Custom, Excise & Service Tax Tribunal
Idbi Federal Life Insurance Company Ltd vs Commr Service Tax- V Mumbai on 6 January, 2022
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
MUMBAI
REGIONAL BENCH - COURT NO. 01
Service Tax Appeal No. 87098 of 2016
(Arising out of Order-in-Original No. 16/STC-V/SKD/16-17 dated 27.05.2016
passed by Commissioner of Service Tax-V, Mumbai)
IDBI Federal Life Insurance .....Appellant
Company Ltd.
(Formerly known as M/s IDBI Fortis Life
Insurance Company Ltd) 1st Floor Trade View
Oasis Complex Kamala City, P.B. Marg,
Lower Parel (w), Mumbai-400013.
VERSUS
Commissioner of Service .....Respondent
Tax-V, Mumbai
3rd Floor Utpad Shulk Building, Bandra Kurla
Complex, Bandra, Mumbai-400 051.
Appearance:
Shri Vinay Jain, Advocate for the Appellant
Shri Anand Kumar, Authorized Representative for the Respondent
CORAM:
HON'BLE MR. S.K. MOHANTY, MEMBER (JUDICIAL)
HON'BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL)
FINAL ORDER NO. A/85908/2022
Date of Hearing : 06.01.2022
Date of Decision : 06.01.2022
PER : S.K. MOHANTY
The appellants herein are, inter alia, engaged in Life Insurance
Business and other Life Insurance Products to various individual
customers. Broadly, the appellants offer different type of Insurance
Policy/Schemes namely, Term Policy, Endowment Policy and ULIP
Scheme to their policy holders/customers. For providing various
Service Tax Appeal No. 87098 of 2016
2
insurance policies, the appellants got themselves registered with the
service tax department under various taxable heads. During the
disputed period 2007-08 to April 2011, the appellants have
discharged the service tax liability on certain category of services and
in respect of some other services, they did not pay any service tax,
owing to the reason that investment portion of the insurance scheme
are not taxable and thus, no service tax was payable thereon.
Treating a portion of premium on which no service tax has been paid
as exempted service, the department initiated show cause
proceedings against the appellants, seeking confirmation of the
service tax demand along with interest and imposition of penalties.
The matter arising out of the SCN dated 26.06.2012 was adjudicated
vide the impugned order dated 27.05.2016, wherein the learned
adjudicating authority has confirmed the service tax demand of Rs.
3,10,068/- for the period 2007-08 and Rs. 78,02,39,509/- for the
period 2008-09, 2009-10, 2010-11 and April 2011. Besides, the
impugned order has also imposed penalties under Section 77, 78 of
the Finance Act, 1994. Feeling aggrieved with the impugned order,
the appellants have preferred this appeal before the Tribunal.
2. Learned Advocate appearing for the appellants submitted that
there is only one integrated service of "Life Insurance Services"
provided by the appellants and thus, the artificial bifurcation of such
services into taxable and exempted category is not in conformity with
the statutory provisions. With regard to the exempted service,
learned Advocate submitted that Rule 2 (e) of the Cenvat Credit
Rules, 2004 is applicable only in the cases were services are fully
exempt from service tax and that since the Life Insurance Service is
Service Tax Appeal No. 87098 of 2016
3
not fully exempt from payment of service tax, the same cannot be
considered as 'exempted service'. To strengthen the case of the
appellants that the adjudged demands cannot be confirmed, the
learned Advocate has relied upon the following decisions rendered by
the Tribunal.
i. Sahara India Life Insurance Co. Ltd. Vs. CCE, 2018 (5) TMI
1218-CESTAT Allahabad.
ii. SBI Life Insurance Company Ltd Vs. CCE, 2019 (12) TMI 1127-
CESTAT MUMBAI.
iii. HDFC Standard Life Insurance Co. Ltd. and Birla Sun Life
Insurance Company Ltd V. CCE, 2020 (10) TMI 578- CESTAT
MUMBAI.
iv. LIC Vs. CCE, 2020 (10) TMI 580- CESTAT MUMBAI.
v. M/s Reliance Life Insurance Company Ltd. Vs. CCE, 2017-TIOL-
3839-CESTAT-MUM, (Appeal before High Court withdrawn by
Department in Appeal No. 18 of 2018).
vi. M/s Max New York Life Insurance Co. Ltd. Vs. CCE, 2018-VIL-
126-CESTAT-DEL-ST.
vii. M/s Shriram Life Insurance Company Ltd. Vs. CCE, 2019-TIOL-
1087-CESTAT-HYD.
