TMI Blog2022 (12) TMI 1479X X X X Extracts X X X X X X X X Extracts X X X X ..... this behalf. The payment of premium on insurance together with service tax for valid and correct reasons has been held by the larger bench in M/S. SOUTH INDIAN BANK VERSUS THE COMMISSIONER OF CUSTOMS, CENTRAL EXCISE AND SERVICE TAX-CALICUT [ 2020 (6) TMI 278 - CESTAT BANGALORE] holding that The insurance service provided by the Deposit Insurance Corporation to the banks is an input service and CENVAT Credit of service tax paid for this service received by the banks from the Deposit Insurance Corporation can be availed by the banks for rendering output services . The substantial questions raised are not tenable, and the findings recorded by the larger bench have already considered these issues - the questions raised in the appeals are answered against the revenue and in favour of the assessee - appeal dismissed. - Honourable Mr.Justice S.V.Bhatti And The Honourable Mr.Justice Basant Balaji For the Appellant : Sri.Sreelal N.Warrier For the Respondent : Sri.Shaji Thomas, Sri.Jen Jaison, Sri.G.Shivadass (Sr.)Joseph Kodianthara (Sr.), V.Abraham Markos, Abraham Joseph Markos, Isaac Thomas P.G.Chandapillai Abraham, Alexander Joseph Markos And Sharad Joseph Kodanthar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue, Ministry of Finance issued Circular F.No.187/135/2008-CX.4 clarifying the applicability of service tax to DICGC. The circular clarifies that the insurance activity of DICGC was within the ambit of Section 65(105)(d) of the Finance Act, 1994 and such service is chargeable to service tax. The appeals do not present a point for consideration on the nature of service availed by the assessee from DICGC and payment of service tax while paying the premium for the insurance coverage the assessee takes from DICGC. But the controversy centres round on whether the assessee can take credit for the service tax paid while purchasing a premium for the service tax payable by the assessee for rendering services to its customers. The primary authority rejected the reply of the assessee and held that the service tax paid on the premium and CENVAT credit cannot be claimed for the service tax paid by the assessee. The assessee challenging the said view filed appeals before the Tribunal. Through the common order impugned before this Court, the appeals were allowed. Hence the second appeal. It is a matter of record that in State Bank of Patiala v Commissioner of Central Excise Service Tax, Chandiga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has argued that Section 66D deals with a negative list of services. Clause (n) of Section 66D deals with services by way of extending deposits, loans or advances insofar as the consideration is represented by way of interest or discount is excluded. Since extending deposits, loans etc. falls within the negative list, the activity per se carried on by the assessee is out of the purview of output services. Therefore, the service tax paid for insurance premiums cannot be claimed as a credit while paying the service tax payable by the assessee. The next argument is that the omission of the words activities relating to business such as from the scope of the definition of input services, it is clear that on the service tax payable by the bank for the umbrella of services being rendered by it, the assessee cannot claim the credit of service tax paid by the assessee. 9. Mr.Sivadas, per contra, argues that the substantial question, particularly, in the batch of appeals on hand, would arise from the conclusions on the interpretation of various provisions considered by the Larger Bench in the South Indian Bank case. The view of the Larger Bench is a complete answer to all the primary and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxable territory but shall not include a service that is either specified under section 66D of the Finance Act or where the whole of service tax is liable to be paid by the recipient of service. 43. The contention advanced on behalf of the banks is that the insurance service rendered by the Deposit Insurance Corporation to the banks is covered under the main part of the definition of input service and, therefore, the banks are justified in availing CENVAT credit on this input service for the output service rendered by the banks in relation to banking and other financial services . The contention of the Department is that since insurance is paid on the deposits and the activity of acceptance of deposits is a transaction in money which would be outside the purview of service tax, the insurance service rendered by the Insurance Corporation to the banks cannot be considered as an input service . 44. The basic activity of a banking company, as contemplated under the definition of banking , either under the Deposit Insurance Act or the Banking Regulation Act, is to accept deposits from the public, which deposits are used for the purpose of lending or investment by the ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he carrying of banking business by such banks will not be prejudicial to the public interest or the interest of the depositors. Section 22 (4) enumerates the circumstances under which the licence granted to a banking company can be cancelled by the Reserve Bank of India and they are as follows: (i) if the company ceases to carry on banking business in India; or (ii) if the company at any time fails to comply with any of the conditions imposed upon it under sub-section (1); or (iii) if at any time, any of the conditions referred to in subsection (3) and sub-section (3A) is not fulfilled: 48. Thus, the first condition under which the Reserve Bank of India can cancel the licence granted to a banking company is when the bank ceases to carry on banking business in India. This implies that banks must accept deposits for the purpose of lending and for the purpose of accepting deposits, the banks have to obtain registration with the Deposit Insurance Corporation and, therefore, pay premium for the insurance. It, therefore, follows that if a banking company fails to pay the premium amount to the Deposit Insurance Corporation, it would not be able to retain its registration with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice. Once this service falls in the main part of the definition of input service , it would not be necessary to examine whether the service would be covered by the inclusive part of the definition. It has also been noted that the service is not excluded from the definition of input service . 