Custom, Excise & Service Tax Tribunal
Icici Bank Ltd vs Commr.Service Tax- Iv Mumbai on 12 February, 2019
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
COURT NO.
Appeal Nos.
ST/86237,86142,86060,86176,86221,87616,86393,86297/20
15,86032/2017,85380/2018
ST/MISC/85599/2018
ST/86297/2015
(Arising out of Order-in-Original No. 03/STC-IV/SKS/14-15 dt.
13.3.2015, OIO No.01//STC-IV/SKS/14-15 dt. 18.2.2015, OIO-
74/STC-I/SKS/14-15 dt. 2.2.2015, OIO-02/STC-IV/SKS/14-15 dt.
18.2.2015, OIO-82/STC-I/SKS/14-15 dt. 12.3.2015, OIO-44/STC-
I/SKS/14-15 dt. 16.9.2015, OIO-271/COMMR.-WLH-/LTU-
M/CX/2014dt. 18.3.2015, OIO-292/COMMR.-WLH-/LTU-M/CX/2014
dt. 31.3.2015, OIO-PUN-SVTAX-000-COM-040-16-17 dt. 17.1.2017,
OIO-PUN-CGS&CX-002-COM-007-17-18 dt.31.10.2017passed by the
Commissioner of Customs & Central Excise )
ICICI Bank Ltd. : Appellant
Bank of Baroda
State Bank of India
Bank of India
Dena Bank
Dena Bank
IDBI Bank
Union Bank
Bank of Maharashtra
Bank of Maharashtra
VS
Commissioner of Service Tax, : Respondent
Commissioner of CE & ST (LTU),
Mumbai-IV, Mumbai-IV, Mumbai-I, Mumbai-IV,
Mumbai-I, Mumbai-I, Mumbai, Mumbai, Pune-I,
Pune-I
Appearance
Shri V. Sridharan Sr. Advocate with
ShriVinay Jain, &
Shri Jay Chheda, C.A. for ICIC Bank
Shri S.S. Gupta, C.A. for IDBI Bank
Shri Bharat Raichandani, Advocate for State Bank of India
Shri Sanjay Khemani, C.A. for Bank of India
Shri D. K.Sahu, Advocate for Union Bank of India
Shri S. Ananathan, C.A. with
Shri R. Luthia, C.A. for Bank of Baroda,
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Dena Bank, &
Bank of Maharashtra for Appellant
ShriR. Kapoor, Commissioner(A.R)
Shri M.K. Sarangi, Jt. Commr. (A.R.) for Revenue
AND
Appeal Nos. ST/86160 & 85915/2016
(Arising out of Order-in-Original No. -54/STC-IV/MRRR/15-16dt.
30.11.2015, OIO-PUN-SVTAX-000-COM-043-15-16 dt.15.12.2015
passed by the Commissioner of Customs & Central Excise )
Commissioner of Service Tax, : Appellant
Mumbai-IV,Pune-I
Bank of India : Respondent
Bank of Maharashtra
Appearance
ShriRoopamKapoor, Commr. (A.R.)
Shri M.K. Sarangi, Jt. Commr. (A.R) for Revenue
ShriSanjayKhemani, C.A. for Bank of India
Shri S. Ananathan, C.A. with
Shri R. Luthia, C.A. for Bank of Baroda,
Dena Bank, &
Bank of Maharashtra for Respondent
CORAM:
Hon'ble Dr. D.M. Misra, Member (Judicial)
Hon'ble Mr. Sanjiv Srivastava, Member (Technical)
Date of hearing :24/08/2018
Date of decision: 12/02/2019
ORDER NO. A/85281-85290/2019
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Per :Dr. D.M.Misra
Out of twelve appeals, ten are filed by respective assessee-
Appellants and two are filed by the Revenue against respective orders in
original passed by the concerned commissioners of central excise customs
and service tax. All these appeals since involve common issues are taken
up together for disposal. The amount of credit and penalty involved in
each of the appeal is mentioned as below:
Name of the Period of Amount of Amount of
Appellant & Appeal Dispute credit involved Penalty in Rs.
No. Rs.
ICICI Bank Ltd. June, 2012 30,10,85,994/- 3,00,00,000/-
ST/86237/2015 to Dec., 2013
Bank of Baroda March, 2013 38,88,52,482/- 3,00,00,000/-
ST/86142/2015 to Nov., 2013
State Bank of India April, 2012 to 141,99,92,593/- 10,00,00,000/-
ST/86060/2015 Dec., 2013
Bank of India Nov., 2012 to 18,18,33,981/- 2,00,00,000/-
ST/86176/2015 Dec., 2012
Dena Bank April, 2012 to 10,90,91,460/- 5,00,00,000/-
ST/86221/2015 Nov., 2013
Dena Bank May, 2014 to 6,07,09,296/- 50,00,000/-
ST/87616/2015 Nov., 2014
IDBI Bank Feb., 2013 12,81,91,842/- 1,00,00,000/-
ST/86297/2015
Union Bank 11.4.2012 to 30,70,97,564/- 7,50,00,000/-
ST/86393/2015 27.11.2013
Bank of April, 2014 to 13,09,61,394/- 65,48,070/-
Maharashtra March, 2015
ST/86032/2017
Bank of April, 2015 to 24,01,13,260/- 1,20,05,663/-
Maharashtra Sept, 2016
ST/85380/2018
CCE& ST Jan. 2013 to ----------- Penalty U/s 76
ST/86160/16 Nov.2014 not quantified
CCE& ST April 2012 to 12,47,19,859/- --------------
ST/85915/16 July 2013
2. Facts are almost common to all these appeals. However, to
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appreciate the question of law involved, it would suffice to state the facts of
the appellant M/s ICICI Bank Ltd. Briefly stated the facts of the said case
are that the appellants are engaged in providing taxable services of
banking and other financial services. During the relevant period they had
availed cenvat credit in respect of service tax paid on various input
services including deposit insurance service provided by Deposit Insurance
and Credit Guarantee Corporation (DICGC). Alleging that the premium
paid on deposit insurance to DICGC since not an 'input service' as defined
under Rule 2 (I) of Cenvat Credit Rules , 2004 show cause notices were
issued to the appellants, after completion of necessary investigation, for
recovery of the credit availed on the service tax paid on such insurance
service with interest and penalty. On adjudication, the demand was
confirmed with interest and penalty. Aggrieved by the said order, the
appellants are in appeal.
3. Ld. advocate Shri V. Sridharan appearing for the appellant ICICI
Bank has submitted that it is a scheduled bank at the relevant point of time
and has been rendering banking services in India and overseas. The
appellants offer a wide range of banking services across retail and
corporate sector and are registered with the Department for payment of
service tax. The appellant had been duly discharging their service tax
liability wherever applicable and also they have been availing cenvat credit
of service tax paid on various input services received and used in providing
the taxable output service. In terms of rule 6(3B) of the Cenvat Credit
Rules, 2004, the appellant was liable to reverse 50% of the total Cenvat
Credit availed during a particular month, which they have been
meticulously complying with during the relevant period. It is his contention
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that as per RBI norms, the appellant is required to have a capital adequacy
ratio of 9% and should be registered with the Deposit insurance and credit
guarantee Corporation(DICGC), a subsidiary of Reserve Bank of India.
The DICGC protects small depositors, in the event of failure of bank, by
way of ensuring return of the deposits up to 100,000/- per depositor.
Every bank in India is mandatorily required to insure its deposits through
DICGC. During the relevant period from July 2012 to March 2014 the
appellant ICICI Bank Ltd. have paid Rs.4,869,765,276/- towards insurance
premium to DICGC on which they paid service tax amounting to Rs.