3. On the other hand, learned AR appearing for Revenue has
reiterated the findings recorded in the impugned order and also
support the case of Revenue that the adjudged demands are
confirmed according to the statutory provisions.
4. Heard both sides and perused the records.
5. We find that the issue arising out of the present dispute is no
more res integara in view of the above decisions relied upon by
learned Advocate for the appellants.
5.1. In the case of Sahara India Life Insurance Co. Ltd.,(supra) the
Tribunal has held as under:-
Service Tax Appeal No. 87098 of 2016
4
"5. Having considered the rival contentions and on perusal of
record and on going through the definitions and provisions of law as pointed
out by the learned counsel for the appellant we find that the value on which
the Revenue has demanded amount under Sub Rule (3) of Rule 6 of Cenvat
Credit Rules, 2004 does not represent value of exempted services.
Therefore, we hold that the impugned Order-in-Original is not sustainable
and, therefore, it is set aside. We, therefore, allow the appeal. The
appellant shall be entitled for consequential relief as per law."
5.2. In the case of SBI Life Insurance Co. Ltd. (supra), the Tribunal has
held as under:-
"13. Even if it assumed that tax liability did arise subsequently on
disaggregation of service offered to policy holders, one of the options
available on such provision of taxable and exempted services,
without having to reverse credit of input services in proportion to the
latter, is the payment at the rate prescribed in rule 6(3) of CENVAT
Credit Rules, 2004 which cannot be based on the entire invested
amount as it includes the contribution of the holder that is returned
along with some accretion; neither can the incremental return be the
value of exempted service. There is no legislated measure for
isolation of value or of such service, if it be one and, as held in re
Max Life Insurance Co Ltd,
'8.......We note that in the present arrangement the appellant-
assessee is providing Service of ULIP for the insured. For such
service, the tax is paid. There is no separate identifiable service
attributable to the investment portion of the premium in the
present case. In other words the premium amount received
was invested substantially and for managing such investment,
administration charges are collected and Service Tax paid.......'
leading to the inevitable conclusion that invested portion of the
premium does not represent a service.
.............
16. At the same time, the presumption against superfluity in interpretation of statutes binds us to search for, and determine, the nature of inclusion.
Service Tax Appeal No. 87098 of 2016 5 As we are dealing with the schema of mechanism for avoiding the cascading effect of taxation upon the final customer who bears the burden of indirect tax levy, it can be posted that there is a recipient of service with whom the buck stops. Such stoppage could be owing to lack of further commercial engagement of the service or because of the non-existence of such service within the jurisdiction to tax. Tax laws have nothing to do with the last consumer in the market chain. It would, therefore, leave us with no option but to determine that legislative intent of 'services that are not leviable to tax under section 66 of Finance Act, 1994' to be those to which the Union cannot extend its taxing arm. The exclusion of a portion of the consideration in providing 'works contract service' under section 65(105)(zzzza) of Finance Act, 1994, as elaborated by the Hon'ble Supreme Court in Larsen & Toubro v. Commissioner of Central Excise, Kerala [2015 (39) STR 913 (SC)], with attendant impact on availment of credit under CENVAT Credit Rules, 2004, and the non-taxability of 'trading' as a service under Finance Act, 1994 in Orion Appliances Ltd v. Commissioner of Service Tax, Ahmedabad [2010 5 TMI 85 CESTAT Ahmedabad] are signposts to areas forbidden from tax by the Union. Not unnaturally, such service, unknowledgeable in the tax jurisdiction, fails the test of utilization in rendering of further service. These, therefore, cannot be 'input services' and the inclusive portion of 'exempted services' must be construed as referring to such and not to services that, though not yet, may still be subject to levy. The proposition of Revenue that subsequent taxability imprints upon it the description of 'non-leviable under section 66 of Finance Act, 1994 fails and, with it, the support for sustaining the demand in the impugned order. The detriments also fail."
