TMI Blog2020 (3) TMI 1295X X X X Extracts X X X X X X X X Extracts X X X X ..... surer is insured by any insurer called a re-insurer and for this purpose the insurer pays a premium to the re-insurer - both insurance and re-insurance services are covered under the scope of the general insurance service classifiable under section 65(105)(d) of the Finance Act and chargeable to service tax. The Appellant has stated that it has paid service tax on the output service‟ rendered by it. The re-insurers providing re-insurance services also pay service tax on output re-insurance service rendered by them to the Appellant and charge service tax form the Appellant. It is, therefore, clear that such reinsurance services are used by the insurer for providing output insurance service. Without the use of such re-insurance services, it may not be commercially prudent for any insurance company to assume such high risks under the original insurance policies. It is the assumed risks of the original insurer that are insured under the re-insurance policies. It is, therefore, difficult to hold that reinsurance services are not used by the insurer for providing the output services‟. It would also not be correct to hold that since reinsurance services are availed after the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hicle insured or re-insured by such person. This exclusion clause cannot be read to cover reinsurance services, which are not insurance services in respect of a motor vehicle. What is excluded under the said exclusion clause is general insurance services in respect of a motor vehicle. Insurance services received by an owner of motor vehicle for insurance of such vehicle stands excluded from the definition of input service‟. However, a re-insurance service is not in respect of a motor vehicle, but is in respect of the assumed risks of an original insurer and thus, the aforesaid exclusion clause has no application to qualification of re-insurance services as input service‟. Whether the Appellant is eligible to avail CENVAT credit of re-insurance service provided by pool member companies under the Insurance Pool? - HELD THAT:- Under the pool arrangement, the Appellant deposits the whole premium collected by it in the pool account and based on the prescribed formulae, the GIC determines the amount of re-insurance premium due to each member as against the other members. Thus, in effect, each company pays the re-insurance premium after deducting the amount due from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Date of Show Cause Notice Date of Order Period CENVAT Credit denied ST/54096/2014 26.11.2012 19.05.2014 Oct, 08 to March, 2012 115,78,81,098/- ST/52874/015 21.05.2014 28.02.2015 April, 12 To March, 2014 42,39,38,615/- ST/50690/2017 08.04.2016 23.01.2017 April, 2014 to March, 2015 2,27,37,344/- 4. The common reasons given in the impugned orders for denying the CENVAT credit on service tax paid on re-insurance services are as follows:- (a) Re-insurance service is not essential for providing insurance service as the Appellant can provide insurance service without obtaining re-insurance service; (b) Re-insurance services were obtained by the Appellant after issuance of insurance policies to the customers, i.e. after provision of output services‟ and thus, the same cannot be said to have been used for rendering output services‟; (c) Re-insurance services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... input service‟, but this exclusion clause cannot be the read to cover re-insurance services since they are not insurance services in respect of a motor vehicle; (iii) The Appellant is eligible to avail CENVAT credit on re-insurance services provided by member companies under the Indian Motor Third Party Insurance Pool (Insurance Pool) that has been created under section 34 of the Insurance Act; (iv) In Service Tax Appeal No. 52874 of 2015, there is a duplication of demand to the extent of CENVAT credit of ₹ 6,12,340/- and, therefore, confirmation of demand in the impugned order to that extent is liable to be set aside on this ground; and (v) In any view of the matter, the extended period of limitation could not have been invoked nor could penalties have been imposed in the facts and circumstances of the case. 6. The learned Authorised Representative of the Department has, however, supported the impugned orders and has contented that they do not suffer from any illegality. Learned Authorized Representative submitted that re-insurance service is not essential for providing insurance service and, therefore, the Appellant is not entitled to avail CENVAT credit o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f holders of insurance policies and to regulate, promote and ensure orderly growth of the insurance industry. The Appellant claims that because of the requirement set out under section 101A of the Insurance Act and as a prudent business practice it has been availing re-insurance services from Indian as well as foreign reinsurance companies in respect of the insurance policies. 9. Section 114A of the Insurance Act empowers the IRDA to make regulations in respect of various matters including matters relating to re-insurance under sections 101A and 101B of the Insurance Act. In due exercise of the aforesaid powers, IRDA has issued the Re-insurance Regulations for re-insurance of general insurance business. 10. Section 146 of the Motor Vehicles Act, 1988 MV Act mandates taking of an insurance cover against third party risks by a person using a motor vehicle in a public place. The rate for third party insurance premium is regulated by the Insurance Act. It is stated that problems were faced by companies in issuing insurance cover against these policies as very high risks arose therefrom. 