Custom, Excise & Service Tax Tribunal
Life Insurance Corporation Of India vs Cce Mumbai - Ii on 11 September, 2020
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
MUMBAI
WEST ZONAL BENCH
SERVICE TAX APPEAL NO: 85986 OF 2015
[Arising out of Order-in-Original No: 2/ST/RN/Commr/M-II/14-15 dated 30th
January 2015 passed by the Commissioner of Central Excise, Mumbai - II.]
Life Insurance Corporation of India
Yogekshema, Jeevan Bima Marg
Nariman Point, Mumbai - 400 021 ... Appellant
versus
Commissioner of Central Excise
Mumbai - II
9th Floor, Piramal Chambers, Jijibhoy Lane, Lalbaug
Mumbai - 400 012 ...Respondent
APPEARANCE:
Shri S S Gupta, Chartered Accountant for the appellant Shri M Suresh, Joint Commissioner (AR) for the respondent CORAM:
HON'BLE MR C J MATHEW, MEMBER (TECHNICAL) HON'BLE DR SUVENDU KUMAR PATI, MEMBER (JUDICIAL) FINAL ORDER NO: A/ 85802 / 2020 DATE OF HEARING: 06/11/2019 DATE OF DECISION: 11/09/2020 PER: C J MATHEW This appeal of Life Insurance Corporation of India disputes the confirmation of tax liability of ₹ 11,68,65,080 held to have arisen from ST/85986/2015 2 operation of rule 6 (3) of CENVAT Credit Rules, 2004 owing to non- reversal of credit availed on 'input services' that was attributable, mathematically, to rendering of services by the appellant on which tax liability was not required to be discharged. In addition, the charging of appropriate interest under section 75 of Finance Act, 1994 and imposition of penalty of like amount under section 78 of Finance Act, 1994, in order-in-original no. 2/ST/RN/COMMR/M-II/14-15 dated 30th January 2015 of Commissioner of Central Excise, Mumbai-II while dropping demand of ₹ 16,82,84,29,596 that had been proposed in the show cause notice issued to the appellant are also under challenge.
2. Learned Chartered Accountant, appearing for the appellant, submits that the proceedings culminating in the impugned order were initiated in connection with two of their products, viz., 'endowment policy' and 'unit linked insurance plan (ULIP)' policy, in which, for some part of the disputed period between 2008-09 to 2010-11, the premium paid by the holders were not covered in full by the definition of the taxable service in section 65(105)(zx) of Finance Act, 1994 . Till the amendment of 1st May 2011, when tax was levied on services provided, or agreed to be provided '(zx) to a policyholder or any other person, by an insurer, including re-insurer carrying on life insurance business' the liability was restricted to services provided, or agreed to be provided, ST/85986/2015 3 '(zx) 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' owing to which a formula for segregation of the consideration attributable to 'risk cover in life insurance' was resorted to for discharging tax liability till 31st March 2011. For policies under the 'unit linked investment plan (ULIP)', in which a portion of the premium paid by the policyholder was assigned for generating returns by investment in pre-determined portfolios for returns, that part of the consideration for service provided, or agreed to be provided, '(zzzzf) to a policyholder, by an insurer carrying on life insurance business, in relation to management of investment, under unit linked insurance business, commonly known as Unit Linked Insurance Plan (ULIP) scheme' was, by incorporation with effect from 16th May 2008 in section 65 (105) of Finance Act, 1994, rendered liable to tax. It was in these circumstances that the service tax authorities contended that, for the entire period of dispute, the portion of the premium, other than towards 'risk cover', paid by holders of 'endowment policy' and the portion of the premium paid by holders of 'unit linked insurance policy (ULIP)' other than towards 'risk cover between 1st April 2008 and 15th May 2008, was consideration for 'exempted services' and that credit of tax paid on several 'input services' utilized in common for rendering of both taxable and exempted services was required to be adjusted accordingly.
ST/85986/2015 4
3. Learned Chartered Accountant contends that the recovery does not have the authority of law as 'life insurance', a business that is regulated by statute, is a single contract between the insurer and the policy holder for a single service and the directions of Central Board of Excise & Customs (CBEC), as it then was, in DOF no. 334/1/2008- TRU dated 29th February 2008 for taxing the investment component cannot have the effect of segregating the premium as consideration for two services but is merely a contrivance for the purposes of collection of taxes. It was also contended that rule 2 (e) of CENVAT Credit Rules, 2004 defines 'exempted service' to be such as are entirely free from tax and not applicable to premium paid by the policy holder which is taxed. Reliance is placed on the decision of the Tribunal Ambejogai Co-op Bank Ltd v. [2016 (41) STR 450 (Tri-Mumbai)] in support of this plea. Furthermore, he contends that the tax on 'management of segregated fund' is the consequence of a legal fiction which does not acknowledge a new service and, even if it did, cannot be construed as being in existence as 'exempted service' before 15th May 2008 merely because tax was not liable to be paid. It is also argued that, insofar as 'endowment policies' are concerned, the entire premium amount is vested in the appellant as they have committed themselves to be obliged to make payment of amount on closing of the policy which fails the test of being consideration for a service.