5.3. In the case of HDFC Standard Life Insurance Co. Ltd. (supra), the Tribunal has held as under:-
"20. The present dispute has its genesis in not subjecting the entirety of premium to tax from the time that service in relation to 'life insurance' was incorporated in Section 65(105) of Finance Act, 1994 but was, by a series of amendments, expanded within the premium payable by the policyholder. Even after the last of the changes before that tax regime ended on 30th June, 2012, the entirety of premium was not subject to tax as a certain portion therein could not be attributed to service. Even the two inclusions, effected in 2008 and 2010, could not be said to have incorporated a Service Tax Appeal No. 87098 of 2016 6 new service for taxation as the former depended on deeming of service for coverage by a new enumeration without going beyond the premium and the latter, too, not only did not travel beyond the premium but also remained within 'life insurance' as the activity under coverage. Hence, new identifiable 'taxable services' were not the subject of the impugned levy. Even if these were to considered as new 'taxable services' the question of harmonizing the proposition of Revenue with the scheme of tax arises. Finance Act, 1994 is concerned with 'taxable service' and not 'service' and it is only upon incorporation within Section 65(105) that that a new 'taxable service' can be acknowledged. Rule 6 of Cenvat Credit Rules, 2004 is concerned with 'exempted service' to the extent that 'input services' are deployed for rendering such 'exempted services' and credit has been availed thereon. If recovery or neutralization under Rule 6 of Cenvat Credit Rules, 2004, flowing from the inclusive aspect of 'exempted service' as proposed by Revenue, would not possible upon deployment of service as mandated therein. Indeed, contingent, as it is, on the unveiling, by incorporation in Section 65(105) of Finance Act, 1994, of an unrevealed service, rationally acceptable time frame for neutralization does not exist. And for a statutory mechanism in which 'time', owing to limitation on recovery and mandatory interest, is no less crucial a factor than 'taxability', enforcement of Rule 6 of Cenvat Credit Rules, 2004 on such contingency is not legislative intent. Invoking of Section 73 for recovery is restricted only to such consideration that was legally subject to tax for the period of dispute and retrospective taxability, or non-taxability, as in this case, is not contemplated therein. Hence, we can reasonably deduce that legislative intent of the inclusive aspect of 'exempted service' did not contemplate subsequent incorporation as the test of exemption. Nevertheless, we must travel on to ascertain the legislative intent.
21. There are certain activities that may well be beyond the competence of the Union to tax and, thereby, beyond contemplation for inclusion in section 65(105) of Finance Act, 1994. 'Trading' is one which comes to mind immediately and yet another is 'works contract' with a catena of decisions based on exclusion of competence to tax Service Tax Appeal No. 87098 of 2016 7 by the Union. Such services being beyond the realm of taxation are, acknowledgedly, existent by negation of jurisdiction. It is but natural that the incidence of tax on 'inputs' and 'input services' employed for rendering such services must be borne by the provider of the service and recovered through pricing instead of being privileged to neutralize it by set off of taxes paid. The deliberate addition of the inclusive aspect in the definition of 'exempted services' is thus warranted to provide for that.
22. In the absence of a definition of 'service', this is the interpretation that is doctrinally satisfying and but for which the inclusive component is otiose. Likewise, in a scheme of levy that enumerates the taxable activities, it is only by statutory incorporation that a service is acknowledgeable in law and any service that may be legislated within Finance Act, 1994 can be considered as 'exempted' only through notification under statutory authority.
23. Furthermore, the collection of premia in excess of the actuarial determination of probability of payout from holders of policies that are not vanilla 'life insurance' is intended for investment to enable payment of the endowment contracted with the policyholder. Such investments yield returns that allow for compensating the policy holder and cannot, therefore, be consideration for service that is taxable under the entry proposed in the notice. While the premium for 'risk cover' is aggregated and subsumed, as it is, for administration of insurance business and investment is also not delinked from the binarity probability - death or life - that impacts the timing of payout. It is the consideration for this bundle of services that was intended to be taxed at different stages in the evolution of the entry relating to 'life insurance' and the only service rendered by the appellants. Investment is not a service rendered to the policyholder and, even when it was incorporated in Section 65(105)(zzzzf), the disaggregation was a delineation artificially effected by law to tax a portion of the administrative costs incurred by the insurer in pursuance of its business. Hence, it can be concluded that there is only one service and that is 'risk cover' with attendant payouts contingent upon death or maturity; subsequent Service Tax Appeal No. 87098 of 2016 8 taxation by creating a service within, and assigning a value to it, was not intended to cover a new service. Both were extractions from the expenditures incurred by the insurer in relation to the policy.
