Custom, Excise & Service Tax Tribunal
Tata Aia Life Insurance Company Ltd vs Commissioner Of Service Tax-Vii Mumbai on 7 December, 2022
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
MUMBAI
WEST ZONAL BENCH
SERVICE TAX APPEAL NO: 85934 OF 2015
WITH
MISCELLANEOUS APPLICATION (EH) NO. 85241 OF 2021
(on behalf of appellant)
[Arising out of Order-in-Appeal No: 22/ST-VII/RS/2014 dated 20th January 2015
passed by the Commissioner of Service Tax - VII, Mumbai.]
Tata AIA Life Insurance Company Ltd
B-Wing, 9th Floor, I-Think Techno Campus,
Behind TCS, Pokhran Road No.2,
Eastern Express Highway, Thane West - 400607 ... Appellant
versus
Commissioner of Service Tax - VII
4th Floor, New Central Excise Building
115 M K Road, Churchgate, Mumbai - 400020 ...Respondent
APPEARANCE:
Shri S S Gupta, Chartered Accountant for the appellant Shri Nitin M Tagade, Joint Commissioner (AR) for the respondent CORAM:
HON'BLE MR C J MATHEW, MEMBER (TECHNICAL) HON'BLE MR AJAY SHARMA, MEMBER (JUDICIAL) FINAL ORDER NO: A / 86165 /2022 DATE OF HEARING: 25/08/2022 DATE OF DECISION: 07/12/2022 PER: C J MATHEW The miscellaneous application for 'out of turn' disposal of the ST/85934/2015 2 appeal has been rendered infructuous as the appeal itself has been listed for final hearing. The application is, accordingly, dismissed and we take up the appeal of M/s Tata AIA Life Insurance Company Ltd against order-in-appeal no. 22/ST-VII/RS/2014 dated 20th January 2015 of Commissioner of Service Tax - VII, Mumbai confirming demand of ₹ 13,40,01,111/- under section 73 of Finance Act, 1994, along with applicable interest under section 75 of Finance Act, 1994, and imposing penalties under section 77 and 78 of Finance Act, 1994. In the impugned order, 'surrender charge' of ₹ 1,30,09,81,663/-, retained by the appellant upon withdrawal of 'insured' from 'unit linked insurance policies (ULIP)' between 1st April 2009 and 30th June 2010 and thereafter between 1st May 2011 and 31st March 2012, has been held as liable to tax for rendering of 'taxable services' enumerated in section 65(105) of Finance Act, 1994.
2. According to Learned Chartered Accountant appearing for the appellant, the issue in dispute stands squarely covered by the decision of the Tribunal in Bharti-AXA Life Insurance Company Ltd v.
Commissioner of Service Tax, Mumbai [2021 (7) TMI 735- CESTAT MUMBAI]. Learned Authorized Representative reiterates the findings in the impugned order.
3. In the regime preceding 'negative list', tax policy on 'life insurance' had undergone several swings and, at different times, to ST/85934/2015 3 incorporate branched offerings of the insurance sector beyond the primary coverage of 'death' - most of these packages were intended to attract interest in the 'plain vanilla' offering with promise of returns even during the lifetime of the insured instead of being unidirectional stream of 'premium' for death coverage. The discharge of appropriate tax liability on the amount paid by the insured during the validity of cover is not in dispute. It is the non-discharge of tax on the amount retained by 'insurance service' providers, upon premature termination of some policies and involving payment of 'surrender value' to the insured after deducting the retained amount, that has been held to be additional consideration for the service rendered to the erstwhile recipient.
4. This issue had been agitated several times in the past before the Tribunal and, in Reliance Life Insurance Company Ltd v. Commissioner of Service Tax, Mumbai-II [2018-TIOL-1308-CESTAT-MUM], one of the early decisions, it was held to be in the nature of penalty or liquidated damages and hence not liable to levy under Finance Act, 1994 though this order was recalled subsequently while disposing off application for rectification of mistakes and the outcome thereafter remains unknown. This was also one of the issues for consideration by the Tribunal in Shriram Life Insurance Company v. Commissioner of Customs, Central Excise & Service Tax, Hyderabad-IV [2019 (2) TMI 868-CESTAT HYDERABAD] and in Max Life Insurance Co India Ltd ST/85934/2015 4 v. Commissioner of Central Excise & Service Tax (LTU), New Delhi [2019 (8) TMI 967 - CESTAT DELHI] in both of which there is reference to the order in re Reliance Life Insurance Company Ltd.
