Custom, Excise & Service Tax Tribunal
Shriram Life Insurance Company Ltd vs Commissioner Of Central Excise, ... on 15 May, 2014
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL SOUTH ZONAL BENCH BANGALORE Final Order. 20837 / 2014 Application(s) Involved: ST/Stay/21103/2014 in ST/20989/2014-DB Appeal(s) Involved: ST/20989/2014-DB [Arising out of HYD-EXCUS-001-COM-029-13-14 dated 24/12/2013 passed by Commissioner of Central Excise and Service Tax , HYDERABAD-I ] Shriram Life Insurance Company Ltd Plot No.31 & 32, 5th Floor, Ramky Selenium, Beside Andhra Bank Training Centre, Financial District, Gachibowli HYDERABAD - 500032 AP Appellant(s) Versus Commissioner of Central Excise, Customs and Service Tax Hyderabad-i KENDRIYA SHULK BHAVAN, L.B STADIUM ROAD, BASHEERBAGH, HYDERABAD, - 500004 ANDHRA PRADESH Respondent(s)
Appearance:
Shri G. Shivadass, Advocate LAKSHMI KUMARAN & SRIDHARAN WORLD TRADE CENTRE NO.404-406, 4TH FLOOR, SOUTH WING BRIGADE GATEWAY CAMPUS NO.26/1, DR. RAJKUMAR ROAD, BANGALORE - 560 055 KARNATAKA For the Appellant Shri Ganesh Haavanur, Addl. Commissioner(AR) For the Respondent CORAM:
HON'BLE SHRI B.S.V.MURTHY, TECHNICAL MEMBER HON'BLE SHRI S.K. MOHANTY, JUDICIAL MEMBER Dates of Hearing: 09/05/2014 & 15/05/2014 Date of Decision: 15/05/2014 Order Per : B.S.V.MURTHY The appellant is engaged in providing life insurance services and is licensed by Insurance Regulatory Development Authority of India (IRDA). The appellants provide two major types of insurance plans viz. a. the traditional plan and b. Unit Linked Insurance Plans (ULIP). In traditional or conventional plans, the insurer offers guaranteed maturity proceeds and declared bonuses. In this type of insurance policies, the insurer usually invests in low risk return options. ULIP allow policy holders to direct part of their premiums into investments in different types of funds and the risk of investment is borne by the policyholder. In ULIPs a part of the investment goes towards providing life cover and the residual of the ULIP is invested in a fund which in turn invests in stocks or bonds.
2. The premium collected from the policy holders contain the following components:-
I) Traditional policies:
1. Risk and rider premium relates to the risk cover.
2. Traditional non-participating premium relates to risk cover.
3. Combi premium relates to risk cover. This premium is collected in policies which offer risk and health cover (combo policies).
4. Group premium relates to risk cover in group policies.
5. Investment or savings savings or investment component.
II) ULIPs
1. Premium allocation charges These charges are collected towards initial expenses in procuring the policy and also on receipt of renewal premium.
2. Policy administration charges Charges for the management of paperwork and other formalities.
3. Mortality charges relates to risk cover.
4. Rider premium relates to risk cover.
5. Surrender charges collected when the policy holder withdraws the policy before the maturity.
6. Fund management charges amount charged for the management of the funds.
7. Fund value amount earmarked for actual savings or investment component.
3. In order to appreciate the issues involved in the present proceedings, it would be appropriate and necessary to briefly detail the various phases of levy of service tax on the life insurance business. Initially only risk cover in life insurance was brought under service tax net w.e.f. 01/10/2006. W.e.f. 16/05/2008 to 30/06/2010, imposition of service tax on the services in relation to management of investment under ULIP scheme was also introduced. It was provided that gross amount is the total premium collected the aggregate of amount attributable to the risk cover and amounts segregated for actual investment. W.e.f. 01/07/2010 to 30/04/2011, act provided for payment of service tax only on the maximum amount prescribed by IRDA as fund management charges or the actual amount charged for the said purpose by the insurer whichever is higher. From 01/05/2011 onwards service tax became payable by an insurer carrying of life insurance business and the phrase in relation to risk cover was omitted resulting in a situation wherein tax became liable to be paid by an insurer carrying on life insurance business.
4. The amount demanded as per the show-cause notice and upheld in the OIO in respect of life insurance is Rs.44,04,97,784/-, in respect of management of ULIP service is Rs.29,36,05,990/- and insurance auxiliary service is Rs.23,35,59,579/-. Out of this, service tax of Rs.1,80,20,974/- has been demanded on the ground that surrender charges in respect of policies surrendered prematurely recovered by the appellants is liable to service tax and an amount of Rs.1,68,79,381/- has been demanded on the amount collected by the appellants as policy administration charges. Besides the above, an amount of Rs.3,49,00,078/- paid by the appellants under life insurance category but not due under that category but due under the category of management of ULIP service has been demanded from the appellants ignoring the fact that there was an excess payment under life insurance service. The Commissioner has directed the Assistant Commissioner concerned to verify this aspect and so far this has not been verified and determined. Besides demanding of service tax with interest, penalties also have been imposed. In addition to the above, an amount of Rs.36,10,658/- has been demanded on the ground that the credit was wrongly utilised during the period from October 2006 to March 2008 under Rule 6(3) of CENVAT Credit Rules, 2004. Besides an amount of Rs.3, 98, 60,019/ at 8% / 6% on the value of exempted services for the period from 01/04/2008 to 15/05/2008 and from 01/07/2010 to 31/03/2011 has been confirmed on the ground that in the absence of maintenance of separate accounts, the appellant is liable to pay 8% / 6% on the exempted services.
