Custom, Excise & Service Tax Tribunal
Union Bank Of India vs Commissioner Of Central Goods And ... on 25 November, 2024
1
ST/86393/2015
ST/85441/2017
CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
MUMBAI
REGIONAL BENCH, COURT NO. 2
SERVICE TAX APPEAL No.86393 OF 2015
(Arising out of order-in-Original No.292/COMMR(WLH)/LTU-M/CX/2014 dated
31.03.2015 passed by the Commissioner Central Excise & Service Tax, LTU,
29th Floor, World Trade Centere, Cuffe Parade, Mumbai-400005)
UNION BANK OF INDIA
Appellant
Vs.
COMMISSIONER, CGST & CENTRAL
EXCISE COMMISIONERATE, MUMBAI Respondent
SOUTH WITH SERVICE TAX APPEAL No.85441 OF 2017 (Arising out of order-in-Original No.93/COMMR(RS)LTU-M/ST/2016 dated 29.11.2016 passed by the Commissioner Central Excise & Service Tax, LTU, 29th Floor, World Trade Centere, Cuffe Parade, Mumbai-400005) UNION BANK OF INDIA Appellant Vs. COMMISSIONER, CENTRAL GOODS AND Respondent SERVICE TAX, MUMBAI SOUTH Appearance:
Present for the Appellant: Shri Ananthan, Chartered Accountant & Ms.Lalitha, Chartered Accountant Present for the Respondent: Shri Adeeb Pathan, AR CORAM:
HON'BLE MR. AJAY SHARMA, MEMBER ( JUDICIAL ) HON'BLE MR.ANIL.G.SHAKKARWAR,MEMBER(TECHNICAL) FINAL ORDER NO.86873-86874/2024 Date of Hearing:16.07.2024 Date of Decision:25.11.2024 PER:AJAY SHARMA These appeals have been preferred by the appellant assailing the impugned Orders-in-Original dated 31.3.2015 and 29.11.2016 respectively confirming the demand for inadmissible cenvat credit availed by the appellant to the tune of 2 ST/86393/2015 ST/85441/2017 Rs.61,41,95,128/-[for the period 11.04.2012 to 27.11.2013] and Rs.51,68,92,750/- [for the period December,2013 to June,2015] respectively alongwilth interest under section 75 of Finance Act, 1994 and penalty under Rule 15 (1) of Cenvat Credit Rules, 2004. The amount which has been reversed by the appellant under Rule 6(3B) of Cenvat Credit Rules,2004 has been deducted by the Adjudicating Authority from the amount to be recovered while passing the impugned orders.
2. The issue involved herein is whether the appellant is entitled to avail cenvat credit of service tax paid on deposit insurance premium to 'Deposit Insurance and Credit Guarantee Corporation'?
3. Since the issue is common, therefore, we are disposing of both the appeals by this common order. The appellant i.e. Union Bank of India is providing 'banking and financial services' and according to the department, they have wrongly availed cenvat credit in respect of service tax paid on deposit insurance service provided by 'Deposit Insurance and Credit Guarantee Corporation' during the periods 11.04.2012 to 27.11.2013 and December, 2013 to June, 2015 since it did not qualify as 'input service' as defined under Rule 2(l) of Cenvat Credit Rules, 2004.
Accordingly, two show cause notices dated 27.5.2012 (for the period 11.04.2012 to 27.11.2013) and dated 29.7.2015 (for the period December, 2013 to June, 2015) respectively were issued to the appellant demanding inadmissible cenvat credit availed by the appellant alongwith appropriate rate of interest and penalty 3 ST/86393/2015 ST/85441/2017 which culminated into impugned Orders-in-Original confirming the demand alongwith interest and penalty.
