Custom, Excise & Service Tax Tribunal
Bajaj Allianz General Insurance Co. Ltd vs The Commissioner Of Central Excise on 1 October, 2008
IN THE CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT No.II APPEAL No.ST/03/2007 (Arising out of Order-in-Original No.11/CEX/STC/COMMR/2006 dated 11/10/2006 passed by Commissioner of Central Excise, Pune) For approval and signature: Honble Mr. M.V.Ravindran, Member (Judicial) Honble Mr. K.K.Agarwal, Member (Technical) ====================================================
1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the : CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy :
of the Order?
4. Whether Order is to be circulated to the Departmental :
authorities?
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Bajaj Allianz General Insurance Co. Ltd., Appellants
Vs.
The Commissioner of Central Excise,
Pune Respondents
Appearance:
Shri.V.Sridharan, Advocate
Shri Bharat Raichandani, Advocate for Appellants
Shri.K.M.Mondal, Special Counsel for Respondents
CORAM:
Shri. M.V.Ravindran, Member (Judicial)
Shri. K.K. Agarwal, Member (Technical)
Date of hearing : 30/09/08 & 01/10/2008
Date of decision :
O R D E R No:..
Per: Mr. M.V. Ravindran, Member (Judicial)
1. This appeal is directed against the order-in-original No. 11/CEX/STC/COMMR/2006 dated 11/10/2006.
2. The necessary facts that arise for consideration are the appellants are engaged in providing services under the category of general insurance. The appellants were registered with the authorities for the said purposes. The Finance Act, 2004, increased the rate of service tax to 10% from the earlier rate of 8% and in addition education cess @ 2% on the gross amount of service tax, was also imposed. Hence, it was noticed by the lower authorities that with effect from 10/09/2004, the appellants are required to pay service tax at the revised rate. Coming to such conclusion, the lower authorities issued show cause notice to the appellants to discharge the differential service tax liability along with education cess for the period commencing from 10/09/2004 till the end of the policy. This demand was raised on the ground that the appellants had received advance premium from their customers at the time of issuance of the general insurance policy.
3. The appellants contested the show cause notice on the ground that on the day of issuing the general insurance policy, the appellant had discharged the service tax liability as was in force during the period. Subsequent enhancement in the rate of service tax is not payable by them as the services rendered by them were on the date of issuance of general insurance policy. They also contested the show cause notice on the ground that in an identical issue, the Commissioner (Appeals) has passed an order in their favour wherein the revenue has not filed any appeal. The adjudicating authority did not accept the contentions raised by the appellant and vide his impugned order came to the conclusion that the appellant is liable to pay the service tax at enhanced rate in respect of the policy, which is continuing after 10/09/2004.
4. Coming to such a conclusion, the Commissioner has confirmed the demand of service tax of Rs.5,35,94,363/- and education cess of Rs.53,59,436/- under the provisions of Section 73 of the Finance Act 1994 and also imposed penalty under Section 76 of the Finance Act 1994, besides directing the appellants to pay the interest on the amount of service tax confirmed as per the provisions of Section 75 of the Finance Act 1944.
5. Ld. Counsel appearing on behalf of the appellant submits that the appellant is engaged in the business of providing general insurance policy. It is his submission that the appellant gives a proposal to the insurer and the insurer after considering the proposal, accepts to insure with the appellants on a particular day. It is the submission that the moment the appellants customer accepts the proposal and signs the insurance policy remits premium in advance, the service is rendered. It is the submission that the premium is received in advance, on the date of assurance/insurance though the policy issued covers a period of one year, as indicated in the policy. It is the submission of the Counsel that the service has already been rendered on the date of insurance/assurance. He would submit that the appellant discharged the Service Tax liability as was applicable on the day the said services were rendered. It is his submission, that the conclusion of the adjudicating authority is erroneous, as though the insurance policy for the whole year claims against insurance policy cannot be equated as services rendered by the appellants. He would draw our attention to the statutory provisions of definition at Section 65 (49) of the Finance Act, 1994 and also submits that the taxable service defined under Section 65 (105) (d) is to a policy holder by a general insurance business in relation to the general insurance business. He also draws our attention to the Section 66, which is for charging of service tax.