5. In re Bharti-AXA Life Insurance Company Ltd, the deficit as binding precedent, for having followed the decision in re Reliance Life Insurance Company Ltd, of the other two decisions of the Tribunal had been set forth and, to avoid controversy, a separate and independent finding based on the nature of the transaction was recorded to hold that 'surrender charge' was not taxable under section 66 of Finance Act, 1994.
6. On perusal of the decision in re Bharti-AXA Life Insurance Company Ltd, wherein it has been held that '9. It is common ground that upon an insured ceasing to comply with the obligation to pay the premium at stipulated intervals, the policy is deemed to be surrendered and the holder entitled to 'surrender value' representing the portion of the receipts that had been invested in the appropriate funds. There is also no dispute that the amount disbursed is lesser than the value of the funds on the date of surrender. The proposition of Learned Authorized Representative is that the amount so withheld is consideration for services rendered in connection with the fund during the period of investment. This, in our view, is far-fetched for the impugned service has already been subjected to levy under section 65 (105) (zzzzf) of Finance Act, 1994 till June 2010 and under section 65 (105) (zx) of Finance Act, 1994 thereafter; if that were not so, ST/85934/2015 5 the demand would not have been restricted only to the surrendered policies. Furthermore, as quid pro quo of service and consideration is essential for levy under Finance Act, 1994, the purported service rendered in the past would have to be subject to tax then notwithstanding the deferment of consideration till the surrender of policy. There would, thus, be no reason for surrender of the policy to be the trigger for discharge of duty liability with failure thereto empowering proceedings under section 73 of Finance Act, 1994.
10. In re Shriram Life Insurance Company, the Tribunal examined the nature of 'surrender charge' before concluding that '11...... In our view, the amounts entered as surrender/discontinuance charges in the appellant assessee's books of accounts are not consideration for any service rendered by them, but it represents the amount that is retained by insurer on the insured, exercises the right to receive the insurance money. The entirety of the transaction being that in actionable claim is outside the purview of the service tax and does not get covered under provisions of Finance Act, 1994.
12. While, it is true that the expression of 'Service' under Section 65B(44) only w.e.f. 01.07.2012, however, even for the period prior thereto the transaction in question is a actionable claim and not a service it has to be also noted that for the period prior to 01.07.2012, for an activity to be tax it had to qualify as a taxable service in one of the specified services. Since we are of the view, the transaction in question is not a service at all but the transaction in a actionable claim hence could not have been by any stretch of imagination covered under any of the specified taxable hence a service even for the period prior to 01.07.2012.....
13. We are unable to agree with the Adjudicating Authority that the amounts recorded as surrender/discontinuance charges are consideration for services rendered and surcharges are designed to recoup the expenses already incurred towards procurement administration of the policy and incidental thereto. The finding of the Adjudicating Authority on premise entirely are incorrect reading of the IRDA (treatment of discontinuance linked insurance policy) regulations, 2010 and overlooking the first principle and fundamental position that for an activity to be taxed as ST/85934/2015 6 service under provisions of Finance Act, 1994, the activity has to first qualify as a service. In our view, the regulations framed by IRDA with the aim of protecting of the insured by providing for a yardstick for computation for the surrender and the consequent discontinuance charges cannot be read and applied out the services rendered a transaction in an actionable claim, as a service, liable to be taxed under the provisions of Finance Act, 1994. '
11. In re MAX Life Insurance Co Limited, an identical dispute before the Tribunal also considered the nature of 'surrender charge' to be '32. Having considered the rival contentions, we are satisfied that surrender charges are permitted to be levied by IRDA, by way of penal charges towards recovery of initial expenses incurred by the insurer in marketing and distribution of the policy. As IRDA has fixed limits as to recovery, which can be made from time to time from the initial cost, accordingly, IRDA have permitted to recover surrender charges in case of pre-mature policy, as per the table given hereinabove, so as to enable the insurer to recoup the cost incurred by them. Further, we find that legislators have clarified by substituting clause (ii) Explanation to Section 65 (105) (zzzzf), clarified that service tax is levied only on the management fee or charges which are either fixed by IRDA or actually levied by the insurer, whichever is higher by substituting the explanation w.e.f . 01.07.2010....'
