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CENVAT credit on deposits insurance - Banks v/s Departments

Cenvat Credit - By: - Ravi Kumar Somani - Dated:- 22-3-2017 Last Replied Date:- 12-10-2017 - Introduction: Banks are registered under service tax in the category of Banking and Financial Services . They collect and pay service tax on its various incomes such as commissions, bank charges, documentation charges, processing fees etc. levied on its customers. However, one of the major revenue earned by the bankers is in the form of interest which is outside the purview of service tax as the same is .....

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ue is the availment of CENVAT credit by the bankers on the insurance premium paid for insuring the deposits accepted by them from various deposit holders viz., Fixed Deposits, Savings, Current etc. It is pertinent to note that insurance of these deposits is needed, as any slip up on its investment directly effects banks exposure. Since the quantums are huge and the risk is high, it is mandatory as per RBI guidelines that all banks must mandatorily take the insurance of all their deposits from De .....

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tices being issued by the service tax department denying the CENVAT credit on the grounds that, such insurance premium paid on the deposits does not qualify as input service in terms of Rule 2(I) of CENVAT Credit Rules, 2004, since deposits fall under negative list of services and since no output service tax is paid by banks on such deposits therefore insurance premium paid on insuring of such deposits shall be directly ineligible to be availed as CENVAT credit. Eligibility of CENVAT credit - Le .....

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ny and a financial institution engaged in providing services by way of extending deposits, loans or advances, in addition to other options given under rule 6(1) (2) and (3) of the CENVAT credit rules, shall have the option to pay every month an amount equal to 50% of the CENVAT credit availed on inputs and input services in that month. This rule was initially introduced in the Budget 2011 and while explaining the budget changes in the year 2011, Tax Research Unit of the CBEC vide para 1.15 of TR .....

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is an obligation on the entities providing Banking & Financial Services. Therefore, till 31.03.2016, it was obligation cast on banking companies to follow the reversal of CENVAT credit @ 50% on all input services without making any bifurcation as to actual. However, from 01.04.2016, Banks have been given option to choose as to whether reversal of CENVAT credit is preferred @ standard rate of 50% under Rule 6(3B) or to opt for reversal on actual basis as per rule 6(1), (2) and (3) of the CENV .....

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tandard reversal of 50% must be made based. Each rules was exclusive of each other. Applying both the rules together was never intended as per the paperwriters and may not have been the intention of the law makers. Even if it were to be done in such a narrow way, the CENVAT credit would be available in such cases as explained below. Rule 3(1) read with rule 3(4) of CCR specifies that the provider of taxable services could avail the credit on eligible inputs, input services and capital goods rece .....

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sed by a provider of output service for providing an output service,…. ……….;. and includes services used in relation to modernization, renovation or repairs of factory, premises of provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, accounting auditing, financing, recruitment and quality control, coaching and training, computer network .....

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he second limb of the definition which starts from the inclusive clause makes it clear that the services covered under the inclusive definition do not require the nexus or connection in relation to providing the output service or manufacture of final products. The word include is used in interpretation clauses in order to enlarge the meaning of words or phrases occurring in the body of the statute; and when it is so used, these words or phrases must be construed as comprehending, not only such t .....

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2009 (8) TMI 50 - BOMBAY HIGH COURT] it was held that each limb of the definition of input service can be considered as an independent benefit or concession exemption. If an assessee can satisfy any one of the limbs of the above benefit, exemption or concession, then credit of the input service would be available. This would be so even if the assessee does not satisfy other limb/limbs of the above definition. To illustrate, input services used in relation to setting up, modernization, renovation .....

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services which are enumerated after the words and includes are those services which may not be considered as directly or indirectly relatable to manufacture but yet the intention is to provide the benefit of credit of service tax paid on such services as CENVAT credit. Therefore what is required to be examined is whether the services on which credit has been denied can be covered by the categories of services listed in the definition. Further, in the case of Commissioner of Central excise Vs Fi .....

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of input services. Similar judicial views In the Case of Bank of Baroda Ltd. Vs Commissioner of Central Excise 2014 (12) TMI 660 - CESTAT MUMBAI it was held that brokerage for sale/purchase of shares and securities for trading, custodian charges, paid by the banking company are statutory expenses to be incurred by the applicant to do their banking business and therefore they are in the nature of input services having nexus to their business activity. In the case of Stock Holding Corporation of I .....

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