11. Directions dated December 4, 2006, were issued by IRDA, in due exercise of powers confe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lia, pointed out that re-insurance is not an input service‟, as the same is not essential for providing output service‟ and is received after providing output service‟. The Appellant was, accordingly, issued three show cause notices dated November 26, 2011, May 21, 2014 April 8, 2016 for the period October, 2008 to March, 2012, April, 2012 to March, 2014 and April, 2014 to March, 2015 respectively. These three show cause notices resulted in three impugned orders dated May 19, 2014, February 28, 2015 and January 23, 2017. The aforesaid three appeals have, accordingly been filed to assail these impugned orders. 15. The first issue that arises for consideration in these three appeals is as to whether re-insurance services are used for provision of insurance services and, therefore, would qualify as input service‟ for the Appellant. Section 65 (58) of the Finance Act, 1994 Finance Act defines insurer‟ to mean any person carrying on general business or life insurance business and includes a re-insurer. Under section 65(80) of the Finance Act, policy holder‟ has the meaning assigned to under section 2(2) of the Insurance Act. Under section 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue that came up for consideration before the Karnataka High Court was whether an assessee can avail CENVAT credit of service tax paid on reinsurance services by treating the said service as an input service . PNB Metlife India Insurance Company was carrying on life insurance business and on the insurance policy issued by it, service tax was charged from the customers. It also procured re-insurance service 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin the meaning of Rule 2(l) of the CENVAT Credit Rules, 2004. 7. We may further add that the Service Tax is levied for certain service rendered and the provision of giving the CENVAT credit is so that there may not be double taxation. If a person has collected service tax, no doubt the same has to be deposited, but if in the process of the same transaction he has paid some service tax, which is necessary for its business, 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. 19. It needs to be noted that the aforesaid decision of the Karnataka High Court in PNB Metlife India was accepted by the Central Board of Excise and Customs in the Circular dated February 16, 2018. The relevant paragraphs 8 and 8.1 of the Circular are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... audit of the records of the assessee, it was noticed that the assessee had availed CENVAT Credit of service tax paid on re-insurance services pertaining to other than Motor Vehicle. Whereas re-insurance services pertaining to other than Motor Vehicles did not appear to be covered under the ambit of input service‟ as defined under Rule 2(l) of CENVAT Credit Rules, 2004. xxxxxxxxxxxxxxxx 29. The discussion up to this stage can be summarized to conclude that reinsurance is a statutory obligation and the reinsurance is integrated with the insurance policy and therefore has nexus with the output service of insurance. This aspect has also been clarified by CBEC New Delhi in its Circular No. 120(a)/2/2010-S.T. dated 16.04.2010. Further in the said circular it is also clarified that, it is the reinsurer which provides insurance service to the insurance company. Thus there is no doubt that re-insurance service is an input service for providing in insurance services. Further, these aspects have also been discussed by the Hon‟ble CESTAT in case of PNB MetLife India Insurance Co. Ltd. Vs CCE, ST CUS. Bangalore-2014(36)STR891(Tri-Bang.) xxxxxxxx. 22. In such circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that within the said exclusion clause which among others restrict the CENVAT credit of general insurance business relating to motor vehicle (which is not a capital goods), exception has been made to the general insurance services, if used by an insurance company, in respect of a motor vehicle insured or reinsured by such person. Thus, the main exclusion is related to general insurance services related to the Motor vehicle and within this exclusion exception has been granted to an insurance company in respect of motor vehicle insured or reinsured by them. Meaning thereby that this exclusion and its exception are not in any way restricting the CENVAT credit of general insurance services pertaining to Other than Motor vehicle‟ which in real terms is not a subject matter of said exclusion and its exception clause. It may further be added that the exclusion to the definition of input service‟ has been introduced and are related to only those general insurance services which are in respect of a motor vehicle, not being in the nature of a capital goods. Thus, the applicability of this exclusion in Clause-B A is limited only to services received in respect of motor vehicles a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services are provided by the pool member companies and it is for this reason that the Insurance Pool was formed by IRDA. Clause 3 of the direction dated December 4, 2012 are relevant and are reproduced below:- 3. Pooling Mechanism: The pooling of business among all insurers will be achieved through a multi-lateral reinsurance arrangement between the underwriting insurer and all the other registered insurers carrying on general insurance business (including motor insurance business) and general insurance reinsurers. 27. This position is also clear of the from the observation made in the paragraph 38 of the impugned order which are as follows:- 38. . It is observed that such participation in the pool is also sharing of risk and is also a kind re-insurance among the pool members. Therefore, whether it is re-insurance got done by an insurance company with another insurance company or participation in the pool for motor third party insurance, in both the cases it is re-insurance and have to examined and dealt in similar manner. 28. Thus, it cannot be doubted that re-insurance services are rendered by pool member companies to each other and payment of premium takes place ..... 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