Custom, Excise & Service Tax Tribunal
M/S Hdfc Life Insurance Co. Ltd vs Commissioner Of Service Tax, Mumbai-I on 24 June, 2013
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. I Application No. ST/S/879/12 in Appeal No. ST/252/12 (Arising out of Order-in-Original No. 17/ST/SB/2011-12 dated 30.01.2012 passed by the Commissioner of Service Tax, Mumbai-I). 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 HDFC Life Insurance Co. Ltd. Appellant Vs. Commissioner of Service Tax, Mumbai-I Respondent Appearance: Shri V. Sridharan, Sr. Advocate with Shri S.S. Gupta, C.A. for Appellant Shri Shobha Ram, Commissioner (AR) for Respondent CORAM: SHRI P.R. CHANDRASEKHARAN, MEMBER (TECHNICAL) SHRI ANIL CHOUDHARY, MEMBER (JUDICIAL) Date of Hearing: 24.06.2013 Date of Decision: 24.06.2013 ORDER NO. Per: P.R. Chandrasekharan
The appeal and stay application are directed against Order-in-Original No. 17/ST/SB/2011-12 dated 30.01.2012 passed by the Commissioner of Service Tax, Mumbai-I.
2. The appellant M/s HDFC Life Insurance Co. Ltd., Mumbai was registered with the Service Tax department under Insurance Auxiliary Service, Life Insurance Service, Renting of Immovable Property and Business Support Services. Audit of the records of the appellant company revealed that during the financial year 2004-05 to 2008-09, the appellant had not included income earned in the nature of (a) Recovery of Agency Processing Fees, (b) Lapse Charges, (c) Back Dating Alteration Charges, (d) Recoveries on Look In and (e) Policy Reinstatement Fees, in the gross taxable value. Accordingly, a show-cause notice dated 16.10.2009 was issued demanding Service Tax of Rs.18,70,50,875/- on the gross amount of Rs.1,53,91,14,610/- recovered by the appellant as additional charges for services rendered for the period 2004-05 to 2008-09. The notice also proposed recovery of interest on Service Tax demanded and also penalties under the provisions of Finance Act, 1994. Two more show-cause notices dated 29.9.2010 and 17.9.2011 were issued for the period 2009-10 and 2010-11 on similar grounds demanding Service Tax of Rs.54,53,842/- and Rs.23,85,10,180/-. The appellant contested the levy of Service Tax on the ground that during the impugned period, the levy was only on the risk premium in respect of the insurance policies and not on other charges. The notices were adjudicated and Service Tax demands were confirmed along with interest and penalties and the amount of Rs.7,05,83,534/- paid by the appellant on lapse charges and reinstatement fees for the period from 16.5.2008 to 31.3.2009 and Rs.5,34,25,651/- for the period 2010-2011 were appropriated. Aggrieved of the same, the appellant is before us.
3. The learned Counsel for the appellant submits that as per Section 65(105)(zx) of the Finance Act, 1994, the taxable service means a service rendered to a policy holder or any person, by an insurer, including re-insurer carrying on life insurance business in relation to the risk cover in life insurance. Only in Finance Act, 2011, the taxable service was redefined as the service rendered to a policy holder or any person, by an insurer, including re-insurer carrying on life insurance business and this amendment came to force w.e.f. 1.5.2011. Therefore, since the taxable service covered only risk cover, Service Tax is liable to be paid only on risk premium and not on other charges collected. The learned Counsel also relies on the clarification issued by the Board from time to time. He also relies on the Finance Ministers speech made on 1st July, 2004 when Service Tax was levied on life insurance business. In para 49 of the speech, the Finance Minister had clearly stated that Service Tax is being imposed on life insurance service to the extent of risk premium. He further contends that the Board had clarified the position vide Circular No. B2/8/2004-TRU dated 10.9.2004, wherein it was stated as follows: -
21. Life Insurance services:
21.1 In Budget 2004, it has been decided to levy service tax on that portion of the service which pertains to risk element. The levy would not be applicable to such premium of the existing policies, which were paid before the new levy comes into force.