4. We have heard learned Chartered Accountant appearing for the appellant and learned Authorised Representative on behalf of Revenue and perused the case records including the synopsis/written submissions alongwith the case laws produced before us. Out of the two appeals herein, Appeal No.ST/86393/2015 was earlier dismissed by this Tribunal vide order dated 12.02.2019 and the same was challenged by the appellant before the Hon'ble High Court of Judicature at Bombay by way of an appeal. The Hon'ble High Court vide order dated 22.09.2020 set aside the dismissal order impugned therein and remanded the appeal back to the Tribunal for fresh decision in conformity with the decision of the Larger Bench in the matter of South Indian Bank vs. Commissioner of Customs, Central Excise & ST, Calicut;2020 (41) GSTL 609 (Tri.-LB) and that is how this is before us.
5. Deposit Insurance and Credit Guarantee Corporation (hereinafter referred to as "DICGC") is a wholly owned subsidiary of Reserve Bank of India and is mainly engaged in providing deposit insurance service to the banks. The function of DICGC are governed by the provisions of "The Deposit Insurance and Credit Guarantee Corporation Act,1961" (DICGC Act) and "The Deposit Insurance and Credit Guarantee General Regulations, 1961" framed by the Reserve Bank of India in exercise of powers conferred by sub-section (3) of section 50 of 4 ST/86393/2015 ST/85441/2017 the said Act. The salient features of the deposit insurance scheme of DICGC are as under:-
- The scheme provides insurance coverage to bank deposits, such as savings deposit, fixed deposits, current deposit, recurring deposit, subject to the limit of Rs.1 lakh per depositor since May, 1993.[now stated to be increased to Rs.5 lakhs]
- Deposit insurance premium is payable as half yearly premiums (premium for April-September is payable in April and October-March is payable in October).
- The entire premium paid by the insured banks to the corporation should not be passed onto the depositor by the banks.
- In the event of the winding up or liquidation of an insured bank, every depositor of the bank is entitled to payment of an amount equal to the deposits held by him, subject to the limit of the insurance coverage fixed from time to time.
6. Banking in India is governed by the Banking Regulation Act, 1949. DICGC transacts the business of insuring the deposits accepted by the banks. It has to register every existing 'banking company' as also 'new banking company' as an insured bank and the insured bank has to pay premium to DICGC at the rates notified by them from time to time. In the event of banking failure/winding up/liquidation of a bank,DICGC protects the deposit of the customer upto maximum of Rs.5 lakh per depositor (earlier it was Rs.1 lakh). Banking company pays service tax on the insurance premium paid to DICGC and availed cenvat credit of such service tax for the "output services" which 5 ST/86393/2015 ST/85441/2017 they provide in relation to 'banking and other financial services' as defined under section 65 of Finance Act, 1994 by treating the service rendered by the DICGC as "input service".
7. The banks claims that they are engaged in "accepting"
deposits from the public, which deposits are used for the purpose of lending or investment and though no consideration is charged for making the deposits, but the banks thereafter provide number of services which are in relation to "banking and other financial services" and are chargeable to service tax as consideration for providing such services are not received in the form of interest. The list of services on which the banks have to pay service tax under "banking and other financial services", can be bifurcated into two categories. The first category consists of services which have a direct nexus with the activity of the "accepting" deposits, while the second category consists of those services which have a direct nexus with the "lending" activity of the banks. The services under the aforesaid two categories have been stated by the banks to be as follows:
(i) Direct nexus with the activity of accepting deposits.
. Charges towards issuance of Cheque book; . Charges to maintain minimum balance;
. Debit Card charges;
. Duplicate Pass Book/Bank Statement charges;
. Stop payment charges;
. Cheque return charges;
. Demand Draft charges;
. Charges for providing bank guarantee
. Safe deposit locker facilities, etc.
(ii) Direct nexus with the lending activity. . Processing fee towards obtaining necessary sanctions/approvals for lending money to customers;
. Documentation charges towards completing loan sanction with respect to preparing, printing and 6 ST/86393/2015 ST/85441/2017 executing the various documents required post appropriate sanctions/approvals being taken. . Inspection charges towards compensation for the first time spent in visiting and inspecting the factory/godown/other assets of the borrowers.
