Custom, Excise & Service Tax Tribunal
M/S Tata Aig Life Insurance Co. Ltd vs Commissioner Of Central Excise, Mumbai ... on 22 January, 2014
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. I Appeal No. ST/64, 66, 198/08 & ST/237 & 218/12 (Arising out of Orders-in-Original No. 09-10/Commr(AK)/08, No. 43/PKA/COMMR/Th-II/2011 dated 23.1.2012. No. 02/STC/SJS/08-09 dated 23.5.2008 and No. V/Service Tax(HQ)Adj./Birla/65/2006 passed by the Commissioner of Central Excise & Service Tax, Mumbai & Thane-II). For approval and signature: Honble Shri P.R. Chandrasekharan, Member (Technical) Honble Shri Anil Choudhary, Member (Judicial) ======================================================
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 : Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordships wish to see the fair copy : Seen of the order? 4. Whether order is to be circulated to the Departmental : Yes authorities? ====================================================== M/s Tata AIG Life Insurance Co. Ltd. M/s ICICI Prudential M/s Birla Sun Life Appellants Vs. Commissioner of Central Excise, Mumbai & Thane-II Respondent Appearance: Shri V. Sridharan, Sr. Advocate Shri S.S. Gupta, C.A. for Appellants Shri K.M. Mondal, Spl. Consultant for Respondent CORAM: SHRI P.R. CHANDRASEKHARAN, MEMBER (TECHNICAL) SHRI ANIL CHOUDHARY, MEMBER (JUDICIAL) Date of Hearing: 22.01.2014 Date of Decision: 22.01.2014 ORDER NO. Per: P.R. Chandrasekharan
There are four appeals directed against Orders-in-Original No. 09-10/Commr(AK)/08, No. 43/PKA/COMMR/Th-II/2011 dated 23.1.2012. and No. V/Service Tax(HQ)Adj./Birla/65/2006 and one appeal filed by Revenue against Order-in-Original No. 02/STC/SJS/08-09 dated 23.5.2008 passed by the various Commissioners as adjudicating authorities. The appellants are M/s TATA AIG Life Insurance Co. Ltd., M/s ICICI Prudential & M/s Birla Sun Life. As the issues involved in all these appeals are common, they are taken up together for consideration and disposal. The periods involved range from Sept, 2004 to March, 2008.
2. The appellants are providers of General and Life Insurance service. They also appoint Insurance Agents for canvassing business and such services fall under the taxable service category of Insurance Auxiliary Service. Service Tax liability on the Insurance Auxiliary Service is on the service recipient on reverse charge basis and the appellants are required to discharge Service Tax liability. The question for consideration in all these appeals is for discharging Service Tax liability on Insurance Auxiliary Service whether the appellant can utilize CENVAT Credit available with them. A connected question is since the Insurance Auxiliary Service is specified in Rule 6(5) of the Cenvat Credit Rules, whether the appellant can avail CENVAT Credit on the inputs services without any limit or in terms of Rule 6(3) of the Cenvat Credit Rules, 2004, the credit should be restricted to 20% of the Service Tax payable for the period prior to 1.4.2008. The adjudicating authorities in these impugned orders have taken contrary views, while in some cases it has been held that inasmuch as Insurance Auxiliary Service is notified under Rule 6(5), there is no restriction of 20% applicable under Rule 6(3) and, therefore, availing of credit in excess to 20% of the Service Tax payable is in order, therefore, there is no contravention on part of the appellant, whereas a contrary has been held in some of the other orders.
2.1 As regards utilization of CENVAT Credit for payment of Service Tax on Insurance Auxiliary Service, all the adjudicating authorities have taken a common view that the CENVAT Credit cannot be utilized for payment of Service Tax w.e.f. 10.9.2004 and the appellants were required to pay the Tax in cash on or after 10.9.2004.
3. The learned Counsel for the appellants submits that under the Cenvat Credit Rules, 2004 output service has been defined under Rule 2(p) as follows: -
"output service" means any taxable service provided by the provider of taxable service, to a customer, client, subscriber, policy holder or any other person, as the case may be, and the expressions provider and provided shall be construed accordingly. As per the explanation for removal of doubts, it is hereby clarified that if a person liable for paying Service Tax does not provide any taxable service or does not manufacture final products, the service for which he is liable to pay Service Tax shall be deemed to be the output service. 3.1 The above explanation was omitted from 19.4.2006 by CENVAT Credit (Third Amendment) Rules, 2006. As per Rule 2(q), the term person liable for paying Service Tax has the meaning as assigned to it in clause (d) of sub-rule(1) of rule 2 of the Service Tax Rules, 1994. As per Rule 2(r) of the said Rules provider of taxable service includes a person liable for paying Service Tax.