12. In view of the conclusions in these decisions combined with our own observation supra, we find ourselves unable to be persuaded that a contrary view may have acceptance; more so, as Learned Authorized Representative has not been able to enlighten us with statute and precedent that may have been of assistance. His arguments, insofar as the decisions are concerned, is limited to these having followed the order of the Tribunal, now recalled, in re Reliance Life Insurance Company Ltd and that the first of the two cited decisions, pending before the Hon'ble Supreme Court on appeal of Revenue, was in jeopardy as held by the judgement of the Hon'ble Supreme Court in Union of India v. West Coast Paper Mills Ltd [2004 (164) ELT 375 (SC)] as was the ST/85934/2015 7 decision of the Tribunal in re Reliance Life Insurance Company Limited in appeal before the Hon'ble High Court of Bombay.
13. We find that the recall order was actuated by the merit of the plea in rectification proceedings that taxability under one of the enumerations in section 65(105) of Finance Act, 1944 appeared to have been considered in the decision of the Tribunal that ruled in favour of the assessee. Rectification that calls for recall remains as under disposal and attains consummation with substitution of the recalled order. It would be presumption for Learned Authorised Representative to conceive that such recall must, inevitably, lead to a contrary opinion on the part of the Tribunal. Indeed, it could well be speculated that, owing to the challenge before the Hon'ble High Court of Bombay, the recall order is itself in jeopardy. In any case, it can be seen from the two cited decisions that the conclusions therein have been arrived at independently of the recalled order and on its own reasoning. Mere reference to the recalled decision does not, ipso facto, render the finding to be bereft of value as precedent. We would not be straying from the path of judicial consistency by following the two decisions arising from identical disputes. We do so on the bedrock of our obligation to judicial discipline and in circumstances that do not hanker for an alternative finding.' we take note that the issue in dispute has, thus, attained finality and is on the same set of facts as the dispute before us.
7. From the analysis of the scheme of voluntary withdrawal from coverage under 'unit linked insurance policy (ULIP)', it is seen that ST/85934/2015 8 the transaction has been contrived by the adjudicating authority as an issue under section 67 of Finance Act, 1994. The money transmitted to the appellant by the insured was, indisputably, subjected to tax in accordance with enumeration in section 65(105) of Finance Act, 1994 and it is, admittedly, beyond the scope of taxing statute to subject past transactions to levy that may have been introduced subsequently which, in any case, is not the submission of Revenue in the present dispute and nor in re Bharti-AXA Life Insurance Company Ltd. It is, unabashedly, about treating the return of the consideration, once already considered for taxability, upon discontinuation of contract of service even though such retention does not alter either that reality or that no additional consideration has passed from recipient to appellant while the provision of service subsisted. The 'premium' paid in the past by the recipient was in pursuance of contract providing for amortized payments towards the bundled service - each of which was assessed to tax on receipt by the appellant - over the contract period and obliging of repayment of the amounts, not attributable to service already rendered by coverage and investment, upon termination of contract of service may be treated as consideration only in a bizarre, and perverse, context that is out of touch with the reality of transactions in the insurance sector. This was the finding in re Bharti-
AXA Life Insurance Company Ltd which, de hors the decisions in earlier rulings, led to the outcome therein. The taint, if any, that the ST/85934/2015 9 other decisions may have vis-à-vis the recall of the decision in re Reliance Life Insurance Company Ltd has no bearing on the binding precedent of this decision placed before us on behalf of the appellant.
8. In view of the said decision holding that the 'surrender value' so retained had already been subjected to tax as 'premium' for rendering of taxable service and not liable to be taxed again for that very reason upon ceasing to be provision service, we find no reason to take a different stand. Accordingly, appeal is allowed by setting aside the impugned order.
(Order pronounced in the open court on 07/12/2022) (AJAY SHARMA) (C J MATHEW) Member (Judicial) Member (Technical) */as