8. According to the learned Chartered Accountant the dispute that has been raised by the Revenue is in respect of service provided by the DICGC to the bank for insuring the deposits as the same has not been considered by the Revenue as "input service" for the reason that the activity of accepting deposit is not a service defined under the Finance Act and therefore the deposit insurance service received in relation to accepting of deposits would not fall within the definition of 'input service' as defined under Rule 2(l) ibid.
9. Since there are conflicting views of various benches of the Tribunal, a Larger Bench of the Tribunal has been constituted in the matter of South Indian Bank (supra) in order to resolve the issue whether the insurance service received by the banks from DICGC can be considered as an 'input service'?
10. Larger Bench of the Tribunal after examining various provisions of Finance Act, Cenvat Credit Rules, Deposit Insurance Act and the Regulations has answered the reference in the following terms:
"The insurance service provided by the Deposit Insurance Corporation to the banks is an "input service" and Cenvat Credit of service tax paid for this service received by the banks from the Deposit Insurance Corporation can be availed by the banks for rendering 'output services'."
Relevant paragraphs of the Larger Bench decision in the matter of South Indian Bank (supra) are extracted hereunder:-
7ST/86393/2015 ST/85441/2017 "44. The basic activity of a banking company, as contemplated under the definition of "banking", either under the Deposit Insurance Act or the Banking Regulation Act, is to accept deposits from the public, which deposits are used for the purpose of lending or investment by the banks. Thus, the main activity of a banking company is to mobilise the resources received by the banks in the form of deposits from the public for the purpose of lending or investment. These deposits, thus generate returns for the banks. A part of the returns is given by the banks to the depositors as a consideration, which consideration is normally in the form of interest.
Xxxx xxxx xxx
46. All banks have also to obtain a licence from the Reserve Bank of India under section 22 of the Banking Regulation Act. It also needs to be noticed that it is a compulsory for all banks who have obtained a licence from the Reserve Bank of India under section 22 of the Banking Regulation Act to register themselves with the Deposit Insurance Corporation. The registration of the banks with the Deposit Insurance Corporation is not optional for the banks. The payment of premium, therefore, to the Deposit Insurance Corporation is a statutory obligation of the banks. The banks this way, protect the interest of the depositors because non payment of premium and subsequent withdrawal of the protection provided by the Deposit Insurance Corporation may lead to loss of confidence of the public in the banks and ultimately loss of deposits.
xxx xxx xxx
48. Thus, the first condition under which the Reserve Bank of India can cancel the licence granted to a banking company is when the bank ceases to carry on banking business in India.This implies that banks must accept deposits for the purpose of lending and for the purpose of accepting deposits, the banks have to obtain registration with the Deposit Insurance Corporation and, therefore, pay premium for the insurance. It, therefore, follows that if a banking company fails to pay the premium amount to the Deposit Insurance Corporation, it would not be able to retain its registration with the Deposit Insurance Corporation, which may ultimately also lead to the cancellation of the licence granted to the banking company by the Reserve Bank of India under section 22 of the Banking Regulation Act.8
ST/86393/2015 ST/85441/2017
49. The third condition under which the Reserve Bank of India can cancel the licence of the banking company is when the Reserve Bank of India comes to a conclusion that the interest of the depositors is being prejudiced by a banking company. The interest of depositors is protected by the Deposit Insurance Corporation and in case premium is not paid by the banks for insuring the deposits, the registration with the Deposit Insurance Corporation can be cancelled and so would the interest of the depositors as their deposits will not have the cover of insurance. Thus, if the interest of the depositors is not sufficiently protected then under the third requirement the licence of the bank can also be cancelled by the Reserve Bank of India.
50. It cannot, therefore, be doubted that the insurance service received by the banks from the Deposit Insurance Corporation is not only mandatory but is also commercially expedient. In fact, without this service the banks may not be able to function at all.