70,49,47, 822/-and consequently avail credit of the said amount.
4. Referring to the definition of 'input service', the learned advocate for
the appellant has submitted that the case of the Department mainly rests
on three counts; (i) the insurance service is for the benefit of the depositors
and not for the bank. DIGCC has not insured the Bank and thus the bank
cannot be treated as an insured person; (ii)Deposit insurance premium is
linked only to deposits accepted by banks and has no nexus with any other
service provided by banks so it cannot be termed as 'input service' used
for rendition of any output service.; (iii) The appellant did not charge any
consideration for the acceptance of the deposit, so it is a transaction in
money only and outside the purview of service tax.
5. Responding to the said observation in the impugned order, the
learned advocate has submitted that the services in the present case are
covered by 'means' clause of the definition of 'input service'. He has
submitted that the insurance services are essential for rendering output
services and the banks primary source of income is in the form of interest
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out of its lending activity. Such interest is not liable to service tax by virtue
of being included in the negative list of the definition of 'service' with effect
from 01.7 2012. But, it is directly linked to the lending activity. The bank
receives taxable incomes as well as in the form of interest which are
consideration for services performed consequent to the lending activity or
the activity of acceptance of deposits and on such other incomes service
tax has been discharged by the appellant. He has further submitted that all
these considerations received for identifiable services performed, and are
not independent of the activity of accepting deposits. In other words, such
services have a direct nexus to the activity of accepting deposits. The
appellants have also submitted that all services cannot be rendered
without the bank having accepted the money from depositors. It can be
concluded that deposit insurance is an input service by virtue of it being
directly linked to the activity of accepting deposits from which a bank earns
various charges and on which service tax liability have been discharged.
6. Ld. advocate has further submitted that the expression 'used for
provision of output service' is wider than the expression 'used in
manufacture of goods' in the definition of "input service". Rule 2(l) of the
cenvat credit Rules provides that input service means any service used by
a provider of output service for providing an output service. It also provides
that the input service means any service used by the manufacture inor in
relation to the manufacture of final product. In other words, the definition of
input service is wider for a service provider in comparison to a
manufacturer. In support, the learned advocate referred to the Larger
bench decision assessed at in the case ofJawarhar Mills Ltd Vs. CCE,
Coimbatore 1999 (108) E LT 47(Trb.)wherein it is held that 'used for' is
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wider than the phrase 'used in' and 'used for' would cover any of the
goods if used for producing or bringing about any change in any substance
for the manufacture of final product would be capital goods and thus
qualify for input credit. Similarly the learned advocate has also referred to
the judgement of this Tribunal in the case of Mundra Port & Special
Economic Zone Ltd. Vs. CCE,Rajkot 2009 (13) STR 178(Tri.-Ahmd.),
whereunder the credit of duty paid on cement and steel used in
construction of jetty were held to be not admissible but the said judgment
was set aside by the Hon'ble Gujrat High Court reported at 2015 (39) STR
726(Guj.).
7. The Ld. advocate has further submitted that insurance being a
statutory obligation, the reserve Bank of India has power to cancel the
license of the bank for non-compliance, thus, the service of DICGC is not
only commercially expedient but also mandatory nature. It is submitted that
deposit insurance, being a statutory obligation for bank, non-compliance
with the same could impact the mobilization activity of the bank, without
which the lending activity cannot be judiciously carried out. He has further
submitted that the service of DICGC is mandatory nature, and without it
Bank cannot function at all. Hence, the amount paid to DICGC will certainly
qualify as an input service.
8. Further, referring to the definition of 'input service', the Ld. Advocate
has submitted that its scope is very wide; not only it includes the services
used for provision of services, but also services necessary to run day-to-
day business or services, commercially expedient avail. Therefore, for a
service to qualify as an input service, it has to be either used for provision
of service or if such nexus is not present, it shall be included in the
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inclusive component of the said meaning. He has also submitted that in the
inclusive portion of the definition of 'input services' the service viz."
services in relation to "financing" is specifically mentioned; since the
services of DICGC are essential and mandatory for raising money by
bank and deposits are the main source of finance for any Bank, hence it is
an input service.
9. Further, the Ld. advocate has submitted that even though there is a
direct nexus between the deposit insurance services received by the
appellant and output services provided by the appellant, without accepting,
even if it is as assumed that some part of the deposit is not used for
provision of output services, then also the appellant are entitled for the
credit as the appellant has already paid the 50% of total cenvat credit
taken in terms of Rule 6(3B) of Cenvat Credit Rules,2004.
10. Further, rebutting the observation that collection of deposits, loans
or advances so far as the consideration is represented by way of interest,
is a transaction in money hence not a 'service' being covered under the
negative list prescribed at section 66D of Finance Act 1994, hence not an
output service, the Ld. Advocate has submitted that in the present case,
the appellant while accepting deposits from the public under obligation to
be insured. He has submitted that the theory of negative list has been
misconstrued by the Department. Further, he has submitted that it is
incorrect to look at the transaction of receiving deposits in isolation. The
appellant is in the banking business whose activities comprise of accepting
deposits and granting loans. Without the activity of receiving the deposits,
the appellant would not be able to grant loans. Further, it is an undisputed
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fact that the appellant has discharged service tax on various
charges/incomes earned in the course of providing loans such as
documentation services, loan processing service, delay payment charges
etc.. Acceptance of deposits was in the normal course of banking
business. The same has been explained in the judgement of Indian
BankLtd.,MadrasVs. Commissioner of IncomeTax, Madras 1959 3 SCC
(Madras HC).
11. The Ld. advocate assailing the observation that the insurance
services were received by the depositor and not by the Bank, hence
credit of the service tax paid on such premium not admissible, submitted
that the Commissioner has travelled beyond the scope of the show cause
notice as no such allegation was made thereunder. Secondly, the
contractual relationship between the bank and the DICGC exists and not
between the depositor and DICGC. The uncertain event in the deposit
insurance, is liquidation or winding up of the insured bank. It is this risk
which might impair the capacity of the insured bank to repay its
debt/liability to the depositor, that is being insured with certain limit ( 1.00
lakh per depositor). DICGC is not even aware who is the depositor, what
type of account he is holding and other personal particulars of the
depositor. Therefore in such circumstances the appellant is the recipient of
the service and not the depositor. Further as per the provisions of DICGC
Act, the appellant bank is debarred from recovering the cost of insurance
premium from the depositors. The ld. Advocate has submitted that since
the credit availed by them is legal and proper and not in contravention of
any of the rules, no interest is payable nor imposition of penalty is
warranted.
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12. Learned Advocate Shri S.S. Gupta for the appellant M/s IDBI Bank
Ltd., referring to the judgment of this Tribunal in the case of Deposit
Insurance and credit Guarantee Corporation Vs. Commissioner of Central
Excise & Service Tax, Mumbai 2015-TIOL-629-CESTAT-MUM, submitted
that this Tribunal while examining the issue of leviability of Service Tax on
Insurance premium collected by DICGC from the Banks observed that the
Corporation is assessed to Income Tax as a company and its function as
an Insurer, the insured are the various banks who pay the insurance
premium and the beneficiaries are the depositors of the insured banks. It is
his contention that the service is provided by DICGC to Banks who pay
the premium and beneficiaries are the depositors of the Bank. Therefore,
the observation of the learned Commissioner that Banks are not recipients
of service is incorrect. Further, he has referred to the judgment of the
Tribunal in M/s Paul Merchants Ltd. Vs. Commissioner of C.Ex. 2013 (29)
STR 257(Tri.-Del.) to emphasize that the Banks are receiver of the
services and the contract to provide service since between the Bank and
the DICGC and not between the depositor and DICGC, therefore, the
services are received by the Banks.