3.2 The appellants are liable to pay Service Tax on Insurance Auxiliary Service received by them in terms of Rule 2(1)(d)(iii) of the Service Tax Rules, 1994 read with Section 68(2) of the Finance Act, 1994. A combined reading of Rules 2(p), (q) and (r) makes the position absolutely clear that for the purposes of Service Tax Act, the appellants are the providers of Insurance Auxiliary Service and liable to pay Service Tax and, therefore, they are rightly entitled to avail input service tax credit on the various input services received by them.
3.3 As per Rule 2(l) of the said Rules input service means any services: -
(i) used by a provider of taxable service for providing an output service; or
(ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal.
From these statutory definitions, any services used by a provider of taxable service for providing the output service is an input service and, therefore, the appellants are rightly entitled to avail the CENVAT Credit of the Service Tax paid on input services.
3.4 The learned Counsel relies on the decision of the Tribunal in the case of Nahar Industrial Enterprises Ltd. 2007 (7) STR 26 (Tri-Del), Nahar Exports Ltd. 2008 (9) STR 252 (Tri-Del) and decision of the Hon'ble High Court of Punjab & Haryana in the case of Nahar Industrial Enterprises Ltd. 2012 (25) STR 129 (P&H), Nahar Spinning Mills Ltd. 2011-TIOL-413-HC-P&H-ST, decision of the Hon'ble Himachal Pradesh High Court in the case of Auro Spinning Mills 2012 (279) ELT 349 (HP) and of the Hon'ble High Court of Delhi in the case of Hero Honda Motors Ltd. 2013 (29) STR 358 (Del). Reliance is also placed on the decision of the Tribunal in the case of Kansara Modler Ltd. 2013 (32) STR 209 (Tri-Del). In all these decisions, it has been held that once the appellants become the output service provider in view of the legal provisions then they are eligible for utilizing the credit taken on input services for discharge of Service Tax liability on the output service. Accordingly, it is prayed that the impugned orders, so far as they relate to denial of credit to the appellant on the input services, be set aside. Reliance is also placed on the decision of the Tribunal in the case of Federal Express Corporation (Final Order No. A/499/13/CSTB/C-I dated 27.2.2013), wherein it was held that the 20% cap fixed for utilization of CENVAT Credit under Rule 6(3)(c) prior to 1.4.2008 is only with respect to utilization and if the credit has been utilized prior to 1.4.2008, what can be demanded is only the interest and not the credit amount taken. Inasmuch as the Insurance Auxiliary Service is notified under Rule 6(5), the provisions of Rule 6(3)(c) would not apply.
4. The Spl. Consultant appearing for the Revenue, on the other hand, contends that this Tribunal in the case of ITC Ltd. 2011 (23) STR 41, had taken a view that a person deemed as provider of taxable service received by him cannot be treated as a provider of taxable service under Rule 2(r) and, therefore, such a person, has to pay Service Tax in cash and not by utilization of CENVAT Credit. Reliance is also placed on the decision of the Tribunal in the case of Panch Mahal Steel Ltd. 2008 (12) STR 447 (Tri-Ahmd), wherein the matter was referred to Larger Bench with regard to the question whether Service Tax on receipt of service can be paid by utilizing input service credit. Reliance is also placed on the decision of the Tribunal in the case of Alstom Projects India Ltd. 2008 (12) STR 23, where in the case of Goods Transport Agency Service, it was held that the same remains an input service even after deletion of explanation to Rule 2(p) and, therefore, utilization of credit for payment of Service Tax under the category of Goods Transport Agency Service is not permissible. Accordingly, it is submitted that the appellants were not entitled to use input service credit for payment of Service Tax on the output service of Insurance Auxiliary Service.
5. We have carefully considered the submissions made by both sides.
5.1 Prior to 19.4.2006, Rules 2(p), (q) and (r) read as follows: -
(p) "output service" means any taxable service provided by the provider of taxable service, to a customer, client, subscriber, policy holder or any other person, as the case may be, and the expressions provider and provided shall be construed accordingly.
Explanation For removal of doubt it is hereby clarified that if a person liable for paying Service Tax does not provide any taxable service or does not manufacture final products, the service for which he is liable to pay Service Tax shall be deemed to be the output service.
(q) person liable for paying Service Tax has the meaning as assigned to it in clause (d) of sub-rule(1) of rule 2 of the Service Tax Rules, 1994.
(r) provider of taxable service include a person liable for paying Service Tax. W.e.f. 19.4.2006, the provisions stood as follows: -
(p) "output service" means any taxable service provided by the provider of taxable service, to a customer, client, subscriber, policy holder or any other person, as the case may be, and the expressions provider and provided shall be construed accordingly.