51. Premium is paid by the banks to the Deposit Insurance Corporation for providing the insurance service for which the banks pay service tax. It is this service tax paid by the banks on the insurance service received by the banks from the Deposit Insurance Corporation that is the bone of contention between the parties.
52. It is not in dispute that after accepting the deposits there are number of services on which the banks have to pay service tax under "banking and other financial services". These services are in connection with both the "accepting" of deposits and "lending" activity of the banks. Banks would be able to lend only if they accept deposits. It has been seen that without payment of insurance premium on the outstanding deposits, banks will not be able to function or render any output service of "banking and other financial services" and the licence granted to the banks by the Reserve Bank of India can be cancelled.
53. Thus, the service rendered by the Deposit Insurance Corporation to the banks would fall in the main part of the definition of "input service", which is any service used by a provider of output service for providing an output service. Once this service falls in the main part of the definition of "input service", it would not be necessary to examine whether the service would be covered by the inclusive part of the 9 ST/86393/2015 ST/85441/2017 definition. It has also been noted that the service is not excluded from the definition of "input service".
54. The contention of the Department is that "accepting" of deposits is covered under section 66 D(n) of the Finance Act which contains the negative list.As noticed above, the negative list comprises, under sub-clause (n) of section 66D, services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount.The issue is whether extending deposits would mean the activity of accepting deposits. The activity of accepting deposits would be an activity where the banks receive deposits from the customers in the form of savings account, recurring deposits, for which the banks pay interest to the customers. On the other hand, the extending of deposits would be an activity of a bank giving its surplus money in the form of deposit to another person, where the consideration received would be in the form of interest. This would be a case where in the course of banking activities, one bank makes a deposit with another bank for which it receives consideration in the form of interest. It is this consideration received by the banks in the form of interest which has been specified under section 66D
(n) of the Finance Act in the negative list of services. Thus, in case of accepting deposits, the banks have to pay interest to the customers, whereas while extending deposits, the banks receive interest from other banks. It is for this reason that inter-bank deposits are not included in the returns filed by the banks with the Deposit Insurance Corporation for calculating the premium payable. The banks cannot avail credit of service tax on any amount of interest earned on extending of deposits. It is, therefore, not possible to accept the contention of the Department that "accepting" of deposits is covered under section 66D(n) of the Finance Act.
55. The Assessable deposits, on which the premium is calculated, not only includes deposits such as savings, fixed, current, recurring, etc., but also certain balances appearing in the account of the banks such as credit balances in cash credit accounts, margin held against letters of credit, guarantees, bills purchased, etc., un-presented drafts and payment orders, provident fund balances relating to staff held by bank before they are transferred to Provident Fund Commissioner, amount representing pay orders/ bankers cheques/ demand drafts issued by closing deposit accounts with or 10 ST/86393/2015 ST/85441/2017 without reference to depositors, but remaining unpaid etc. Thus, the contention of the Department that insurance premium is paid only on the deposits of the customers cannot also be accepted.
56. It has also been submitted by learned Counsel appearing for the banks that even if it is assumed that some part of the deposit is not used for providing "output service", then too the banks are still entitled for the credit availed on the insurance service provided by the Deposit Insurance Corporation as the banks have reversed 50% of the total CENVAT credit taken in terms of rule 6(3B) of the 2004 Rules. This rule 6(3B) provides that notwithstanding anything contained in sub-rules (1), (2) and (3), a banking company and a financial institution including a non-banking financial company, engaged in providing services by way of extending deposits, loans or advances shall pay for every month an amount equal to 50% of the CENVAT credit availed on inputs and input services in that month. The Circular dated 28 February, 2011 issued by the Central Board of Excise and Customs explains the reason behind the abovementioned amendment. has been stated that since substantial part of the income of a bank is from investments or by way of interest in which a number of inputs and input services are used and as there have been difficulties in ascertaining the amount of credit flowing into earning these amount, a banking company providing banking and financial services is obligated to pay an amount equal to 50% of the credit availed in terms of rule 6(3B). This sub-rule (3B) has, therefore, been introduced with a view to disallow the credit of input and input services attributable to interest/investment income earned by banking companies. Having regard to the fact that it is difficult to ascertain the actual amount of input and input services used in earning interest income, sub- rule (3B) provides for reversal of 50% of input and input services.