5. Even though the matter was heard on 2 days and in considerable detail, in view of the fact that we are compelled to remand the matter to the original adjudicating authority because of the discussions hereunder, we do not propose to discuss all the details and detailed submissions made by the learned counsel at this stage. Accordingly, instead of considering only the application for waiver of pre-deposit and stay against recovery, we propose to decide the appeal itself finally at this stage. Accordingly, the requirement of pre-deposit is waived and appeal is taken up for final disposal.
6. The learned counsel submitted that surrender charges recovered from the customers are in the nature of penal levy to prevent policy holders from surrendering policy prematurely. He relies on the Circular No.967/7/2007 dt. 23/08/2007 issued by the Board. In this circular, the Board clarified that entry loads and exit loads are charged by a mutual fund are not for the purpose of management of assets. Therefore such amounts are not to be treated as consideration received by an asset management company and hence not liable to service tax under Banking and Other Financial Service. He also relies on the Circular No.121/2/2010-ST dt. 26/04/2010 wherein the Board had clarified that the charges levied for retaining the container beyond the free period is neither service provided on behalf of the client nor an infrastructure support.
7. Further he also submitted that entire amount of surrender charges are deducted from the investment portion of the ULIP only and not from the risk portion. Since only fund management charges was leviable to service tax and the surrender charge collected is not for providing any service, he submits that demand for service tax cannot be sustained. Further he also submitted that the surrender charge which is levied and deducted while repaying the investment portion on surrendering of the policy would have already suffered the service tax and therefore it would amount to levy of service tax twice.
8. As regards the policy administration charges, he submits that this has nothing to do either with the investment portion or with the risk covered. IRDA has clearly clarified that policy administration charges can be levied in addition to fund management charges. Therefore from the IRDA guidelines which is the statutory and regulatory authority, policy administration charges cannot be considered as fund management charge or risk cover related levy. Therefore he submits that in respect of both these charges no tax could have been levied. Even though very detailed submissions were made by the appellants, he submits that the Commissioner has dealt with this issue in paragraph 17.1 to 17.4. According to him, the Commissioner has not dealt with the submissions made by them. For better understanding, we reproduce the paragraphs hereunder:-
17.1. As seen from the show cause notice, M/s SLICL have been put on notice demanding Service Tax of Rs.29,36,05,990/- under "Management of Investment under ULIP service" leviable for period from 16.05.2008 to 31.03.2012 (as per the Annexure to the show cause notice) as against the period of 01.10.2006 to 31.03.2012 mentioned in para 14(i) of the notice dated 22.06.2012. In their written reply to the show cause notice and additional replies submitted, the noticee have discussed at length about the non-leviability of Service Tax on the components of premium such as policy administration charges, surrender charges etc. under Life Insurance Services. Since the scope of the instant demand notice is restricted to the demand under Management of Investment under ULIP service and given the fact that the adjudicating authority cannot traverse beyond the demand notice, the elaborate submissions of the noticee on the issue of levy of Service Tax on Life Insurance Service are of no avail.
17.2 Coming to the demand of Service Tax under "Management of Investment under ULIP service", which came into being w.e.f. 16.05.2008 under Section 65(105)(zzzzf) of the Finance Act, 1994, the noticee contended that during the period 16.05.2008 to 30.06.2010, they were, paying Service Tax on all the components of premium except on the amount segregated for investment and that there is no dispute on the same. It is further contended by the noticee that with effect from 01.07.2010, only the maximum amount fixed by Insurance Regulatory Development Authority as fund management charges or the actual amount charged by the insurer for the said purpose, whichever is higher, was, deemed to be the gross amount charged for providing the service of management of fund under ULIP and that they discharged the Service Tax accordingly. As seen from the replies to the show cause notice, the noticee are not disputing the levy of Service Tax per se but only on the quantification of the demand, wherein the following submissions are made:-
a. an amount of Rs. 3,49,00,978/- paid excess under Life Insurance Service needs to be adjusted against the demand in respect of "Management of Investment under ULIP service".
b. an amount of Rs.2,59,92,224/- paid by them was not taken into account in the show cause notice resulting in wrong quantification of demand.
c. balance amount of Rs.13,897/- payable on account .of clerical mistake stands paid with appropriate interest. -
17.3. With respect to the submission at (a) above, since the demand of Service Tax under Life Insurance Service is not a matter of dispute in the present proceedings for the reasons elaborated supra, the request of the noticee cannot be acceded to. On the submission at (b) above, the noticee may approach the jurisdictional Service Tax Deputy/ Assistant Commissioner who may cause necessary verification and if found in order may adjust the tax paid against the demand of Service Tax.