..........
25. In the light of lack of definition of 'service', the finding that the inclusive portion of the definition of 'exempted service' is restricted to certain services and settled law supra, the proposition of Revenue fails. The appeals are, therefore, allowed by setting aside the impugned order"
5.4. In the case of Life Insurance Corporation of India (supra), the Tribunal has held as under:-
"6. It would appear from the impugned order, as well as the contentions advanced by Learned Authorized Representative, that recovery has been premised on the hypothesis that subsequent inclusion of a portion of the consideration, hitherto excluded, in the assessable value by expansion of definition of taxable service or by fresh enumeration unveils the existence of exempt service for which consideration has been received by the provider of service. Ex facie, this proposition is liable to be rejected for it rides on retrospective application to deny credit; unveiling of the past from a subsequent enactment to foist detriment on tax assessees is not within the empowerment of tax administration. Neither is such a test for coverage within 'exempt service' enjoined by law. Considering that it has been held in Indian National Shipowners' Association and Anr. v. Union of India and Ors. [(2009) 4 AIR Bom R 775 = 2009 (14) S.T.R. 289 (Bom.)] by the Hon'ble High Court of Bombay, and duly affirmed by the Hon'ble Supreme Court in Union of India v. Indian National Shipowners' Association and Anr. [(2010) 14 SCC 438 = 2011 (21) S.T.R. 3 (S.C.)], that no taxable service can, by inference, be presumed to exist until specifically enumerated in Section 65(105) of Finance Act, 1994, this proposition advanced by, and on behalf of, the adjudicating authority fails the test of judicial confirmation. Consequently, the inference that the service described in Section Service Tax Appeal No. 87098 of 2016 9 65(105)(zx) of Finance Act, 1994 is a bundle from which one has been isolated for tax till 1st May, 2011 is also not tenable; this should have been amply evident from the absence of a new entry to describe such service identified for levy of tax. Neither does the tax on 'management of segregated fund' in Section 65(105)(zzzzf) of Finance Act, 1994 with effect from 16th May, 2008 obtain support for it as this freshly incorporated taxable service is a fiction designed by law through a deeming provision. Hence, it is abundantly clear that the expansion of the taxable value through the two amendments supra did not bring new services into existence. Even if it did, the subsequent existence of such service could not enable assumption that these were exempted till then.
...........
in SBI Life Insurance Company Ltd. v. Commissioner of Central Excise, Mumbai-II [Final Order No. A/87354/2019, dated 18th December, 2019 in Appeal No. ST/85961/2019 against order-in- original No. 3/ST/RN/COMMR/M-II/14-15, dated 29th January, 2015 of Commissioner of Central Excise, Mumbai-II]. It is common ground that the dispute does not pertain to exemption of taxable service under the authority of Section 93 of Finance Act, 1994 referred to in the main portion of the definition of 'exempted service' in Cenvat Credit Rules, 2004 and, as it proceeds from reliance upon the inclusive component of the definition, the decision, in Re : SBI Life Insurance Company Ltd., deprives the impugned order of legitimacy.
............
10. From application of the definition of 'exempted services' in Rule 2(e) of Cenvat Credit Rules, 2004, as determined in these several decisions supra to the facts leading to the impugned order, we have no doubt that the amendments in Section 65(105) of Finance Act, 1994 in relation to 'endowment policies' and 'Unit Linked Insurance Plan (ULIP) Policies' cannot be held to have established 'exempted services' warranting any restriction on availment of Cenvat credit of 'input services' as provided for in the Rule 6 of Cenvat Credit Rules, Service Tax Appeal No. 87098 of 2016 10 2004. The impugned order, thus, lacks authority of law and is set aside to allow the appeal."
6. Respectfully following the above cited decisions rendered by the Tribunal, we are of the considered view that the adjudged demand confirmed on the appellants cannot be sustained on merits. Therefore, the impugned order is set aside and the appeal is allowed in favour of the appellants.
(Operative part of the order pronounced in the open court) (S. K. Mohanty) Member (Judicial) (Sanjiv Srivastava) Member (Technical) Sm