57. Thus, the reversal has been made, banks are entitled for credit of the entire amount of service tax paid on input service having nexus with the provisions of output service and it is irrelevant as to which part of the input service is used for provision of taxable output service and which part has been used for provisions of exempted service. Having made reversal under rule 6(3B), the banks have duly complied with the 2004 Rules and hence they are entitled to avail CENVAT credit on the insurance service received from the Deposit Insurance 11 ST/86393/2015 ST/85441/2017 Corporation.
58. It would now be useful to examine decisions on this issue.
59. In Commissioner of Central Excise, Bangalore vs. PNB Metlife India Insurance Co. Ltd. [2015 (39) S.T.R.561 (kar.)], the issue that came up for consideration before the Karnataka High Court was whether an assessee can avail CENVAT credit of service tax paid on re- insurance services by treating the said service as an "input service". PNB Metlife India Insurance Company was carrying on life insurance business and on the insurance policy issued by it, service tax was charged from the customers. It also procured re-insurance service from overseas insurance companies and availed CENVAT credit of service tax paid on such services received by it. This CENVAT credit was denied by the Department for the reason that re-insurance service cannot be considered as an "input service" since it takes place after the insurance policy is issued. The Karnataka High Court examined whether CENVAT credit availed and utilized by the insurance company on service tax paid for re-insurance service is an "input service" for the output service of insurance that the company was providing and held that the process of issuance of the policy by the insurer and subsequent procurement of re-insurance policy from another company, which is a statutory requirement, is an integral part of the entire process and the insurance process does not come to end merely on the issuance of the insurance policy since it continues till the existence of term of policy. The High Court noted that since re-issuance has to be taken under section 101A of the Insurance Act, it is a statutory obligation and, therefore, has to be considered as having nexus with the "output service"
and, therefore would be an "input service", for which Cenvat credit can be availed...........
60. It needs to be noted that the aforesaid decision of the Karnataka High Court in PNB Metlife India has been accepted by the Central Board of Excise and Customs in the Circular dated 16 February,2018. The relevant paragraphs 8 and 8.1 are reproduced below:
"8.Decision of the Hon'ble High Court of Karnataka at Bangalore dated 09.04.2015 in the case of M/s.PNB Metlife India Insurance Company Ltd .Bangalore [2015 (39) STR 561 (Kar.)] 12 ST/86393/2015 ST/85441/2017 8.1. Department has accepted the aforementioned order of the Hon'ble High Court of Karnataka. The issue examined in the order was, whether Reinsurance is an input service which is used for providing output service, namely, insurance and whether CENVAT Credit take non re-insurance service is admissible. Hon'ble High Court held that re-insurance is a statutory obligation and the same is co-terminus with the insurance policy. Issuance of insurance policy by insurer, and then taking of re- insurance by it, is a continuous process. Re- insurance is, therefore, an input service."
61. In the present appeals also, in order to render any output service under the category of "banking and other financial services", it is necessary for a bank to register itself with the Deposit Insurance Corporation and pay premium after registration. A bank, without obtaining registration and without payment of insurance premium on the deposits outstanding, cannot render any "output service" of "banking and other financial service".
11. Following the Interim Order of the Larger Bench, the Tribunal vide Final Order No.20691-20708/2020 dated 20.03.2020 allowed the appeal of South Indian Bank. The said order of the Tribunal was thereafter challenged by the Revenue before the Hon'ble High Court of Kerala at Ernakulum by way of filing Central Excise Appeal No.1/2021 in the matter of Principal Commissioner of Service Tax and Central Excise, Kochi vs. South Indian Bank alongwith other connected appeals and the Hon'ble High Court vide its judgement dated 05.12.2022 (reported in 2022 (12) TMI 1479-Kerala High Court) dismissed the appeal filed by Revenue and upheld the decision of the Tribunal in South Indian Bank (supra). Nothing has been brought to our notice to show that any appeal has been filed by the Revenue against the 13 ST/86393/2015 ST/85441/2017 aforesaid decision of Hon'ble Kerala High Court, therefore, it attained attained finality.
