TMI Blog2020 (11) TMI 120X X X X Extracts X X X X X X X X Extracts X X X X ..... A For the assessees Mr. G. Thangaraj, Authorised Representative, Mr. Sanjay Khemani, CA, Mr. P.R.V. Ramanan, Special Counsel (AR), Mr. P. Gopa Kumar, Joint Commissioner (AR) For the Revenue Service Tax Appeal No. 20747 of 2015, 22214 of 2015, 21027 of 2015, 20845 of 2015, 20548 of 2017, 20635 of 2017, 20198 of 2017, 22135 of 2015, 21795 of 2016, 21030 of 2019, 21031/2019, 20152 of 2017, 20423 of 2017, 20151 of 2017, 20415 of 2017, 20263 of 2017, 21342 of 2016, 20417 of 2016, 20252 of 2017, ST Cross Appeal No.20845 of 2015, 20295 of 2017, 20884 of 2016 ORDER PER: BENCH Appellant banks as well as the Department have filed these appeals directed against various impugned orders passed by the Commissioner of Service Tax. The issue involved in all these appeals is identical and hence all these appeals are taken up together for the purpose of discussion and disposal. The details of appeals are as under:- Sl. No. Appeal No. Party Name OIA / OIO Service Tax (Rs.) Penalty (Rs.) 1. ST 20747 of 2015 M/s. South Indian B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporation Bank v/s. CCE ST, Mangalore OIO No. MLR-EXCUS- 000-COM-MS-008-2016- 17 dated 07/11/2016 56,93,45,334/- 4,52,37,278/- 1,90,00,000/- 12. ST 20423 of 2017 C.C.E ST, Mangalore v/s. Corporation Bank OIO No. MLR-EXCUS- 000-COM-MS-008-16-17 dated 07/11/2016 - 1,90,00,000/ 4,52,37,278/ 13. ST 20151 of 2017 Karnataka Bank v/s. CCE ST, Mangalore OIO No. MLR-EXUS-000- COM-MS-009-16-17 dated 08/11/2016 14,84,80,809/- 2,39,22,335/- 25,00,000/- 14. ST 20415 of 2017 C.C.E. ST, Mangalore v/s. Karnataka Bank OIO No. MLR-EXCUS- 000-COM-MS-009-16-17 dated 08/11/2016 - 2,39,22,335/- 25,00,000/- 15. ST 20263 of 2017 Syndicate Bank v/s. C.C.E. ST, Mangalore OIO No. MLR-EXCUS- 000-COM-MS-010-16-17 dated 09/11/2016 29,27,57,588/- 1,40,00,000/- 7,38,29 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties and perused the records as well as the Larger Bench decision of the Tribunal dt. 20/03/2020 in the assessees-banks own case. All the learned counsel/consultants appearing for the banks submitted that the only issue involved in all the appeals is whether the banks are eligible to avail cenvat credit of service tax received by them from Deposit Insurance and Credit Guarantee Corporation being input service availed by them for rendering output service. They further submitted that this issue has been answered by the Larger Bench in favour of the banks and the said decision of the Larger Bench is binding on this Bench. They further prayed that in the light of the Larger Bench decision, all the appeals of the banks should be allowed and consequently all the appeals filed by the Department should be dismissed. 5. After considering the submissions of learned counsel/consultants appearing for the banks and learned Special counsel Shri PRV Ramanan appearing for the Department, we find that the only issue involved in all the cases is whether the banks can avail cenvat credit of service tax paid by them on the premium amount paid to Deposit Insurance and Credit Guarantee Corporation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceptance of deposits, without which the subsequent activities of lending or investment cannot be undertaken by the banks. 46. All banks have also to obtain a licence from the Reserve Bank of India under section 22 of the Banking Regulation Act. It also needs to be noticed that it is a compulsory for all banks who have obtained a licence from the Reserve Bank of India under section 22 of the Banking Regulation Act to register themselves with the Deposit Insurance Corporation. The registration of the banks with the Deposit Insurance Corporation is not optional for the banks. The payment of premium, therefore, to the Deposit Insurance Corporation is a statutory obligation of the banks. The banks this way, protect the interest of the depositors because nonpayment of premium and subsequent withdrawal of the protection provided by the Deposit Insurance Corporation may lead to loss of confidence of the public in the banks and ultimately loss of deposits. 47. A licence is issued to the banks by the Reserve Bank of India under section 22 of the Banking Regulation Act subject to such conditions as the Reserve Bank of India may think fit to impose. Sub-section (3) of section 22 pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nks 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 banks by the Reserve Bank of India can be cancelled. 53. Thus, the service rendered by the Deposit Insurance Corpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings, fixed, current, recurring, etc., but also certain balances appearing in the account of the banks such as credit balances in cash credit accounts, margin held against letters of credit, guarantees, bills purchased, etc., unpresented drafts and payment orders, provident fund balances relating to staff held by bank before they are transferred to Provident Fund Commissioner, amount representing pay orders/ bankers cheques/ demand drafts issued by closing deposit accounts with or without reference to depositors, but remaining unpaid etc. Thus, the contention of the Department that insurance premium is paid only on the deposits of the customers cannot also be accepted. 56. It has also been submitted by learned Counsel appearing for the banks that even if it is assumed that some part of the deposit is not used for providing output service , then too the banks are still entitled for the credit availed on the insurance service provided by the Deposit Insurance Corporation as the banks have reversed 50% of the total CENVAT credit taken in terms of rule 6(3B) of the 2004 Rules. This rule 6(3B) provides that notwithstanding anything contained in sub-rules (1), (2) and (3), a banki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from overseas insurance companies and availed CENVAT credit of service tax paid on such services received by it. This CENVAT credit was denied by the Department for the reason that re-insurance service cannot be considered as an input service since it takes place after the insurance policy is issued. The Karnataka High Court examined whether CENVAT credit availed and utilized by the insurance company on service tax paid for re-insurance service is an input service for the output service of insurance that the company was providing and held that the process of issuance of the policy by the insurer and subsequent procurement of re-insurance policy from another company, which is a statutory requirement, is an integral part of the entire process and the insurance process does not come to end merely on the issuance of the insurance policy since it continues till the existence of the term of the policy. The High Court noted that since reinsurance has to be taken under section 101 A of the Insurance Act, it is a statutory obligation and, therefore, has to be considered as having nexus with the output service and, therefore, would be an input service , for which CENVAT credit can be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, then he is entitled to the Cenvat credit to the extent of service tax which has been paid by it. In the present case, if the entire Service Tax which is collected by the Insurer, while selling its insurance policies, has to be deposited without being given the credit of the tax which is paid by it while procuring a policy of reinsurance as (mandatorily required in law), the same would be against the ethos of Cenvat credit policy, as the same would amount to double taxation, which is not permissible in law. 60. It needs to be noted that the aforesaid decision of the Karnataka High Court in PNB Metlife India has been accepted by the Central Board of Excise and Customs in the Circular dated 16 February, 2018. The relevant paragraphs 8 and 8.1 are reproduced below: 8. Decision of the Hon ble High Court of Karnataka at Bangalore dated 09.04.2015 in the case of M/s PNB Metlife India Insurance Company Ltd. Bangalore [2015 (39) STR 561 (Kar.)] 8.1. Department has accepted the aforementioned order of the Hon ble High Court of Karnataka. The issue examined in the order was, whether Reinsurance is an input service which is used for providing output service, namely, insu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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