurance is a statutory obligation under the Deposit Insurance and Credit Guarantee Corporation Act, 1961 and the insured bank has no choice but to compulsorily obtain insurance by force of law. 5.4.2. We have carefully considered these submi .....

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e first criterion is contractual relationship between the parties . The same exists between the DICGC and the insured bank. The contract need not always be written or explicit. It can be oral and implicit. The second criterion is there should be some event the happening of which is uncertain. In other words there should be some risk for which insurance is being sought. The uncertain event in the deposit insurance is liquidation or winding up of the insured bank. It is this risk which might impai .....

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In the event of liquidation of the bank, the Insurer, that is, DICGC, makes good the liability upto a maximum limit of ₹ 1 lakh per depositor. The last criterion is insurance should be a contract of indemnity. The insurer indemnifies discharge of liability to the extent of deposit made subject to a cap of ₹ 1 lakh per depositor. Thus, all the criterion of an insurance contract is satisfied in the case of deposit insurance and therefore, it is a contract of insurance and a contract of .....

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pecuniary loss to the assured, who then becomes entitled to be indemnified subject to the limitations of his contract. He cannot recover more than the sum insured, for that sum is all that he has stipulated for by his premiums and it fixed the maximum liability of the insurers. Even within that limit, however, he cannot recover more than what he establishes to be the actual amount of his loss. The contract being one of indemnity, and of indemnity only, he can recover the actual amount of his los .....

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me Tax [1988 (172) ITR 744 (Madras)]. 5.4.4. In Vasudev Mudaliar vs Caledonian Insurance Co. And Anr. [AIR 1965 Mad 159], the hon ble Madras High Court considered an important question as to the rights of an insurer to sue in his own name to recover damages from a third party, by whose negligence the assured's car met with an accident and was totally damaged, but who was fully indemnified by the insurer under a comprehensive policy. The hon ble High Court observed as follows while considerin .....

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e not to profit out of the bargain. It is implied in the very nature of the contract of indemnity that the indemnifier is entitled to recoup or minimise the damages he is obliged to pay the assured, by ways and means the assured himself could resort to, in order to reimburse himself against loss caused to him by third party negligence. Such a right of the insurer is, of course, conditional upon his having already indemnified the assured. In other words, arising out of the nature of a contract of .....

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namely, the indemnifier should be in a position to reduce the extent of his liability within limits. 5.4.5. The hon ble High Court cited as authority Halsbury's Laws of England, Simonds Edn. which states in paragraph 512 that-"subrogation" is a right inherent in all contracts of indemnity, and further-"the doctrine of subrogation applies to all contracts of non-marine insurance which are contracts of indemnity, such, as, for example, contracts of fire insurance, motor vehicle .....

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The observations made in the said judgment, extracted below, are very relevant to the issue under consideration in the present case. 3. If the whole law of indemnity was embodied in Sections 124 and 125 of the Indian Contract Act, there would be considerable force in the contention of Mr. Tendolkar ; but that is obviously not so. The Indian Contract Act is both an amending and a consolidating Act, and it is not exhaustive of the law of contract to be applied by the Courts in India. Section 124 d .....

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ified at the request of the indemnifier. 7. It is true that under the English common law no action could be maintained until actual loss had been incurred. It was very soon realized that an indemnity might be worth very little indeed if the indemnified could not enforce his indemnity till he had actually paid the loss. If a suit was filed against him, he had actually to wait till a judgment was pronounced, and it was only after he had satisfied the judgment that he could sue on his indemnity. It .....

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ich would constitute a fund for paying off the claim whenever it was made. As a matter of fact, it has been conceded at the bar by Mr. Tendolkar that in England the plaintiff could have maintained a suit of the nature which he has filed here; but, as I have pointed out, Mr. Tendolkar contends that the law in this country is different. I have already held that Sections 124 and 125 of the Indian Contract Act are not exhaustive of the law of indemnity and that the Courts here would apply the same e .....

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bject matter of the Insurance contract may be a property, or an event that may create a liability but it is not the property or the potential liability which is insured but it is the pecuniary interest of the insured in that property or liability which is insured. The concept is the basis of the doctrine of insurable interest and was cleared in the case of Castellain v/s Preston [(1883) 11 QBD 380]. For example, In a fire insurance policy, it is not the bricks and materials used in building the .....

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here must be some property, right, interest, life, limb or potential liability capable of being insured; 2) Any of these above i.e. property, right, interest etc. must be the subject matter of Insurance; 3) The insured must stand in a formal or legal relationship with the subject matter of the Insurance, whereby he benefits from its safety, well-being or freedom from liability and would be adversely affected by its loss, damage existence of liability; and 4) The relationship between the insured .....

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r a house for example may make the tenant responsible for the repair and maintenance of the building. Such a contract places the tenant in a legally recognized relationship with the house or the potential liability and this gives him the insurable interest. (c) By Statute: Sometimes an Act of the Parliament may create an insurable interest by granting some benefit or imposing a duty and at times removing a liability may restrict the Insurable Interest. Insurable Interest is applicable in the Ins .....

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ut also were denied any medical aid and more often than not were simply removed from the job and lost their livelihood placing them and their families in great difficulty. By passing this act the liability of employer was fixed and he is now required by law to pay compensation to victims of accidents while on duty. The amount of compensation has been fixed in accordance with the extent of injury, disability and linked to the worker s salary and age on the date of accident. (b) Employee State Ins .....

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pensaries and Hospitals have been set up all over the country where the worker members and their families are provided health care free of cost. (c) Motor Vehicle Act 1988: The Motor Vehicle Act was amended in 1988 to make Third Party Liability Insurance compulsory; thus no uninsured vehicle is allowed to ply the roads or in public place in India. The need of this enactment was felt due to the growing number of vehicles and the increasing number of accidents causing injury and death of the peopl .....