6. Ld. Counsel draws our attention the CBEC Circular No.6/1/95 dated 02/05/95 submits that the CBEC while giving clarifications on the services of the general insurance policy, very precisely indicated that period covering risk from 01/07/94 and a premium received there on will alone attract service tax and the premium received prior to 01/07/94 will not be taxable. He draws our attention to the CBEC Circular No.65/14/2003 dated 05/11/2003 to submit that the maintenance attract, which are entered prior to the date of bringing service under tax were not taxable. He would also draw our attention to the CBEC Circular No.62/11/2003 and submits that it is the policy of the Government not to tax the services for earlier period before the services came into tax net. He draws our attention to the decision of the Tribunal in the case of ART Leasing Ltd., Vs. CCE, as reported at 2007 (8) STR 162 (T) submits that the hire purchase contract, which were entered by banking and other financial services were taxed at the rate on the day the hire purchase contract was entered and service tax collected on that amount. It is his submission that the EMI, which are collected do not bear the increased rate of service tax. He also draws our attention to an identical case of LFC Hire Purchase Company Ltd., Vs. CC & CE (Appeals), Cochin as reported at 2008-TOIL-1347-CESTAT-Bang. He also draws our attention to the decision in the case of National Transit Insurance Co. Ltd., Vs. CC & CCE as reported at 1975 (STC) 35 to submits that the work insurance is understood in the trade as the insurance on the day when on which the policy is issued and the premium is received in advance. He would also rely upon the decision of the Tribunal in the case of Reliance Industries Ltd., Vs. CCE as reported at 2008 (85) RLT (T) to submit that the issue is now squarely covered in favour of the appellants as the Tribunal in the case was considering whether service tax will be applicable at the rate of tax on the date of rendering service and it was held so. He also draws our attention to the meaning of word insurance as has been in the Blacks Law Dictionary, 8th Edition submits that insurance is a contract in which the party undertakes to indemnify another party against risk of loss, damage, or liability arising from the occurrence of some specified contingency.
7. Ld. Special Counsel for the revenue submits that the adjudicating authority has clearly come to the conclusion that service tax liability is to be paid by the appellants at the increased rate. He draws our attention to the Circular No.65/14/2003 to submits that the CBEC has clearly indicated that when any advance was received for the service, which becomes taxable subsequently, service tax liability has to be paid on the value of the service attributable to that particular month/quarter, which may be worked out on pro-rata basis. It is his submission that taxable service is provided, in the case of general insurance company, service is a continuing one. It is his submission that lump sum amount collected by the appellant as premium has to be distributed equally over the period of insurance policy and service tax has to be charged accordingly. He draws our attention to the meaning of word insurance from the Blacks Law Dictionary. He submits that in this case was for eg., an insurance policy was issued on 17/10/2006, which was to be in force for the period 22/10/2006 to 21/07/2007. It is his submission that though the policy was issued on 17/102/2006, risk cover started from 23/10/2006 for the whole year even though the taxable event occurred on the date of the policy is issued, it is the continuing service, as the terms and conditions are to provide the service for the whole year. It is the submission that this is a very unique and peculiar case and draws our attention to the explanation in to Rule 6 of the Service Tax Rules 2002. It is his submission that the case laws, which have been cited by the Ld. Counsel are not at all relevant. The facts in those cases and the facts in this case are different. As regards the Circular dated 2/5/95, it is his submission that levy was brought into force for the first time, while in the case of enhanced levy, the levy was already in existence. There was a subsequent enhancement on the rate of service tax. He would rely upon the decision of the Honble Supreme Court in the case of CCE, Calcutta Vs. Alnoori Tobacco Products, as reported at 2004 (170) ELT 135 (SC) would submits that the precedents need not be followed as the facts are different. In this case a case law which has been cited.