(q) person liable for paying Service Tax has the meaning as assigned to it in clause (d) of sub-rule(1) of rule 2 of the Service Tax Rules, 1994.
(r) provider of taxable service includes a person liable for paying Service Tax. 5.2 Thus, the only change in the legal provision is the omission of Explanation under Rule 2(p). An Explanation only clarifies the position. By omission of the explanation, the meaning does not undergo any change. Therefore, both prior to 19.4.2006 as also w.e.f. 19.4.2006, the meaning of the expression output service, provider of taxable service and person liable for paying service tax remain the same. Since in the case of Insurance Auxiliary Service, the liability to pay Service Tax is on the service recipient in terms of Rule 2(1)(d)(iii) of the Service Tax Rules, 1994, the appellants are the providers of the output service as defined in law. Therefore, the appellants are entitled to avail CENVAT Credit on the input services used for providing the output service. Consequently, there is no bar in utilization of CENVAT Credit for payment of Service Tax on Insurance Auxiliary Service by the appellants. This is the settled legal position as can be seen from the decisions of the Hon'ble Punjab & Haryana High Court and Hon'ble Delhi High Court in the case of Nahar Industrial Enterprises Ltd., Nahar Spinning Mills and Auro Spinning Mills & Hero Honda Motors Ltd. (sjupra). The Hon'ble Delhi High Court rejected the contention of the Revenue that recipient of Goods Transport Agency service has to discharge Service Tax liability in cash as they were only recipient of Service and not the provider on the ground that a fiction has been created under Section 68(2) of the Finance Act, 1994 deeming the service recipient as a service provider and, therefore, such legal fiction has to be given full effect. Similarly, in the case of Kansara Modler Ltd. (supra) this Tribunal has held as follows: -
If we read Rule 2(q) of Cenvat Credit Rules with Rule 2(1)(d)(iv), we find that appellant is a person liable to Service Tax. Once appellant is person liable to service tax, he becomes provider of taxable service under Rule 2(r) and consequently becomes output service provider under Rule 2(p) of the Cenvat Credit Rules. Revenue is also relying on Rule 5 of Taxation of Services (Provided from Outside India and Received in India) Rules. We find that Rule 5 refers to availing of Cenvat credit and not to utilization of credit. We are therefore of the view that the finding of the Commissioner not treating the appellant as output service provider, is not correct and accordingly we set aside the impugned order and allow the appeal. 5.3 In view of the above decisions of the various High Courts, the decisions of the Tribunal relied upon by the Revenue become irrelevant. Accordingly, we hold that the appellants in present appeals were entitled to utilize CENVAT Credit of the Service Tax paid on various input services for discharge the Service Tax liability on the output service of Insurance Auxiliary Service.
5.4 We also note that there is no one to one correlation required between the input service and the output service under the CENVAT Credit Scheme and, therefore, the demands confirmed against the appellants for recovery of CENVAT Credit availed by them for discharging Service Tax liability on Insurance Auxiliary Service is clearly unsustainable and accordingly, we set aside the same.
5.5 The next question for consideration is whether for the period prior to 1.4.2008, the appellant could have utilized CENVAT Credit in excess of 20% of the Service Tax payable on the output service in view of the sub-rule (3) of Rule 6 of Cenvat Credit Rules. Sub-rule (5) of Rule 6 reads as follows: -
Notwithstanding anything contained in sub-rules (1), (2) and (3), credit of the whole of service tax paid on taxable service as specified in sub-clause (g), (p), (q), (r), (v), (w), (za), (zm), (zp), (zy), (zzd), (zzg), (zzh), (zzi), (zzk), (zzq) and (zzr) of clause (105) of section 65 of the Finance Act shall be allowed unless such service is used exclusively in or in relation to the manufacture of exempted goods or providing exempted services. Insurance Auxiliary Service falls under sub-clause (zy), which is specified in sub-rule (5) of Rule 6. That being the position, the cap of 20% fixed under Rule 6(3)(c) would not apply to Insurance Auxiliary Service at all and the entire Service Tax credit can be utilized for discharge of Service Tax.
6. In view of the above factual and legal position, the appeals filed by the appellants Tata AIG, Birla Sun Life and ICICI Prudential are allowed.
7. The Revenue has also filed an appeal in the order relating to ICICI Prudential and the same is rejected for the aforesaid reasons.
(Operative portion of the order pronounced in Court)
(Anil Choudhary) (P.R. Chandrasekharan)
Member (Judicial) Member (Technical)
Sinha
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