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Reliance Life Insurance Company Ltd V/S Commissioner of Service Tax

    Appeal No. ST/87198/13 (Arising out of Order-in-Original No. 13/ST-II/RS/2013, Dated: 25.2.2013 Passed by the Commissioner of Service Tax, Mumbai-II) and Order No. A/89893/17/STB

    Decided On, 25 September 2017

    At, Customs Excise Service Tax Appellate Tribunal West Zonal Bench At Mumbai

    By, THE HONORABLE JUSTICE: RAMESH NAIR
    By, MEMBER AND THE HONORABLE JUSTICE: RAJU
    By, MEMBER

    For Petitioner: V. Sridharan, Senior. Advocate., Jay Chandra and Vinay Jain, CAs And For Respondents: M.K. Sarangi, Addl. Commissioner (AR)



Judgment Text


1. This appeal has been filed by the Appellant M/s Reliance Life Insurance Co. Ltd. against Order-in-Original No. 13/ST-II/RS/2013 dt/ 25.02.2013 passed by the Commissioner of Service Tax, Mumbai - II wherein a demand of Rs. 3,94,32,229/- stands confirmed against the Appellant alongwith penalty under Section 78 of the Finance Act, 1994 readwith Rule 15 (3) of Cenvat Credit Rules, 2004. The Appellant are engaged in providing Life Insurance Service. They were providing taxable service (risk premium), Non taxable Service (investment management services provided under ULIP for the period 2010-11) and exempted service (Traditional Golden Year Plan) and availed cenvat credit. The Appellant after audit were issued show cause notice dt. 03.08.2012 alleging that they are providing taxable service (risk premium), Non taxable service (investment management service provided under ULIP for the period 2010-11) and fully exempted service (Traditional Golden Year Plan) and therefore are required to pay the amount/reverse cenvat credit as prescribed under rule 6 (3) of Cenvat Credit Rules, 2004 on the exempted service. It was contended that the Appellant by not declaring, the monthly proportional reversal in the sale ST-3 Returns and also not opting for such proportional reversal under Rule 6(3A) are liable to pay the amount/reverse the cenvat credit alongwith interest. It was proposed a demand of an amount of cenvat credit of Rs. 39,14,082/- availed on the service tax paid under reverse charge on the commission paid to agents/brokers under explanation-II of Rule 6(3) of Cenvat Credit Rule as the service is exclusively used for provision of exempted service namely Traditional Golden year Plan ; to pay cenvat credit of Rs. 3,55,18,417/- equivalent to 6% of value of exempted service under Rule 6(3) (i) of CCR in respect of Traditional Golden year Plan. The Appellant were also called upon to pay an amount of Rs. 24,69,47,998/- equivalent to 6% of the value of exempted service in terms of Rule 6 (3)(i) of CCR in respect of investment managers services under ULIP.

1.1 The Adjudicating authority, after filing of reply by the appellant and completion of adjudication proceedings, confirmed the demands to the extent of Rs. 3,94,32,229/- in respect of cenvat credit of Rs. 39,14,082/- availed on the service tax paid under reverse charge on the commission paid to agents/brokers of services used for provisi

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on of exempted service namely Traditional Golden Year Plan and of Rs. 3,55,18,417/- equivalent to 6% of value of exempted service under Rule 6 (3)(i) of CCR in respect of Traditional Golden Year Plan. Penalties under Section 78 of the Finance Act, 1994 readwith Rule 15(3) of Cenvat Credit Rules, 2004 for equivalent amount has also been imposed. Hence the present appeal.

1.2 The demands were confirmed on the ground that the credit of Rs. 39,14,082/- was in respect of services exclusively used for provisions of Traditional Golden Plan Policy which is exempted service and hence credit is not admissible. The product is without risk cover and admittedly there is no risk premium. The adjudicating authority in respect of demand of Rs. 3,55,18,147/- held that the credit of input services which were commonly used for taxable and exempted services has been availed. The Appellant has computed the reversal ratio as 27.37% which is percentage of exempted value to total value of service. The Appellant did not opt for option under Rule 6 (3)(ii) to pay an amount equivalent to the cenvat credit attributable to input services used for providing exempted services subject of fulfillment of conditions and procedures specified in sub-rule (3A) of Rule 6 of CCR. Hence the adjudicating authority confirmed the demand of 6% of the value of exempted service. The adjudicating authority also held that the case involves suppression of facts and there is no need to prove that the same was willfull and therefore the demand made by invoking extended period.