4. Learned Chartered Accountant submits that the issue in dispute ST/85986/2015 5 has already been decided by the Tribunal in Shriram Life Insurance Company v. Commissioner of Customs, Central Excise & Service Tax, Hyderabad [2019 (2) TMI 868-CESTAT Hyderabad], in Max New York Life Insurance Co Ltd v. Commissioner of Central Excise & Service Tax (LTU), Delhi [2018 (2) TMI 1262-CESTAT New Delhi] and in Sahara India Life Insurance Co Ltd v. Commissioner of Central Excise & Service Tax, Lucknow [final order no. 70810/2018 dated 22 nd February 2018 disposing of appeal no. ST/51974/2015].
5. Learned Authorized Representative informed that the ineligibility to avail CENVAT Credit pertains to the period when the taxable service was limited to 'risk cover' in both 'endowment policies' and 'unit linked insurance plan (ULIP) policies' and that the disallowances are in conformity with the restrictions in CENVAT Credit Rules, 2004. Highlighting the significance of the discussions in the impugned order, he urged us to dismiss the appeal.
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 ST/85986/2015 6 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] 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], 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 65 (105) (zx) of Finance Act, 1994 is a bundle from which one has been isolated for tax till 1 st 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.
ST/85986/2015 7
7. The scope of 'exempted services', as defined in the rule 2 (e) of CENVAT Credit Rules, 2004, had been examined by the Tribunal, while dealing with another dispute pursuant to the very same expansion of this taxable service, to hold that '15. For further elucidation, it would not be out of place to peruse the inclusive component of the definition of 'exempted service' which pertains to services that are not leviable to tax under section 66 of Finance Act, 1994. The most proximate of services that are subject to the levy are the entries in section 65(105) of Finance Act, 1994 as stated therein and it is only those which are exempted that can be held to be covered by the said definition which, having been described as the principal component, does not require restatement. It is obvious the legislature had not intended superfluity in incorporating the services that are not leviable to tax in the definition. There is no definition of 'service' in Finance Act, 1994 and, therefore, forecloses an ascription that is non-existent. Consideration, though essential to determination of value of taxable service, is not the sole indicator of existence of a service. It fell upon the Hon'ble Supreme Court, in All India Federation of Tax Practitioners v. Union of India [2007 8 TMI 1 SC], to unravel the appropriate description of service and, thereafter, subject the taxability thereof to constitutional validity. That an amount from the consideration was added to the taxable component will not suffice as the epiphany of a new taxable event.
16. At the same time, the presumption against superfluity in interpretation of statutes binds us to search for, and determine, the nature of inclusion. 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 ST/85986/2015 8 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, unacknowledgeable 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.' 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 ST/85986/2015 9 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.
8. In re Shriram Life Insurance Company, on appeal of Revenue against the dropping of proceedings for recovery of CENVAT credit, it has been held by the Tribunal that '18.....we find that the Adjudicating Authority has concluded that services rendered by the appellant assessee are only taxable services in as much, no taxable service rendered by them is exempt from whole of tax leviable on them not was had rendering non taxable services, he has also held that merely because of service tax was payable on a part of a value on taxable service, it could not be contended by the Revenue that the remaining part of the value on which tax was not being paid was an exempt service.
21...... The mere fact that service tax was payable on the part of the value of these services subject to tax, that part of the value on which tax being levied cannot be said to be an exempt service....'
9. Likewise, in re Max New York Life Insurance Co Ltd, the Tribunal was of the view that '8....... We note that in the present arrangement the appellant ST/85986/2015 10 assessee is providing Service of ULIP for the insured. For such service, the tax is paid. There is no separate identifiable service attributable to 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 date. No other service, least of all exempted service, could be identified in such arrangement....'
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, 2004. The impugned order, thus, lacks authority of law and is set aside to allow the appeal.
(Order pronounced in the open court on 11/09/2020) (Dr. Suvendu Kumar Pati) (C J Mathew) Member (Judicial) Member (Technical) */as