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of 1984, which resulted in many deaths and caused untold suffering to lakhs of people prompted the enactment of this legislation. The public liability act now makes it compulsory for all individuals, companies, industries involved in handling of hazardous substances to insure against any untoward happening so that immediate succor is made available to the victims from the Insurance companies. 5.4.10. Other than passing legislations to improve social security, the Government also initiated certa .....

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age group of 18 to 60 who is the earning member of the poor family. The premium is borne by the Central Government and the expenses for implementation of the scheme by the state Government. (ii) National Agricultural Insurance Scheme or the (RKBY) Rashtriya Krishi Bima Yojna (NAIS) introduced in 1999 with the objective of providing Insurance coverage and financial support to farmers in the event of failure of crops as a result of calamities, pests and diseases. The premium is low and 50% subsidy .....

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ve schemes the Government has also introduced insurances at subsidized rates for farmers (cattle Insurance), for women (Raj Rajeshwari Mahila Kalyan Yojna), for the girl child (Bhagyashree child welfare policy) and Gramin Personal Accident policy etc. for the benefit of common people. 5.4.11. If we apply the above legal principles to the facts of the case in hand, there is no scintilla of doubt that deposit insurance like other insurance is a contract of indemnity and is amenable to the provisio .....

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dered/understood in law. By the same logic, Deposit Insurance Contract is also a general insurance contract as defined in law and merely because they are statutorily prescribed, they do not cease to be contract of insurance. The insurer is the Corporation, the insured are the banks and the beneficiary is the depositor(s). 5.5. Whether the appellant is eligible for the benefit of tax exemption under notification No. 22/2006-ST dated 31-5-2006? 5.5.1. An argument has been advanced that even if dep .....

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mis-placed. The exemption from service tax is in respect of services provided by the RBI and not by the subsidiaries of RBI. RBI and the appellant are separate legal entities established under different statutes, the former under the Reserve Bank of India Act, 1934 and the latter under the Deposit Insurance and Credit Guarantee Corporation Act, 1961. Functionally also they are different. The Preamble of the Reserve Bank of India Act describes the basic functions of the Reserve Bank as: ".. .....

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ereto . 5.5.2. The hon ble Apex Court in the case of Union of India vs. Wood Papers Ltd. [AIR 1991 SC 2049] has laid down the principle of interpretation of an exemption notification as follows:- ….truly speaking liberal and strict construction of an exemption provision is to be invoked at different stages of interpreting it. When the question is whether a subject falls in the notification or in the exemption clause then it being in the nature of exception is to be construed strictly and .....

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for the exemption under notification 22/2006-ST. The said difference exists even in the case of direct taxes. While RBI is exempt from payment of income tax under section 48 of the RBI Act, no such exemption from income tax is available in the case of DICGC, which is admittedly paying income tax under the Income Tax Act, 1961 since 1987-88 as stated in para 12 of the Annual Report for 2013-2014. The reliance placed by the appellant on a few decisions of this Tribunal in the case of Canara Bank a .....

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ade tax and whether extended period of time could be invoked to confirm the service tax demand? 5.6.1. From the records, it is seen that in response to DICGC s letters dated 05/01/2009 and 14/01/2009, the applicability of service tax to DICGC was examined by the Central Board of Excise & Customs (Board in short). After examination of the provisions of the DICGC Act, 1961, it was clarified by the Board vide letter No.354/164/2008-TRU dated 24/02/2009 that DICGC is not performing the function .....

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ct, 1994, and is chargeable to service tax. This revised view was communicated to the appellant vide letter F.No.137/135/2008-CX-4 dated 20th September, 2011. Thereafter on 24/10/2011 show cause notice was issued to the appellant demanding service tax for the period from 01/05/2006 to 31/03/2011 alleging suppression/mis-representation of facts and invoking the extended period of time. Thus when the Board, the apex indirect tax enforcement authority itself was not clear or entertained doubts abou .....

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tive prospectively and not retrospectively. Therefore, demand of service tax can be made from the assessee only with effect from 20-9-2011 and not from an earlier date and we hold accordingly. 5.6.2. The contention of the Revenue that the appellant did not get itself registered under the Service Tax law and did not provide information about the premium collected in spite of repeated reminders does not by itself establish the fact that they intended to evade service tax. The facts on record show .....

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C Act. This itself shows there cannot be any suppression of the activities by DICGC. We also note that they have been paying income tax since 1987-88 and is a large tax payer unit (LTU in short). All the income earned by the DICGC from the deposit insurance function, credit guarantee function and other activities are clearly and separately recorded in their annual balance sheet and should necessarily form part of their income tax returns. 5.6.3. As per the CBEC web-site, the concept of an LTU is .....

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ers in all matters relating direct and indirect tax / duty payments, filing of documents and returns, claim of rebates/refunds, settlement of disputes etc. The scheme aims at reducing tax compliance cost and delays, and bringing out uniformity in the matters of tax/duty determination. Since the adjudicating/assessing authority is a part of the LTU where the appellant is filing their income tax returns, we do not understand how the service tax department could not have obtained/accessed informati .....

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e hold accordingly. 5.7. Whether the appellants are liable to penalty? It is a settled position in law that imposition of penalty is not justifiable in matters involving interpretation and classification. In any case, section 80 of the Finance Act, 1994 provides for waiver of penalty on sufficient cause being shown. In our considered view, the facts of the present case warrant invoking the discretion provided under section 80 and we do so. 5.8. The appellant has referred to a large number of cas .....

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