17.4. Since the demand of Service Tax per se under the "Management of Investment under ULIP service" is neither in dispute nor disputed, the demand of Service Tax, as proposed in the show cause notice, is liable for payment by the noticee subject to adjustment of Rs.23,26,98,891/- already paid by them under various accounting heads of Service Tax during 01.10.2006 to 31.03.2012 and the net amount of Rs.6,09,07,099/- only is liable for confirmation along with applicable interest.
9. It can be seen from the above that Commissioner has observed that there is no dispute for demand on service tax under the management of investment under ULIP service and in paragraph 17.4 reproduced above, on this ground he has confirmed the demands. Whereas the appellant has clearly contested the levy as discussed and the very same points were submitted before the Commissioner also. In our opinion, more detailed consideration of the issues was required by the Commissioner and there is no discussion as to whether the claim made by the learned counsel before us and made before him about the nature of surrender charges and policy administration charges, IRDA and Boards circulars relating to these issues in the nature have not at all been considered and discussed. In the result, the submissions made by the learned counsel and the correctness or otherwise of these submissions and possible contrary views are not at all available for our benefit.
10. In addition to the above, it is also seen that the claim of the appellants that they had made excess payments under life insurance service and this could be adjusted against the demand for ULIP service and this amounts to more than Rs.3.49 crores has not at all been dealt with but has been rejected. If service tax has been paid under a wrong category of service by mistake during a relevant period, the question of collection of service tax again on the service on which service tax has been paid but under different category of service cannot be demanded. In our considered view, if this claim is correct and this requires to be adjusted. However, once again we are handicapped by the fact that whether this claim is correct or not has not been dealt with by the Commissioner at all and in spite of making efforts during the course of hearing, we are not in a position to categorically say that there was an excess payment under life insurance service.
11. We are also handicapped in respect of the fact that appellant has submitted the details to the Assistant Commissioner for verification, he did not undertake the verification and therefore the claim of the appellant that they had paid an amount of Rs.2.59 crores also could not be verified. We hope that before the issue adjudicated afresh, Commissioner would ensure that the verification report is received by him and deal with in his order.
12. Coming to the issues relating to the CENVAT credit, learned counsel submitted that for the period from October 2006 to March 2008, there was a restriction of utilization of CENVAT credit to the extent of Rs.20,000/-. It is settled law that it would be sufficient if the appellants paid the interest on such excess utilization according to the learned counsel. We find that this submission has to be accepted since it would only be accepted.
13. Further as regards the demand relating to Rs.3.98 crores @ 8% / 6% on the exempted services, learned counsel fairly agrees that the appellants had in fact not maintained separate accounts. Nevertheless it is their claim that in respect of these services, because of the provisions relating to valuation of service for the purpose of levy, the values attributable to surrender charges, funds administration charges are only to be excluded and therefore exclusion of such value and such excluded value cannot be considered as attributable to exempted services. However, he fairly agrees that this issue had been considered by this Tribunal in the case of ING Vysya Life Insurance Co. Ltd. Vs. CCE, C&ST, Bangalore [Misc. Order No.2088-20882/2014 dt. 01/04/2014], and we had taken a prima facie view in favour of the Revenue. However in view of the fact that the issue as to whether the portion of such leviable amount can be considered as exempted service or not is a debatable issue and therefore the appellants could not be found fault with if they had not opted to pay proportionate credit attributable to such value. This Tribunal in the case of ING Vysya had allowed such option to be exercised now and accordingly took a view that appellant should reverse the proportionate credit attributable to such values. The learned counsel submits that according to their own calculation the amount of proportionate credit reversible would come to about Rs.86 lakhs.
14. The observations hereinabove would show that prima facie, we have not found a case in favour of the appellant for approximately Rs.92 lakhs going by the calculation of the appellants. In our opinion, this liability with a portion of interest should be deposited by the appellants and compliance should be reported before the Commissioner for fresh adjudication in the public interest.
15. In view of the above discussion, the impugned order is set aside and the matter is remanded to the original adjudicating authority with a request to adjudicate the matter afresh and pass a very reasoned detailed order covering all the issues and dealing with all the submissions that may be made by the appellants and have been made before us during the course of hearing whether discussed in this order or not. The Commissioner is requested to undertake such adjudication subject to the condition that the appellant deposits an amount of Rs.1 crore (Rupees one crore only) within eight weeks and report compliance to him. Needless to say that the appellants shall be given reasonable opportunity to present their case before the matter is adjudicated.
(Operative portion of the order pronounced in open court) S.K. MOHANTY JUDICIAL MEMBER B.S.V.MURTHY TECHNICAL MEMBER Raja..
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