21.2 It has been provided that in the case of composite policies (risk plus saving) life insurer can at his option pay 1% of the total premium towards discharge of service tax liability. This shall not be applicable in case an insurance policy is towards risk only or where the premium gives details of risk premium and other premium separately. (refer notification No. 11/04-ST, dated 10.09.2004). However, those insurance companies who want to pay tax on risk premium as certified by the Appointed Actuary on a company basis can do so. The insurance companies may be allowed to pay monthly service tax provisionally, based on estimates. The monthly estimated (i.e. provisional) duty payment for the entire company would be based on a provisional certificate issued by the Appointed Actuary, subject to final certification at the end of the year. At the end of the financial year, when the sum at risk is calculated and certified by the Actuary, the liabilities would be finalized and the companies would pay the balance tax or adjust the excess tax paid. Similarly, in 2008 vide Circular No. 334/1/2008-TRU dated 29.2.2008 when Unit Linked Insurance Plan (ULIP) was brought under the tax net, the Board had further clarified as follows: -
4.2 INVESTMENT MANAGEMENT SERVICE PROVIDED UNDER ULIP:
4.2.1 Unit-Linked Insurance Plan (ULIP) is an insurance product offered by life insurance companies combining both risk cover and benefits of investment. ULIP being a combination product, premium amount paid under ULIP consists of risk premium and investment component. Risk premium may be for life or health or any other authorized purposes. Unlike in the case of traditional life insurance policies, policyholder of ULIP can choose portfolios for investment with different investment aims such as low, medium and high-risk category or combination 6 thereof. ULIP enables the policyholder to take part in the scheme collectively and becoming the beneficiary like mutual funds. The investment risk is borne by the ULIP policyholder.
4.2.2 The fund available for investment is known as segregated fund. Insurance companies charge from the policyholder, initially and periodically, various charges, in addition to risk premium, relating to management of the segregated fund under various names, such as, premium allocation charges, fund management fees, fund switching charges, surrender charges etc. These are consideration for providing services relating to investment management.
4.2.3 The proposed service enables levy of service tax on services provided in relation to management of the investment portion of ULIP premium also known as segregated fund. Consideration for management of the segregated fund shall be computed as the difference between the total premium paid and the sum of premium for risk cover plus amount of segregated fund. Service tax is liable to be paid as and when an amount is charged from the policyholder.
Illustration
(a) Total ULIP premium : Rs.100
(b) Premium for risk cover : Rs.10
(c) Segregated fund for investment : Rs.85
(d) Gross amount charged for the : Rs.5 [100 (10 + management of segregated fund 85)]
(e) Service tax @ 12% : Re 0.60 [12% of 5] 4.2.4 It may be noted that in the case of ULIP, risk premium attributable to risk cover is taxed under Insurance service and management of investment is taxed under the proposed taxable service. Again in 2011, when the scope of the Service Tax was expanded, the Board vide Circular No. 334/3/2011-TRU dated 28.2.2011 had further clarified as follows: -
3.2 Life Insurance Service [section 65 (105) (zx)]: The scope of this service is proposed to be expanded to cover all services, including in relation to management of investments. From these clarifications, it is evident that the levy of Service Tax on life insurance prior to 1.5.2011 covered only the risk cover provided and, therefore, the Service Tax was payable only on the risk premium.
3.1 As regards the various charges collected by them, the agency processing fees related to amount collected towards stamping charges i.e. for the agency agreement entered into with the agent and this has no relationship with the risk premium received by the appellant.
3.2 As regards lapse charges, when for a unit linked policy, premiums are not paid for the first three years, then such a policy is treated as a lapsed policy and charges are levied to the policy holder, and they are termed as lapse charges. It is evident from the description that it is in the nature of penalty for the default made by the policy holder in payment of premium. In order to revive the policy, extra charges are required to be paid in addition to the premium. Therefore, the said charges also do not form part of the taxable value.