13. Further, he has submitted that the adjudicating authority erred in
observing that the insurance service was in relation to exempted supply
and is also for exempted output service, therefore, payment of Service Tax
on such insurance is not admissible as credit being exempted from Service
Tax. Referring to the definition of 'Banking' under the Banking Regulation
Act, 1949, he has submitted that such definition prescribes that the deposit
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is accepted for the purpose of lending, hence, acceptance of deposit is to
provide the output services of lending. Thus, the acceptance of deposit is
directly linked to the output supply of lending. Further, he has submitted
that there are various types of deposits, which are made by customers,
namely, fixed deposit, saving account, current account etc. When the
customer open an account and operates the said account, various charges
like, issuance of Demand Draft, RTGS charges, Cheque Book issue
charges, Debit-credit card issue charges etc. are collected by the Bank
from the customers, which are chargeable to Service Tax. These charges
are collected on supply of service made to the customers only when he
opens the account for deposit. Therefore, the acceptance of deposit is not
wholly exempted from Service Tax.
14. Further, he has submitted that as per Section 10 of the DICGC Act,
1961, every Bank is required to register with DICGC. It is a compulsory
registration. Further, Section 15A of the said Act provides that the
Corporation may cancel the registration of an insured bank, if it fails to pay
the premium for three consecutive period. This default will ultimately lead
to cancellation of License granted under section 22 of the Banking
Regulation Act, 1949. Therefore, no output services can be provided
unless the statutory requirement of insuring the deposit has been complied
with. Hence, obtaining insurance deposit is having direct nexus with the
provision of output service, therefore, such payment of insurance premium
be considered as 'input service'. Further, he has submitted that wherever
there is any statutory obligation, and without compliance of suchstatutory
provisions, no output service can be provided, the compliance ought to be
considered as an 'input service'. In support, the learned C.A. referred to
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the judgment of M/s Nhava Sheva International Container Terminal (P) Ltd.
- 2017 (30 STL 509 (Tri-Mum); M/s Rane TRW Steering Systems Ltd. -
2017 (4) GSTL-133 (Tri-Chennai).
15. Further, he has submitted that in the definition of 'input service'
applicable to a service provider, the word "used for" has been very wide as
interpreted by various Courts. In the present case, the appellant cannot
provide any output service without obtaining insurance cover from the
depositors. Therefore, obtaining of insurance from DICGC on deposits
shall be considered as input service. In support, he has referred to the
judgment of this Tribunal in the case of Utopia India Pvt. Ltd. - 2011 (23)
STR 25 (Tri-Bang), JSW Steel (Salav) Ltd. - 2017 (46) STR 863 (Tri-
Mum), DSCL Sugar - 2014 (34) STR 59 (Tri-Del).
16. Further, referring to Rule 6(3B) of the CENVAT Credit Rules, 2004,
the learned C.A. has submitted that in compliance with the said Rules, they
have already reversed 50% of the total CENVAT Credit availed on various
input and input services. This is a statutory obligation to reverse the credit.
It is his contention that the learned Commissioner has erred in demanding
the credit on the entire amount when the appellant had already reversed
50% of the credit. Further, he has submitted that the issue relating to
admissibility of credit on deposit insurance premium is settled in their
favour by two judgments of this Tribunal reported as DCB Bank Ltd. - 2017
(6) GSTL 479 (Tri-Mum) and M/s Punjab National Bank - 2018-TIOL-1395-
CESTAT-DEL. Further, he has submitted that no penalty is imposable as
the issue relates to interpretation of statutes.
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17. Similar arguments have been advanced on behalf of other
appellants.
18. Per contra, learned Commissioner (AR) Shri Roopam Kapoor for the
Revenue has submitted that there are two issues involved in the present
case: -
(i) Whether the transaction between DICGC and the Banks falls
within the definition of input service particularly when the
definition of the output service is read in conjunction with the
definition of input service; (ii) Whether service is being
received by the Bank or by the depositor.
19. Elaborating his argument, he has submitted that so far as scope of
'input service' for availing CENVAT Credit under the CENVAT Credit Rules
is concerned, clause (eee) of sub-section (2) of Section 94 of the Finance
Act, 1994 empowers the Central Government to frame Rules pertaining to
"the credit of Service Tax paid on the services consumed or duty paid or
deemed to have been paid on goods used for providing a taxable service".
Thus, it is his contention that scope of the rules framed under Section
94(2)(eee) of Finance Act, 1994 is limited to the service consumed in
providing taxable services. Further, referring to the definition of 'input
service' prescribed under rule 2(l) of the CENVAT Credit Rules, 2004, the
learned AR has submitted that between clause (i) and clause (ii) of said
Rule, absence of phrase "in or in relation to" in clause (i) shows that the
scope of input services for provider of output service is narrower, when
compared to that applicable to manufacturer. Further, he has submitted
that so far as the scope of 'output service' is concerned, it is limited within
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the scope of taxable service as defined under section 65B(51) of the
Finance Act, 1994 as "any service on which Service Tax is leviable under
Section 66B." Section 66B excludes the service provided in the negative
list (specified under Rule 66D of the Finance Act, 1994) from the scope of
taxable service. In the said negative list of services, clause (ii) excludes
services by way of - (i) extending deposits, loans or advances in so far as
the consideration is represented by way of interest or discount. The
definition of 'output service' w.e.f. 1.7.2012 has been changed to mean
"any taxable service excluding the taxable service referred to under clause
(zzp) of clause (105) of Section 65 of the Finance Act, provided by the
provider of taxable service, to a customer, client, subscriber, policy holder
or any other person, as the case may be, and the expressions 'provider'
and 'provided' shall be construed accordingly." Thus to cover within the
scope of input service, the services should be consumed or at least used
for providing the output services.
20. He has further submitted that the definition of input service has
undergone change after 1.4.2011. From the scope of amended definition of
'input service' "activities relating to business" has been deleted. In the
amended definition, it contained two limbs. The first limb allowed the credit
of tax paid on any services used by the provider of taxable service for
providing output service; the second limb is inclusive clause which included
specific services used in relation to various activities used by provider of
taxable service. It is submitted that any interpretation making a legislative
provision redundant must be avoided and as the legislature has given an
extended meaning to the definition of 'input service' for the manufacturer in
clause (ii) of the definition and a restrictive meaning to that a service
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provider clause (i) should be appreciated. Further, he has submitted that
since the activities of advancing principal amount of loans cannot be
treated as 'output service', insurance premium paid for depositors cannot
be considered as input service. Answering the argument that deposit is
basically as input service for all other activities undertaken by the Bank, the
learned AR has submitted that it is not correct in so far as deposit are
solely transaction in money and are raised for providing loan, which is also
a transaction in money not covered within the scope of Service Tax or
excluded as per Section 66B being not a taxable service. He has further
submitted that there are host of other services provided by the Banks,
namely, safe deposit vault, issuance of DD against cash, issuance of
cheque books for transferring money, providing Bank Guarantee etc. In all
such cases, common input services namely, hiring of premises, security
service, management, maintenance and repair service, on which credit
would be available to the Banks. Further, in case of issuance of DD,
cheque books etc., no Service Tax is leviable on the principal amount, tax
is charged only on the fees levied by the Bank for issuance of these
services. Thus, any transaction in money including making deposit,
receiving deposits/extending loan cannot be treated as input or output
service.