12. Similarly, Hon'ble High Court judicature at Bombay, in two appeals viz. Central Excise Appeal No.21 of 2021 in the matter of the Commissioner of CGST & Central Excise vs. Yes Bank Ltd and Central Excise Appeal No.20/2021 in the matter of the Commissioner of CGST & Central Excise. Mumbai vs. IndusInd Bank Ltd. vide its order dated 12.09.2023 dismissed the appeals of Department on identical issue while observing that the issue is not different which has fell for consideration of the Larger Bench of the Tribunal in South Indian Bank (supra). Hon'ble High Court also observed that they are in agreement with the view taken by the Hon'ble Division bench of Kerala High Court in approving the decision of Larger Bench of the Tribunal and that the Revenue is unable to urge any contention as to why the decision of Hon'ble Kerala High Court accepting the decision of the Larger Bench of the Tribunal ought not to be accepted.
13. The view taken by the Larger Bench in the matter of South Indian Bank Ltd. (supra) has further been affirmed by another Larger Bench of the Tribunal in the matter of Bank of America, National Association vs. Principal Commissioner, CGST & Central Excise, Mumbai ; 2024 (4) TMI 1149-CESTAT MUMBAI.
14. There is another allegation against the appellant that they have violated the provisions of Rule 4 (7) and 9(1) ibid by availing cenvat credit even before issuance of two invoices by 14 ST/86393/2015 ST/85441/2017 DICGC. Learned Chartered Accountant on behalf of the appellant submits that it is the practice of the DICGC to issue invoices on the date of payment made by the bank. However, for these two invoices, DICGC delayed issue of invoices after the payment was made by the appellant and although months of availment of cenvat credit was May,2012 and May,2013 whereas DICGC issued invoices in September, 2012 and June, 2013 respectively and when the appellant noticed it, they requested DICGC to revise the dates on the invoices, which was accepted and revised invoices were issued containing the date of invoices as 30.05.2012 (for availment month of May,2012) and 03.06.2013 (for availment month of May,2013). In case of invoice dated 03.06.2013, learned Chartered Accountant submits that although the premium was paid on 31.05.2013 but due to technical reason DICGC received it on 03.06.2013 and therefore that date was mentioned by them on the invoice.
15. In this factual scenario, we do not see any irregularity in availment of cenvat credit by the appellant against invoices dated 20.9.2012 and 03.06.2013 respectively and there is no violation of Rule 4(7) or Rule 9 (1) ibid and therefore no interest can be imposed on the appellant.
16. In the light of discussions made hereinabove, we are of the view that the registration of the banks with DICGC is not optional but compulsory. All Banks have to obtain a licence from Reserve Bank of India u/s 22 of the Banking Regulation Act without which no bank can function and all of them have also to 15 ST/86393/2015 ST/85441/2017 compulsorily obtain registration with the DICGC in order to protect the interest of depositors. The registration can be obtained by the banks only on payment of premium to DICGC. If a Bank fails to pay premium to DICGC, its registration would be cancelled, which ultimately would result in cancellation of licence granted to the Bank by Reserve Bank of India. Which means without payment of insurance premium to DICGC, the Bank will not be able to function or provide any 'banking and other financial services.' Therefore payment of insurance premium to DICGC is an integral part of 'banking and other financial services' and is an input service for which Cenvat Credit can be availed by the banks. Accordingly the impugned orders are set aside and the appeals filed by the Appellant are allowed.
(pronounced in the court on 25.11.2024) (ANIL G.SHAKKARWAR) (AJAY SHARMA) MEMBER (TECHNICAL) MEMBER (JUDICIAL) mk