3.3 As regards backdating alteration charges, it is submitted that when a conventional policy is required to be backdated, extra charges are collected for backdating, which are called back dating charges and this amount is paid for giving retrospective effect to the policy and such grant of retrospective effect had no nexus with the risk premium on which Service Tax in many cases is paid.
3.4 With regard to look-in charges, this pertains to ULIP, which is looked in and the appellant recovered charges like stamp duty, medical fees, unit price adjustment etc. and the same also has no nexus with the risk element of the premium. Similarly, policy reinstatement charges are collected when the policy holder is given an option to reinstate/revive the policy. It is also submitted that these charges are collected as per the guidelines given by the Insurance Regulation and Development Authority (IRDA).
3.5 Accordingly, it is contended that the appellant is not liable to pay Service Tax on the various charges as discussed above for the period prior to 1.5.2011. Accordingly, the learned Counsel for the appellant pleads for grant of stay.
4. The learned Commissioner (AR) appearing for the Revenue, on the other hand, reiterates the findings of the adjudicating authority and prays that since the amount involved is huge, the appellant be put to terms.
5. We have carefully considered the submissions made by both the sides.
5.1 When the Service Tax levy was imposed on life insurance policy, the Honble Finance Minister in his budget-speech before the Parliament had categorically stated that he is imposing Service Tax on life insurance service to the extent of risk premium. The instructions issued by the CBE&C at the time of imposition of Service Tax on life insurance service also made it clear that Service Tax is leviable on that portion of the service, which pertains to the risk element and in the case of composite policy i.e. risk + saving, the taxes are applicable only on the risk premium and not on the premium for saving. Subsequently, in 2008 also at the time of introduction of Investment Management Service provided under ULIP, it was clarified that consideration for management of the segregated fund can be computed as the difference between the total premium and the sum of premium for risk cover plus amount of segregated fund. It was also pointed out that in the case of ULIP, risk premium attributable to risk cover is taxed under Insurance Service and management of investment is taxed under the new levy of Investment Management Service.
5.2 When the scope of the levy of Service Tax was extended in the Budget, 2011, it was further clarified that the scope of the levy is being extended to cover all services including in relation to management of investment. Thus, from the budget-speech of the Honble Finance Minister and the circulars issued by the Board at various points of time, what emerges so far as the life insurance is concerned is that prior to 1.5.2011 the Service Tax was leviable on the risk premium and nothing else. If that be so, we do not understand how the various charges collected by the insurer in addition to the risk premium can be taxed under Life Insurance Service.
5.3 The various contentions raised by the appellant have not been examined in detail by the adjudicating authority, who has simply made a sweeping observation that the agency processing fees, lapse charges, backdating alteration charges and policy reinstatement charges were recovered in relation to the life insurance service provided by the noticee and these charges are linked to the risk cover of the policy. This sweeping observation of the adjudicating authority is without examining the matter in detail and without taking into account the IRDA guidelines on the subject and hence cannot be sustained. It is a well settled position that due weightage should be given to the clarifications given by the administrative department, when a new levy was imposed as observed by the Hon'ble Apex Court in the case of K P Verghese Vs. Income Tax Officer - 1982 SCR 629 and Commissioner of Central Excise, Guntur Vs. Andhra Sugar Ltd. 1988 (38) ELT 564 (SC).
5.4 The adjudicating authority in our view has not examined the matter in proper perspective taking into account the instructions issued by the Board from time to time. Accordingly, we are of the considered view that the matter has to go back to the adjudicating authority for fresh consideration in the light of the observation made by us and pass a speaking order after considering all the submissions made by the appellant by giving a clear finding on each and every contention raised by the appellant.
6. Thus, the appeal is allowed by remand.
7. Since the matter is being remanded, we grant waiver from pre-deposit of the dues adjudged in the impugned order. Thus, the stay application is also disposed of.
(Dictated and pronounced in Court)
(Anil Choudhary) (P.R. Chandrasekharan)
Member (Judicial) Member (Technical)
Sinha
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