8. In a rejoinder, Ld. Counsel submits that the Circulars of CBEC on banking and other financial services are directly applicable and the ratio in the case of Alnoori Tobacco Products (supra) are directly applicable. It is his submission that the amendment to Rule 6 is in respect of the payment of service tax, nothing more. It is his submission that the said explanation to Rule 6, as has been relied upon by the Ld. Counsel only talks about the discharge of service tax liability in respect of services, which were rendered subsequently but would not as such indicate that service tax is payable on an enhanced rate.
10. We have considered the submissions made at length by both sides and perused the records.
11. The issue involved in this case is whether the service tax is payable on a premium in terms of the insurance policy covering the future period at revised rate if the rates are revised by law, during the operation of policy already issued and Service Tax liability is discharged. The adjudicating authority has come to the conclusion that collection of advance for the value of said service shall not therefore be the taxable event unless the service is rendered. In other words, receipt of value of service is secondary to the rendering of service. Coming to such a conclusion, the adjudicating authority relies upon the clarification given in Circular No.65/14/2003 dated 5/11/2003.
12. The provisions of Finance Act, which covers the services rendered by the appellants are given under Section 65 (49) general insurance business. In the said Section further definitions of insurance agent and insurance auxiliary service are also given, which are as under:-
Insurance agent has the meaning assigned to it in clause (10) of section 2 of the Insurance Act, 1938.
Insurance auxiliary service means any service provided by an actuary, an intermediary or insurance intermediary or an insurance agent in relation to general insurance business or life insurance business and includes risk assessment, claim settlement, survey and loss assessment.
13. The taxable services, i.e., considered for discharge of service tax liability are enumerated in the sub Section 65 (105). The taxable services in this case of general insurance business is enumerated at 65 (105) (d), which is to a policy holder by an insurer carrying on general insurance business in relation to the agent, insurance business.
14. It is undisputed that the appellant is carrying out the business of general insurance. It is also undisputed that the appellant collected the premium in advance as provided under the provisions of Section 64VB of the Insurance Act, 1938 on insurance/assurance on the policy issued. The said Section 64VB of the Insurance Act 1938 is as under:-
No insurer shall assume any risk in India in respect of any insurance business on which premium is not ordinarily payable outside India unless and until the premium payable is received by him or is guaranteed to be paid by such person in such manner and within such time as may be prescribed or unless and until deposit of such amount as may be prescribed, is made in advance in the prescribed manner.
For the purposes of this section, in the case of risks for which premium can be ascertained in advance, the risk may be assumed not earlier than the date on which the premium has been paid in cash or by cheque to the insurer
15. It can be noticed from the above re-produced provision of the Insurance Act that the insurers risk was covered only, after the premium payable is received by insurance company or a guarantee that it will be paid. This would indicate that the insurer is expected to render the services on the day when the premium is received by him. It is also to be noted that the insurance business is covered by the provisions of Insurance Act and, hence, the appellants herein has to issue policy in consonance with the provisions of Insurance Act. Appellant cannot assure the coverage of risk of an insurer, unless the premium payment is received in advance. In other words, the services rendered by the appellants as a general insurance company will take place on the date when appellant receives the insurance premium on the policy. We find that the dispute in this case is regarding the discharge of differential service tax liability from 10/09/2004 and subsequently, when the rates of service tax are increased by the Finance Act. It is undisputed that the appellants has discharged the service tax liability as was prevalent at the relevant period on the amount of premium received.
16. The services rendered by the appellants would be akin to the services rendered by the bank and other financial services and more specifically the hire purchase contracts. We find that the Tribunal in the case of Art Leasing Ltd., (supra) was considering an identical situation in respect of the hire purchase scheme. The Bench held as under:-
The appellant provides services to clients under Hire Purchase Scheme. When the appellant got registered under Section 69 of the Finance Act 1994 for providing services under the category of Banking and Other Financial Services, the rate of Service tax was 5%. w.e.f. 14-5-2003, the rate was enhanced to 8%. For all Hire Purchase Contracts entered prior to 14-5-2003, the appellant remitted Service tax at the rate of 5%. Revenue proceeded against the appellants on the ground that the appellant is required to remit Service tax @ 8%. The original authority confirmed a demand of Rs. 44,054/- under Section 73 of the Finance Act. The Commissioner (Appeals) upheld the order of the original authority. The appellants are aggrieved over the impugned order.