54. The contention of the Department is that accepting of deposits is covered under section 66D(n) of the Finance Act which contains the negative list. As noticed above, the negative list comprises, under sub-clause (n) of section 66D, services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount. The issue is whether extending deposits would mean the activity of accepting deposits. The activity of accepting deposits would be an activity where the banks receive deposits from the customers in the form of savings account, recurring deposits, for which the banks pay interest to the customers. On the other hand, the extending of deposits would be an activity of a bank giving its surplus money in the form of deposit to another person, where the consideration received would be in the form of interest. This would be a cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very month an amount equal to 50% of the CENVAT credit availed on inputs and input services in that month. The Circular dated 28 February, 2011 issued by the Central Board of Excise and Customs explains the reason behind the abovementioned amendment. It has been stated that since substantial part of the income of a bank is from investments or by way of interest in which a number of inputs and input services are used and as there have been difficulties in ascertaining the amount of credit flowing into earning these amount, a banking company providing banking and financial services is obligated to pay an amount equal to 50% of the credit availed in terms of rule 6(3B). This sub-rule (3B) has, therefore, been introduced with a view to disallow the credit of input and input services attributable to interest/investment income earned by banking companies. Having regard to the fact that it is difficult to ascertain the actual amount of input and input services used in earning interest income, subrule (3B) provides for reversal of 50% of input and input services. 57. Thus, the reversal has been made, banks are entitled for credit of the entire amount of service tax paid on input service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in the fact of this case, we are of the opinion that the order of the Tribunal does not require any interference. Rule 2(l) of the Cenvat Credit Rules 2004 provides that Input Service‟ means service used by a provider of taxable service for providing an Output Service‟. The submission of the learned counsel for the appellant that once the Insurance Policy is issued by the Insurer, the transaction comes to an end (and would not depend on the reinsurance policy) and as such the service provided would not come within the ambit of input service, is not worthy of acceptance. The process of issuance of an Insurance Policy by the Insurer and subsequent procurement of reinsurance policy from another company (which is a statutory requirement) is an integral part of the total process. The process of insurance does not come to an end merely on the issuance of the Insurance Policy by the Insurer. In fact, it continues till the existence of the term of the policy. The re-insurance is taken by the Insurer immediately after the insurance policy is issued, as is required under Section 101A of the Insurance Act, 1938. Since re-insurance is a statutory obligation, and the same i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the same is co-terminus with the insurance policy. Issuance of insurance policy by insurer, and then taking of reinsurance by it, is a continuous process. Reinsurance is, therefore, an input service. 61. In the present appeals also, in order to render any output service under the category of banking and other financial services , it is necessary for a bank to register itself with the Deposit Insurance Corporation and pay premium after registration. A bank, without obtaining registration and without payment of insurance premium on the deposits outstanding, cannot render any output service of banking and other financial service . 62. The decision of the Tribunal in Shriram Life Insurance Company Ltd. vs. Commissioner of Customs, Central Excise and Service Tax, Hyderabad [2019-TIOL- 1087-CESTAT-HYD] also needs to be referred to. The appellant provided life insurance services for which it had to statutorily invest the premiums collected in approved securities. The issue that arose before the Tribunal was whether such investments in securities can be considered as an exempted service as a result of which CENVAT credit was required to be reversed under rule 6 of the 2004 R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etc. in so far as the consideration is represented by way of interest or discount. The expression used in clause-(n) begins with the words extending deposits, loans or advances , and such activity is represented by way of interest or deposit of money. The determining word in the clause is extending deposits, loans or advances etc. Extending deposits literally understood is the deposits, loans etc. extended by the assessee. The acceptance of deposits is a pure and simple money transaction. But the realm in which the controversy operates is after receiving the deposits from public, the assessee is under statutory obligation to insure the deposits received for conducting the bank business and extends under law services on which service tax is paid. The services provided by the assessee are not falling within the negative list. Therefore, there is relatability on a hostile consideration of business in banking between the services availed and services rendered. The suggestion of revenue would compartmentalise the activities in an odd way only to deny the claim of CENVAT credit and we are not persuaded, firstly, by the argument now canvassed before us and secondly, upon taking note o ..... 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