21. Further, he has submitted that DICGC provides insurance only to the
depositor of the Bank and this was not for the benefit of the Bank or for
protecting the interest of the Bank. It was meant for the benefit of small
depositors. Reference in this regard was made to the judgment of this
Tribunal in the case of M/s DICGC's case (supra). The learned AR
submitted that there is no contractual relationship between the appellant
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and the Bankers. The Corporation does not execute any contract with the
Bank, as the activity is statutory in nature. The learned AR further
submitted that the Bank cannot be treated as an 'insured person' and
hence accordingly, not the recipient of insurance service from DICGC. This
is the reason the Bank has no freedom but to insure all their deposits
which is limited to the extent of Rs.1.00 lakh. In the event of liquidation, the
Bank is not paid by DICGC any amount to offsets its liabilities. The
recipient of the benefit is the depositor, hence Bank cannot claim the
receipt of the service. merely because the Bank pays the premium will not
make the Bank as recipient of service.
22. Referring to the judgment of the Hon'ble Supreme Court in Maruti
Suzuki Ltd. Vs. Commissioner of Central Excise, Delhi - 2009 (240) ELT
641 (SC), he has submitted that in the said case, it has been held that in
case where electricity is used for sale outside the factory, the nexus
between the process and the use gets disconnected, hence the credit is
admissible. Drawing analogy from the principles laid down in the said case,
it is his contention that the service has not been consumed for providing
the taxable services. Firstly, these services have not at all been consumed
by the Banks but have been consumed by the depositors; secondly the
service has not been consumed for providing the "taxable service".
Replying to the argument of the appellant that they have already
discharged 50% of the CENVAT Credit availed in compliance with Rule
6(3B) of CCR,2004 the learned AR has submitted that the terms 'input and
output service' have already been defined and if the tax paid on the
invoices does not fall within the scope of the 'input services', thus credit
could not have been availed on the same. It is his contention that in the
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present case if the service provided by the DICGC is held not to be
covered within the scope of input service then irrespective of Rule 6(3B),
the credit of the same cannot be availed. He has submitted that the
provision of law is to be read in harmony and even the interpretation which
is inconsistent with the legal provision ought to be avoided. He has
submitted that interpretation advanced by the appellant that since they
have already been allowed to avail credit by depositing 50% of the credit
availed, therefore, the credit availed on Service Tax paid on insurance
premium automatically admissible to them, is incorrect inasmuch as a
person can avail credit of input service and not all services that were used
in running the business. Accordingly, irrespective to the scope of Rule
6(3B), the credit of the Service Tax paid on insurance premium to DICGC
by the Bank not admissible. The learned AR further submitted that the
principles referred by the appellant laid down by the Hon'ble High Court of
Gujarat in Mundra Ports & Special Economic Zone - 2015 (39) STR 726
(Guj) and the judgment of Hon'ble Andhra Pradesh High Court in the case
of Sai Samhita Storage Ltd. - 2011 (23) STR 341 (AP) have already been
considered by the jurisdictional Hon'ble Bombay High Court in the case of
Bharat Airtel Ltd. Vs. CCE - 2014 (35) STR 865 (Bom). The Hon'ble High
Court in para 27 of the judgment observed that the towers cannot be
considered as an integral part in providing the telecom services.
23. Referring to appeals mentioned at Sr. No. 3 and 6, the learned AR
submitted that the appellant have availed Service Tax credit under Rule 9
of CENVAT Credit Rules, 2004. The appellants had already deposited the
Service Tax. It is now their claim that this is a procedural irregularity and
hence CENVAT Credit cannot be denied to them. Since they have
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contravened the provisions of Rule 9 of the CENVAT Credit Rules, which is
mandatory in nature, therefore, availing credit at back dated invoice cannot
be allowed.
24. Heard both sides at length and perused the records.
25. The short issue involved in the present appeals for determination is:
whether the appellants are eligible to avail CENVAT Credit of the amount
of Service Tax paid to DICGC for insuring the deposits of the customers
involving the period after 01.4.2012.
26. The main arguments of the appellants, are that it is a statutory
obligation in carrying out the banking business to comply with the
provisions of DICGC Act, 1961 where under the deposits of customers are
required to be insured. Also, it is contended that without accepting the
deposits, the core banking business i.e. lending cannot be carried out,
therefore, payment of insurance premium be construed as used for
providing output service i.e. banking service. Besides, it is pleaded that the
scope of the definition 'input service' is very wide and it covers all services
that are required for providing an output service, to be considered as an
input service. It is their further argument that Rule 6(3B) of CENVAT
Credit Rules,2004 prescribes that a Banking Company engaged in
providing services by way of extending deposits, loans or advances has
the option to discharge 50% of the CENVAT Credit availed in a month,
therefore, accepting deposits from the public be considered as a service
and the appellants are eligible to avail CENVAT Credit on the Service Tax
paid on premium amount of insurance paid to DICGC.
19
27. Revenue's contention on the other hand is that accepting deposits
from the customers by the appellants is not a "service" as defined under
Section 65B(44) of the Finance Act, 1994; the activity of lending is also not
a service, as the consideration in the form of interest finds a place under
the negative list enumerated under Section 66D of the Finance Act, 1994;
also it falls under the exclusion sub-clause (iii) of the clause (a) of the said
definition, being a transaction in money. It is their further argument that
once the activity of accepting deposit is not a service, consequently cannot
come within the scope of "output service" as defined under Rule 2(p) of
CENVAT Credit Rules, 2004. Hence, the definition of input service laid
down at Rule 2(l) of the CENVAT Credit Rules, 2004 is also not satisfied.
It is also contended that Section 94(eee) of the Finance Act, 1994,
empowers to make rules in relation to the credit of service tax paid on the
services consumed, accordingly, the input service definition cannot be
interpreted to provide the meaning beyond the scope of rule making
power. The revenue has also argued that Rule 6(3B) of CCR,2004 is
applicable when the input service qualifies to be eligible to credit , It cannot
be interpreted to mean that the said provision allows the appellant to avail
credit on the activity which is not at all a 'service' least an input service.
28. To examine the rival contentions, analysis of relevant provisions
needs to be carried out. However, before undertaking such an exercise, it
is necessary to have a brief understanding of the historical growth of credit
scheme of the duty/tax paid on the inputs, input services and capital goods
which are used in the activity of manufacture of dutiable goods or providing
taxable services. Initially credit of the duty paid on the inputs used at the
20
manufacturing stage, extended in a limited sense in the form of proforma
credit under the Rule 56 of the erstwhile Central Excise Rules, 1944. It
covered limited number of raw materials/inputs on which credit was
allowed when used in the manufacture of few dutiable final products. But,
with the introduction of MODVAT scheme in the year 1986, its scope was
expanded by inserting chapter VAAA in the erstwhile Central Excise
Rules,1944, 1944, where under more 'inputs' were covered by providing
definition of 'input' and 'final product'. Later, the Modvat credit was
extended to 'capital goods' in the year 1994. Even though service tax levy
on various services introduced into the indirect tax system by passing
Finance act, 1994, however, credit of service tax paid on input services
has been allowed only from 2004by replacing CENVAT Credit Rules, 2002
with the new set of Credit Rules. Needless to emphasize,the sole objective
of the credit system, from the very beginning, as a measure of tax reform
has been to avoid cascading effect, that is, to minimize and avoid tax on
tax already paid on the inputs/raw materials/services. With this objective,
tax paid on the inputs, input services, capital goods used in or in relation
to manufacture of the final products and for providing output serviceshas
been allowed as credit for its utilization in discharging the liability on final
product and out put service.
29. Reading the provisions governing the credit scheme since its
beginning, it could easily be discerned that though the objective has
always been to avoid cascading effect, but simultaneously through various
parameters/restrictions including by way of laying down the definition of
'inputs', capital goods, input services, and other provisions prescribing
necessary procedure, the extent of credit of the tax/duty paid as
21
admissible to off set against the duty/tax liability on the goods
manufactured or service provided has been legislated under the rule-
making power. It has never been the intention of the legislator that
whatever duty or tax paid on any of the inputs, capital goods, input
services which has been used/consumed in or in relation to the
manufacture of finished goods or for providing taxable service would be
eligible as credit to offset the liability of duty/tax payable on the
manufacture of final products or taxable services rendered, as the case
may be.