Shri T.M. Sreedharan, the learned Advocate, appeared for the appellants and Shri K. Sambi Reddy, the learned JDR, for the Revenue.
Heard both sides.
The Banking and Financial Services came under the Service tax net w.e.f 16-7-2001. At that time, CBEC issued clarification to the effect that in respect of Hire Purchase Contracts entered prior to 16-7-2001 and installments of which were received after 16-7-2001, there is no Service tax liability. In our view, the same logic is applicable to the present case also. When the Hire Purchase contract is entered, the taxable event occurs. We agree with the appellants that the installment payments are only obligations of the hirer. The finding of the Commissioner (Appeals) that the appellant continues to provide service during the payment of installments is not correct. Therefore, the rate of Service tax will be the rate prevailing on the date on which the contract is entered into. Consequently, the demand of differential amount applying the higher rate, which came into effect from 14-5-2003, will not be applicable in respect of the contracts entered prior to that date. Hence, we set aside the impugned order and allow the appeal with consequential relief, if any.
17. It can be noticed from the above re-produced order, that the Division Bench of the Tribunal was considering an identical situation of enhancement of the rate from a particular date. The facts in the case of Art Leasing Ltd., though may be of hire purchase agreement/contract, wherein the hire purchaser receives the payment subsequently by an EMI (Equated Monthly Installments) but Service Tax liability is discharged on the date of signing the hire purchase contract as per the prevalent rate of service tax, the analogy/logic, will be also applicable in this case, as the CBEC vide Circular dated 02/05/95 clarified as under:-
Premium on insurance The question of collection is at issue here in the following categories of premium paid on insurance
(a) Premium paid in advance i.e. payment of premium has been received, where as the risk is covered after 01/07/1994.
(b) Payment of premium in installment i.e. some installments of the premium have already been received prior to 01/07/1994 while some more are to be received later
(c) The policy has expired before 01/07/1994, but premium are paid after 01/07/1994 Decision: Service Tax provisions have been made applicable with effect from 01/07/1994 vide Notification No.1/94-Service Tax dated 28/06/94. Thus taxable service provided on or after 01/07/1994, alone will attract service tax. Thus, the policies covering the risk from 01/07/94 and delayed payment after 01/07/19994 for earlier period would not attract service tax.
18. It can be noticed that the above clarification was given by the Board as early as in the year 1995 and that also in respect of the insurance service. Since an identically worded circular in respect of banking and other financial services is interpreted by the Tribunal in the case of Art Leasing Ltd., (supra), the same reasoning will also apply in this case. Hence, to our mind the enhanced rate of Service Tax is not applicable to the policies, which were issued prior to the enhancement of the rate. We notice that the Tribunal has followed the decision of Art Leasing Ltd.,(supra) in LFC Hire Purchase Company Ltd., (supra) and came to the very same conclusion.
19. Ld. Special Counsel for the revenue made valiant effort to bring to our notice that the amount, which is received as premium by the appellant was an advance payment and, hence, this has to be appropriated as per the clarification by the board vide its Circular dated 05/11/2003. We are not impressed by the said proposition as the two decisions of the Tribunal in an identical circumstances on enhanced service tax liability held that enhanced rate is not applicable for the amounts subsequently collected as EMI. In this case the appellant is on a more stronger footing, as the premium is received in advance and no further amount is collected as in the cases of Art Leasing Ltd., (supra) and LFC Hire Purchase Company Ltd., (supra).
20. In view of the above reasonings and respectfully following the ratio in the cases of Art Leasing Ltd., and LFC Hire Purchase Company Ltd., we hold that the impugned order is not sustainable and is liable to be set aside, and we do so. Appeal is allowed.
(Pronounced in Court on .) (K.K. Agarwal) Member (Technical) (M.V.Ravindran) Member (Judicial) pj 1 11 2