30. In the present case, the central point of dispute is admissibility of
CENVAT Credit of the Service Tax paid on insurance premium by the
appellant bankers to DICGC insuring the small investors which is
mandatory under the DICGC Act, 1961. Payment of such Service Tax
whether comes within the definition of 'input service' or otherwise is the
question needs an answer. But, to make our task easier it is essential to
restate the principle of interpretation applicable to a tax legislation. The
Hon'ble Bombay High Court in the case of GREATSHIP (INDIA)
LTD.Vs.COMMISSIONER OF SERVICE TAX, MUMBAI-I2015 (39) S.T.R.
754 (Bom.) observed as:
"34. It would thus appear that it is settled position of law that in taxing statute,
the Courts have to adhere to literal interpretation. At first instance, the Court is
required to examine the language of the statute and make an attempt to derive its
natural meaning. The Court interpreting the statute should not proceed to add the
words which are not found in the statute. It is equally settled that if the person
sought to be taxed comes within the letter of the law he must be taxed, however,
great the hardship may appear to the judicial mind to be. On the other hand, if the
Crown seeking to recover the tax, cannot bring the subject within the letter of the
law, the subject is free, however apparently within the spirit of law the case might
otherwise appear to be. It is further settled that an equitable construction, is not
admissible in a taxing statute, where the Courts can simply adhere to the words of
the statute. It is equally settled that a taxing statute is required to be strictly
construed. Common sense approach, equity, logic, ethics and morality have no
22
role to play while interpreting the taxing statute. It is equally settled that nothing
is to be read in, nothing is to be implied and one is required to look fairly at the
language used and nothing more and nothing less. No doubt, there are certain
judgments of the Apex Court which also holds that resort to purposive
construction would be permissible in certain situation. However, it has been held
that the same can be done in the limited type of cases where the Court finds that
the language used is so obscure which would give two different meanings, one
leading to the workability of the Act and another to absurdity."
31. The definition of 'input service' as prescribed in the year 2004
though amended from time to time, but undergone a metamorphosis in the
year 2012. Therefore, it is relevant to read the said definitions for the
period prior to 01.4.2012 and there after.
Prior to 01.4.2012:
(l) "input service" means any service,-
(i) used by a provider of taxable service for providing an output service; or
(ii) used by the manufacturer, whether directly or indirectly, in or in relation
to the manufacture of final products and clearance of final products upto the place
of removal, and includes services used in relation to setting up, modernization,
renovation or repairs of a factory, premises of provider of output service or an
office relating to such factory or premises, advertisement or sales promotion,
market research, storage upto the place of removal, procurement of inputs,
activities relating to business, such as accounting, auditing, financing, recruitment
and quality control, coaching and training, computer networking, credit rating,
share registry, and security, inward transportation of inputs or capital goods and
outward transportation upto the place of removal ;
After 01.4.2012:
(l) "input service" means any service, -
(i) used by a provider of [output service] for providing an output service; or
(ii) used by a manufacturer, whether directly or indirectly, in or in relation to the
manufacture of final products and clearance of final products upto the place of removal,
and includes services used in relation to modernisation, renovation or repairs of a factory,
premises of provider of output service or an office relating to such factory or premises,
advertisement or sales promotion, market research, storage upto the place of removal,
procurement of inputs, accounting, auditing, financing, recruitment and quality control, coaching
and training, computer networking, credit rating, share registry, security, business exhibition,
23
legal services, inward transportation of inputs or capital goods and outward transportation upto
the place of removal;
[but excludes], -
[(A) service portion in the execution of a works contract and construction services
including service listed under clause (b) of section 66E of the Finance Act
(hereinafter referred as specified services) in so far as they are used for -
(a) construction or execution of works contract of a building or a civil structure or a
part thereof; or
(b) laying of foundation or making of structures for support of capital goods,
except for the provision of one or more of the specified services; or]
[(B) [services provided by way of renting of a motor vehicle], in so far as they relate
to a motor vehicle which is not a capital goods; or
[(BA) service of general insurance business, servicing, repair and maintenance, in so far
as they relate to a motor vehicle which is not a capital goods, except when used
by -
(a) a manufacturer of a motor vehicle in respect of a motor vehicle manufactured by
such person; or
(b) an insurance company in respect of a motor vehicle insured or reinsured by such
person; or]
(C) such as those provided in relation to outdoor catering, beauty treatment, health
services, cosmetic and plastic surgery, membership of a club, health and fitness
centre, life insurance, health insurance and travel benefits extended to employees
on vacation such as Leave or Home Travel Concession, when such services are
used primarily for personal use or consumption of any employee;]
32. To attempt a simple analysis of the definition as has been in force
after 01.4.2012, the same could broadly be divided into four parts. The
first part lays down, any service used by a provider of output service for
providing the output service, and the second part prescribes use of any
service by a manufacturer who uses the services directly or indirectly in or
in relation to manufacture of the final product; the inclusive portion of the
definition which is common to both service provider and manufacturer,
enumerates the specific services which are used in various activities both
by the service provider as well as the manufacturer; finally, the exclusion
clause enumerates various services, which in any case, shall not be
considered as input services. Therefore, it can safely be concluded that all
or any of services that suffers service tax in the hands of the service
24
providers or the manufacturer, as the case may be, cannot said to be an
'input service' as defined under Sec. 2(l) of CCR,2004 and eligible to
credit.
33. To appreciate the true meaning and scope of the 'input service',
which means any 'service', it is necessary to refer to the meaning of
'service', and the scope of negative list of services, as defined under
Finance Act,1994; 'output service', 'exempted service' as defined under the
Cenvat Credit Rules,2004.
Sec. 65B(44) "service" means any activity carried out by a person for another for
consideration, and includes a declared service, but shall not include--
(a) an activity which constitutes merely,--
(i) a transfer of title in goods or immovable property, by way of sale, gift or
in any other manner; or
(ii) such transfer, delivery or supply of any goods which is deemed to be a
sale within the meaning of clause (29A) of Article 366 of the
Constitution, or
(iii) a transaction in money or actionable claim;
(b) a provision of service by an employee to the employer in the course of or in
relation to his employment;
(c) fees taken in any Court or tribunal established under any law for the time being in
force.
Section 66D Negative list of services:
(a)...........
(n) services by way of--
(i) extending deposits, loans or advances in so far as the consideration is represented
by way of interest or discount;
(ii) inter se sale or purchase of foreign currency amongst banks or authorised dealers
of foreign exchange or amongst banks and such dealers;
Rule (2) of Cenvat Credit Rules, 2004
p) "output service" means any service provided by a provider of service located in the
taxable territory but shall not include a service, -
(1) specified in section 66D of the Finance Act; or
25
(2) where the whole of service tax is liable to be paid by the recipient of
service.]
[(e) "exempted service" means a -
(1) taxable service which is exempt from the whole of the service tax leviable
thereon; or
(2) service, on which no service tax is leviable under section 66B of the Finance Act;
or
(3) taxable service whose part of value is exempted on the condition that no credit of
inputs and input services, used for providing such taxable service, shall be taken;
[but shall not include a service -
(a) which is exported in terms of rule 6A of the Service Tax Rules, 1994; or
(b) by way of transportation of goods by a vessel from customs station of clearance
in India to a place outside India;]
34. In the present case, the Revenue's arguments is that the deposit
received from the customers has been insured by the banks and the
activity of accepting 'deposits' being not a service, inasmuch as the
consideration on deposits, in the form of interest flows from the Banks to
the customers, hence, the Banks are receivers of service of deposit
against consideration of the interest paid by them to depositors; when the
Banks deposit their money in another Banks/institutions, such deposits are
not insured, and the interest paid/received on such deposits falls under the
negative list of service. Similarly, the activity of loans or advances
provided by the Banks as service providers to the customers out of the
deposits received from the public, the consideration thereof received by the
Banks as 'interest' from the borrower is placed in the negative list defined
under Section 66D of the Finance Act, 1994, accordingly, falls outside the
scope of 'output service'; and consequently also falls outside the scope of
'input service'. The argument of the appellant banks, on the other hand, is
that deposit is an activity/ service which has a direct bearing/nexus on the
core banking function i.e. lending and borrowing, also it is being mandatory
to insure the small investors/depositors under the DICGC Act, 1961,
therefore, insuring the deposits ought to be considered as an input service.
26
35. Considering the arguments vis-à-vis the statutory provisions and
keeping in mind the concept of credit facility of the tax paid on services
usedfor discharging Service Tax, it cannot be denied that all
services/activities which are required for promoting or running the business
cannot be considered as 'input service' ; the CENVAT Credit facility of the
tax paid on such services, could be allowed only when it falls within the
scope of the present definition of 'input service'.
36. Needless to mention, there are myriad activities/functions, the
modern banks undertake to augment the banking business and it is not
limited to the precincts of deposit and lending only. The money deposited
in a locker, and the rent paid by the customer to the bank for such
purpose, is a service provided by the Bank to the customer and the
consideration in the form of rent is taxable; consequently, it is an output
service for the Banks. While placing the extent to which the banking
activities/operations be subjected to Service Tax levy, it has been made
clear under Section 66D of the Finance Act,1994, that is, the negative list;
which prescribes that services rendered by way of extending deposit,
loans or advances, to the extent the consideration is represented by
interest is not leviable to service tax. In other words, the consideration
received in extending deposit, loan or advance being out of the service tax
net cannot come under the scope of taxable services, defined at Section
66B of the said Act. Hence, the activity for providing the said service
cannot also be an input service.
27
37. It is a common knowledge that the customers deposit their money in
the Banks and in turn receive interest as consideration from the Banks.
The money received by the Bank from the customers is not kept idle but
further invested by them in various manners in furtherance to their Banking
business, one such way is by providing loans or advances, for which the
Banks receive consideration as interest. The deposits kept in the Bank are
in different forms like, saving bank deposit, current deposit, fixed deposit
etc. The consideration received by the customers, in the form of interest,
and such deposit per se is not a taxable service, since the consideration,
in the form of interest, does not come under the Service Tax net. Thus, the
inference that could safely be drawn from the above analysis is that even
though deposit is an activity relating to banking business but not a taxable
service under the Finance Act, 1994, as the consideration for such service
is exempted.
38. The contention of the Advocates for the appellants that since lending
is the core banking business and without accepting the deposit, lending
business by the Bank since not possible, therefore, the activity of accepting
deposit be considered as provision of service for the core business of the
banking. Also, the argument of the appellants is that compliance of the
provisions of DICGC Act, 1961 as per the RBI guidelines is mandatory and
to commence and continue the business of banking, therefore, it is an input
service used for providing output service. Both these arguments would not
also hold good, firstly, in view of the above analysis that deposit by
customers does not involve any service by the bank to the customer, and
interest against loans or advances covered under the provisions of Section
66D of the Finance Act, 1994; secondly, this plea would have some basis
28
under the definition of 'input service' as was in force prior to 01.4.2012,
which, interalia in the inclusive portion contained the expression 'the
activities relating to business". With the deletion of the said expression, all
the activities which contribute to the commencement and continuation of
the banking business may not be relevant for bringing the same within the
fold of definition of 'input service' post amendment era. It is settled principle
of interpretation that the specific 'words' or 'expression' used in the
provision carries with it the intention of the legislature, therefore, its
incorporation or deletion be given due importance in understanding the
meaning of the provision. Thus, the deletion of the expression 'activities
relating to business' post 01.4.2012 is with some significance and in that
sense, the new amended provision has to be read and understood. Hence,
the argument that to commence and continue the banking business,
insuring the deposits of customers is mandatory, accordingly, the service
tax paid on such insurance premium, become an input service, in our
opinion could not be sustained under the amended definition of 'input
service' brought into effect from 01.4.2012. Besides, it is not the business
of the bankers which has been insured, but the deposit of the customers,
with the social objective of the Government/RBI to protect the interest of
small depositors, in the event the banks undergoing liquidation, the
customers will be directly paid the insured amount.
39. Now, coming to the interpretation relating to Rule 6(3B) of CENVAT
Credit Rules, 2004 advanced by the appellant in support of their argument
that since already 50% of the credit was directed to be reversed under the
said provision, therefore, recovery of the remaining 50% of the credit is
29
untenable in law. To address the said argument, it is necessary to refer
Rule 6 of the CENVAT Credit Rules, 2004, which reads as under: -
6. [Obligation of a manufacturer or producer of final products and a [provider
of output service]]
(1) The CENVAT credit shall not be allowed on such quantity of [input used in or
in relation to the manufacture of exempted goods or for provision of exempted goods or
for provision of exempted services, or input service used in or in relation to the
manufacture of exempted goods and their clearance upto the place of removal or for
provision of exempted services], except in the circumstances mentioned in sub-rule (2):
[PROVIDED that the CENVAT credit on inputs shall not be denied to job worker
referred to in rule 12AA of the Central Excise Rules, 2002, on the ground that the said
inputs are used in the manufacture of goods cleared without payment of duty under the
provisions of that rule.]
[ Explanation 1: For the purposes of this rule, exempted goods or final products
as defined in clauses (d) and (h) of rule 2 shall include non-excisable goods cleared for a
consideration from the factory.
Explanation 2:Value of non-excisable goods for the purposes of this rule, shall be
the invoice value and where such invoice value is not available, such value and where
such invoice value is not available, such value shall be determined by using reasonable
means consistent with the principles of valuation contained in the Excise Act and the
rules made thereunder.]
[(2) Where a manufacturer or provider of output service avails of CENVAT credit
in respect of any inputs services and manufactures such final products or provides such
output service which are chargeable to duty or tax as well as exempted goods or services,
then, the manufacturer or provider of output service shall maintain separate accounts for-
(a) the receipt, consumption and inventory of inputs used-
(i) in or in relation to the manufacture of exempted goods;
(ii) in or in relation to the manufacture of dutiable final products excluding
exempted goods;
(iii) for the provision of exempted services;
(iv) for the provision of output services excluding exempted services; and
(b) the receipt and use of input services-
(i) In or in relation to the manufacture of exempted goods and their
clearance upto the place of removal;
(ii) In or in relation to the manufacture of dutiable final products,
excluding exempted goods, and their clearance upto the place of
removal;
(iii) For the provision of exempted services; and
(iv) For the provision of output services excluding exempted services, and
shall take CENVAT credit only on inputs under sub-clauses (ii) and
(iv) of clause (b).]
[(3) Notwithstanding anything contained in sub-rules (1) and (2), The
manufacture of goods or the provider of output service, opting not to
maintain separate accounts, shall follow 2[any one] of the following
options, as applicable to him, namely:-
[(i) (i) pay an amount equal to 4[six per cent.] of value of the exempted goods
and 5 [seven per cent. of value of the] exempted services; or
(ii) pay and amount as determined under sub-rule (3A); or
(iii) maintain separate accounts for the receipt, consumption and inventory
of inputs as provided for in clause (a) of sub-rule (2), take CENVAT credit
only on inputs under sub-clauses (ii) and (iv) of said clause (a) and pay an
amount as determined under sub-rule (i) and (ii) of clause (b) and sub-
30
clauses (i) and (ii) of clause (c) of sub-rule (3A) shall not apply for such
payment:
PROVIDED that if any duty of excise is paid on the exempted goods, the same
shall be reduced from the amount payable under clause (i):
PROVIDED FURTHER that if any part of the value of a taxable service has been
exempted on the condition that no CENVAT credit of inputs and input services, used for
providing such taxable service, shall be taken then the amount specified in clause (i) shall
be [ seven per cent.] of the value so exempted:]
[ PROVIDED that in case of transportation of goods or passengers by rail the
amount required to be paid under clause (i) shall be an amount equal to 2 percent of value
of the exempted services.]
Explanation I: If the manufacturer of goods or the provider of output service,
avails any of the option under this sub-rule, he shall exercise such option for all exempted
goods manufactured by him or, as the case may be, all exempted services provided by
him, and such option shall not be withdrawn during the remaining part of the financial
year.
Explanation II:For removal of doubt, it is hereby clarified that the credit shall not
be allowed on inputs used exclusively in or in relation to the manufacture of exempted
goods or for provision of exempted services and on input services used exclusively in or
in relation to the manufacture of exempted goods and their clearance upto the place of
removal or for provision of exempted services.
Explanation III:NO CENVAT credit shall be taken on the duty or tax paid on any
goods and services that are not inputs or input services.]
(3A) ..................................................
[(3B)] Notwithstanding anything contained in sub-rules (1), (2) and (3), a banking
company and a financial institution including a non-banking financial company,
3[engaged in providing services by way of extending deposits, loans or advances] shall
pay for every month an amount equal to fifty per cent. of the CENVAT credit availed on
inputs and input services in that month.
...............................................................................................
40. A plain reading of the aforesaid sub-rule (1) reveals that CENVAT Credit is not admissible of the service tax paid on inputs used in the manufacture of exempted goods or for providing exempted service. The subsequent sub-rule (2) prescribes that in the event common inputs are used both for taxable and exempted services, separate accounts for receipt and use of input service in the providing taxable and exempted service be maintained. The sub-rule (3) lays down the procedures, for the assessee who is unable or choose not to comply with the provisions of sub-rule (2), whereunder he can opt to reverse certain presumptive amount 31 i.e. 6%, or reverse the amount as per the formula prescribed under Sub- Rule (3A) or avail credit only on the inputs or input services used in the manufacture of dutiable goods or in providing taxable service on the basis of records maintained. However, sub-rule (3B), as was in force during the material time, which begins with the non-obstante clause, was applicable to banking company and financial institutions, engaged in providing services by way of extending deposits, loans or advances shall be required to pay 50% of the Credit availed on the inputs and input services during the month. Therefore, it is clear that irrespective of the situation whether common inputs or input services are used for providing output services and exempted services, a banking company and a financial institution is required to be 50% of the credit availed on the input and input services in that month. The argument of the appellant that they become eligible to avail credit of the service tax paid on insurance premium for deposits to DICGC , in view of the sub-rule (3B), in our opinion, is fallacious. The said sub-rule directs payment of 50% credit on the input or input services availed. In the aforesaid analysis, we came to the conclusion that the insurance premium paid on deposits to DICGC is not an input service, consequently, the service tax paid on such insurance premiums, cannot be available as credit to the appellant during a particular month. The payment of 50% credit means that it is from the admissible amount of credit on inputs or input services as defined under the cenvat credit rules, 2004.
41. Since we have decided the issues on merit holding that cenvat credit of the service tax paid on insurance premium is not admissible, we 32 do not find necessary to deliberate other procedural issues denying the credit on the same.
42. On going through the case laws cited by the appellants and the revenue, we find that the same are pertaining to the definitions as was in existence period prior to 1.4. 2011, hence could not be of much assistance and accordingly not applicable to the facts of the present case. The finding by SMC of this Tribunal in DSC Bank Ltd.'s case which was followed subsequently in Punjab National Bank's case(supra) is per incuriam in as much it has been passed without considering the relevant statutory provisions and hence cannot be considered as binding precedent
43. On the issue of penalty, it cannot be denied that there has been a lot of changes in the cenvat credit provisions after 01.4.2011 and also on introduction of negative list service tax regime from July 2012. Therefore, since the present issue relates to interpretation of law, and the demand notices have been issued for normal period, we do not find justification in imposing penalty on the appellants.
44. To sum up, the amount of service tax paid on the insurance premium relating to the deposits of customer to DICGC by the Appellant Banks cannot be considered as an "input service" accordingly, credit of the said amount is not admissible to the Appellants. The amount of 50% of the available credit in a month, required to be paid under Rule 6(3B) of CCR,2004 by the Appellants, cannot include the inadmissible credit of service tax paid on insurance premium paid to DICGC. Since the issue involved is a pure question of interpretation of law, no penalty is 33 imposable on the appellants. Consequently, the impugned orders against which the appellants are in appeal are modified by setting aside penalties imposed and appeals are partly allowed to that extent.
45. As far as revenue's appeal are concerned, Appeal No. ST/86160/16 which is filed challenging the impugned Order on the issue of penalty, the same is hereby rejected. The appeal No. ST/85915/16 which is filed assailing the impugned order on merit, the same is allowed, setting aside the impugned order of the Ld. Commissioner to the extent it is contrary to the findings recorded above.
46. All appeals are disposed of as above. MA disposed.
(Pronounced in court on 12.02.2019)
(Sanjiv Srivastava) (Dr. D.M. Misra)
Member (Technical) Member (Judicial)
SM.
34
47. While concurring with the order as per learned brother Member (Judicial), I would add as follows:-
47.1 The issue for consideration can be summarized as follows:-
(i) Whether the services in taking deposits for the purpose of further lending can be considered as a service under Section 65B(44) of the Finance Act, 1994.
(ii) If so, whether such services fall under the negative list under Section 66D.
(iii) Whether the credit in respect of service tax paid on premium to insure the deposits can be considered as an input service for purpose of allowing the credit.
(iv) Whether Rule 6(3)(b) of the Cenvat Credit Rules be a factor for determining the eligibility to the credit in respect of services which otherwise do not qualify as input services under Rule 3 of the Cenvat Credit Rules.
47.2 Learned brother has succinctly laid down the facts of the case and also the provisions of law on the subject, hence I am not 35 reproducing the same and would be referring to the para's from his order.
47.3 In para 32, Section 65B(44) definition of 'service' has been extracted. It clearly shows that for an activity to be considered as a service, the said activity should be performed for a consideration. The word 'consideration' as used in the said section refers to the consideration by the service recipient of the service provided. Thus consideration is paid by recipient to the service provider. In the present case the deposits are being made by various depositors with the financial institutions/banks. Banks need these deposits for the purpose of conducting their business and in turn for receiving deposits, paid certain amounts as interest to the depositors. Thus banks are not receiving any consideration for deposits taken by them from the depositors. Even otherwise the DICGC Act provides for protection of the interest of the depositors and not the bank in case the bank goes worst. In absence of any consideration from the depositors to the bank for the activity of accepting deposits, the same cannot be considered as a service in terms of Section 65B(44).
3647.4 If that be so, any service tax paid in relation to the premium for insuring interest of the depositors cannot be considered as an input service as defined under Rule 2 of the Cenvat Credit Rules, 2004. (The definition has been reproduced in para 30.
48. Further, Cenvat Credit Rules for the purpose of service tax has been made in terms of Section 94(eee) of the Finance Act, 1994. Any rules framed in terms of the said section need to be interpreted in terms of the said section and for purpose of carrying out the same section. Section 94(eee) of the Finance Act is as follows:-
"the credit of service tax paid on the services consumed or duties paid or deemed to have been paid on goods used for providing a taxable service."
A reading of the said section makes it clear that the Central Government could have made rules only in respect of allowing the credit of the service tax paid on services consumed for providing a taxable service. In case the service provided is not a taxable service, in that case the Central Government could have made any rules for allowing credit in respect of service tax paid on the service consumed in providing such taxable service. 37
49. It has been argued that after 1.4.2012, the word 'output service' has been defined to mean a service provided by the provider of service located in the taxable territory. This means that output service could be both taxable and non-taxable service. Such interpretation will go contrary to the scheme of Section 94 (eee) and could not be agreed to. Definition of output service and will have to be read in consonance with the provisions of Section 94 (eee) of the Finance Act, 1994 and thus it will be referring only to taxable services. In case of Intercontinental Consultants and Technocrats [2018 (10) GSTL 0401 (SC)] re-stated the said principle as follows:
"26) It is trite that rules cannot go beyond the statute. In Babaji Kondaji Garad, this rule was enunciated in the following manner:
"Now if there is any conflict between a statute and the subordinate legislation, it does not require elaborate reasoning to firmly state that the statute prevails over subordinate legislation and the bye-law, if not in conformity with the statute in order to give effect to the statutory provision the Rule or bye-law has to be ignored. The statutory provision has precedence and must be complied with."
27)The aforesaid principle is reiterated in Chenniappa Mudaliar holding that a rule which comes in conflict with the main enactment has to give way to the provisions of the Act. 38
28) It is also well established principle that Rules are framed for achieving the purpose behind the provisions of the Act, as held in Taj Mahal Hotel:
'the Rules were meant only for the purpose of carrying out the provisions of the Act and they could not take away what was conferred by the Act or whittle down its effect."
29) In the present case, the aforesaid view gets strengthened from the manner in which the Legislature itself acted. Realising that Section 67, dealing with valuation of taxable services, does not include reimbursable expenses for providing such service, the Legislature amended by Finance Act, 2015 with effect from May14, 2015, whereby Clause (a) which deals with 'consideration' is suitably amended to include reimbursable expenditure or cost incurred by the service provider and charged, in the course of providing or agreeing to provide a taxable service. Thus, only with effect from May 14, 2015, by virtue of provisions of Section 67itself, such reimbursable expenditure or cost would also form part of valuation of taxable services for charging service tax.
Though, it was not argued by the learned counsel for the Department tha t Section 67 is a declaratory provision, nor could it be argued so, as we find that this is a substantive change brought about with the amendment to Section 67 and, therefore, has to be prospective in nature. On this aspect of the matter, we may usefully refer to the Constitution Bench judgment in the case of Commissioner of Income Tax (Central)-I, New Delhi v. Vatika Township Private Limited8 wherein it was observed as under: 39
"27. A legislation, be it a statutory Act or a statutory rule or a statutory notification, may physically consists of word sprinted on papers. However, conceptually it is a great deal more than an ordinary prose. There is a special peculiarity in the mode of verbal communication by a legislation. A legislation is not just a series of statements, such as one finds in a work of fiction/non-fiction or even in a judgment of a court of law. There is a technique required to draft a legislation as well as to understand a legislation. Former technique is known as legislative drafting and latter one is to be found in the various principles of "interpretation of statutes". Vis- à-vis ordinary prose, a legislation differs in its provenance, layout and features as also in the implication as to its meaning that arise by presumptions as to the intent of the maker thereof.
28. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities. Law passed today cannot apply to the events of the past. If we do something today, we do it keeping in view the law of today and in force and not tomorrow's backward adjustment of it. Our belief in the nature of the law is founded on the bedrock that every human being is entitled to arrange his affairs by relying on the existing law and should not find that his plans have been retrospectively upset. This principle of law is known as lex prospicit non respicit: law looks forward not backward. As was observed in Phillipsv. Eyre[(1870) LR6 QB 1] , a retrospective legislation is contrary to the general principle that 40 legislation by which the conduct of mankind isto be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law.
29. The obvious basis of the principle against retrospectivity is the principle of "fairness", which must be the basis of every legal rule as was observed in L'Off ice Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd. Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later.""
50. Rule 3 of the Cenvat Credit Rules provides that credit of taxes paid on input services can be allowed only if it is used for providing an output service. In case there is no output service which is taxable or is falling under the category of exempted services or fall outside the definition of the service itself, CENVAT credit is not taxable except in a situation when the same common 41 input service is being used for providing both taxable and non- taxable output service. In the present case the service tax paid for which credit is sought is in respect of the services which,- firstly, do not fall within the definition of service. Secondly, if they fall within the definition of service, then they are excluded by virtue of negative list prescribed under Section 66D, hence get excluded from the scheme of output service. If deposits do not fall within the category of output service, CENVAT credit in respect of services that go exclusively for taking such deposits is not admissible. There can be certain services such as renting of immovable property, I.T. services which are used as common input service for accepting deposits and for providing other taxable services which qualify as output service under the scheme of Cenvat Credit Rules. Credit in respect of these input services, is eligible, and availed but to the extent of providing such non-taxable services/exempted services is sought to be reversed by application of Rule 6.
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51. Rule 6(3B) referred to in para 38 of the order is a mechanism for reversal of credit used for such activities which are an output service but qualify to be exempt service. Rule 6(3B) when interpreted in light of Section 94 (eee) of the Finance Act, 1994, would imply that "Banking and financial institutions including a non-banking financial company engaged in providing services by way of extending deposits, loans or advances" are required to reverse 50% of the CENVAT credit availed i.e. eligible credit taken by them during that month. This rule does not create an additional mechanism for allowing credit of those service taxes paid which do not qualify to be eligible credit in terms of Rule 2 and 3 of the Cenvat Credit Rules, 2004.
52. It has been argued that phrase "services by way of extending deposits, loans or advances" used in Section 66D is identical to the phrase used in Rule 6(3B) of the CENVAT Credit Rules, 2004. Hence the credit in respect input services for extending/ accepting deposits is admissible, in terms of the said Rule subject to reversal of 50% of the same. Fallacy in the said argument is self evident from the reading of the two provisions. While in Section 66D the phrases is used qua the expression service, in Rule 6(3B) it is used 43 qua the person providing such service. Rule 6(3B) casts an obligation on such person who provides such service to reverse to reverse the eligible credit. This rule in no way creates an additional entitlement to the credit over and above as available in terms of Rule 3.
53. Thus Rule 6(3B) of CENVAT Credit Rules, 2004 cannot be used for extending the benefit of ineligible credit and thus allowing reversal of 50% of eligible and ineligible credit availed by the appellants during the month.
54. Thus the four questions posed in para 46.1 are answered as follows:
i. The activity of taking the deposits by Bank/ Financial Institution, is not covered by the term "service" as defined by section 65B(44) of the Finance Act, 1994.
ii. The question becomes irrelevant as the deposits taken by the bank without any consideration are not covered by the term "service" as stated in 'i.' above.44
iii. Since deposits have been held not to be service, they go out of the definition of output services as defined by Rule 2 of CENVAT Credit Rules, 2004, the CENVAT Credit in respect of the input/ input services exclusively in relation to such deposits is not admissible.
iv. Rule 6(3B) of CENVAT Credit Rules, 2004 casts an obligation and specifies the quantum of eligible credit to be reversed by the person specified in the said rule. It does not create any eligibility to credit.
55. In light of above observations, I concur with the order of the learned brother Member (Judicial).
(Sanjiv Srivastava) Member (Technical) tvu