2. The Ld. Counsel Shri V. Sridharan Ld. Sr. Counsel Shri Jay Chandra C.A. & Shri Vinay Jain, C.A., appearing for the Appellant filed written submission. He during the hearing submitted that the taxable service during the period May' 2010 to April' 2011 only includes the services in relation to risk cover in life insurance. The service tax was required to be paid on the amount of risk portion. The Traditional Golden Plan does not contain any risk and hence no amount was collected towards risk cover and thus no service is rendered in relation to risk cover and service tax was not paid during the period May' 2010 to April' 2011. The product is covered under Life Insurance service and not under exempted service. The products were taxable under "Life Insurance Service" during 2010-11 including the product Traditional Golden Year Plan which was not offering risk to the policy holder. The product being life insurance product approved by IRD was taxable under "Life Insurance Services" but the taxable value was zero as there was no risk cover. He cites the definition of "exempted service" as per Rule 2(e) of Cenvat Credit Rules and submits that the revenue considering the "Traditional Golden Year Plan" as exempted service has alleged that the services of commission agent to sell these policies cannot be termed as eligible of credit and the 6% of the value has been demanded. He submits that the Traditional Golden year Plan cannot be termed as "exempted service". The services and taxable services has been separately defined. The taxable service has been defined as "to a policy holder or any person, by an insurer, including re-insurer carrying on life insurance business in relation to risk cover in life insurance". Thus the life insurance is service but the taxability has been restricted to the extent of risk covered in the life insurance till 30.04.2011. The service provided by the Appellant under Traditional Golden Year Plan does not contain risk cover therefore no service tax liability arises from the same. But it does not mean that the service of the Appellant is covered under exempted service. Hence the cenvat credit of service tax paid on Insurance Auxiliary service is eligible to the Appellant. That after 01.05.2011 the amendment was made in Section 65(105)(zx) of the Finance Act and the extract "in relation to risk cover in life insurance" was removed to expand the taxability on all the components of service. They have been paying service tax on the premium collected subsequently thus it cannot be treated as wholly exempted service. He submits that in terms of explanation to Rule 6 (3) of the Cenvat Credit Rules the "value" is to be determined in accordance with section 67 of the Finance Act, 1994. That section 67 of the Act prescribes the value of taxable service and there is no mechanism to compute value of exempted service. There is no machinery to compute the value when there is investment portion in the policy which is exempted. Rule 6 is not substitute for the machinery which does not exist in the statute book. This proposition has been upheld by the Hon'ble SC in case of Larsen & Toubro Ltd: 2015 (39) STR 913 (SC) and Hon'ble Delhi High Court in case of Suresh Kumar Bansal : 2016 (43) STR 3 (Del). The Explanation 3 to Rule 6 (1) of CCR was inserted in Budget 2016 to provide that for the purpose of Rule 6 (1) of the CCR exempted services shall include an activity which is not a service as defined in section 65B (44) of the Finance Act, 1994. Therefore such machinery provision was inserted w.e.f. 2016 only under which explanation 3 has been added to Rule 6 (1) of the CCR to provide that for the purpose of rule 6 (1) exempted service shall include an activity which is not service as defined in Section 65 B (44) of Finance Act, 1994. Therefore the machinery provision was not available before 2016 for computation of value of exempted service during the disputed period. He also submits that in any event value of exempt service under rule 6 (3)(1) cannot include value of investment portion of premium. That in the demand confirmed by the department the entire amount of premium which includes the saving portion and investment portion has been considered in exempted value of computing demand and 6% has been demanded thereupon whereas the investment portion will not constitute the value of exempt service. Therefore the demand shall be only of Rs. 56,73,672/-. The Appellant submits that without prejudice to their submission if at all they are not eligible for the credit in that case they are entitled for proportionate reversal of cenvat credit of common services on the alleged exempted service. The department has demanded 6% of value of exempted service. However they have option of reversal under Rule 6 (3A) of cenvat credit rules and the demand is thus limited to the extent of Rs. 30,65,762/-. That the said computation has been done by taking the entire cenvat credit of Insurance Auxiliary service as the same fell in ambit of Rule 6 (5) of CCR in the line of ratio laid down in case of TATA AIG LIFE INSURANCE CO. LTD. -. He submitted that procedural irregularities cannot take away substantive benefits under the CCR Rules. The payment of 6% of reversals of pro rata credit are two different options provided to the assessee under Rule 6 (3) and the department options provided to the assessee under Rule 6 (3) and the department cannot thrust upon/compel the assessee to chose 6% option. Further reversal option under Rule 6(3) is exercisable only when it is undisputed that the assessee has rendered taxable as well as exempted services. He relies upon the judgment of CESTAT, New Delhi in case of M/s Max New York Life Insurance Co Ltd reported in -wherein it was held that the assessee has option of reversal of credit and it cannot be coerced to reverse credit by following option of paying 6% value of service. He also relied upon judgment of Aditya College of Competitive Exam vs. CCE : 2009 (16) STR 154 (TRI-BANG), Mercedez Benz India (P) Ltd. v. CCE : 2015 (40) STR 381(TRI-MUM). Tata Technologies Ld. v. CCE : 2016 (42) STR 290 amongst others. He further submitted that the extended period is not invokable as there is no machinery provision to reverse cevnat credit pertaining to portion of exempted service and the entire gamut of service is not exempt in case of provision of life insurance service hence they had bonafide belief that no reversal of cenvat credit is warranted. They had maintained regular books of accounts in the regular course of business. The audit was undertaken on basis of such account and thus there is no suppression of any information. The issue involved is purely interpretational and legal in nature and therefore suppression of facts and invocation of extended period of limitation cannot be made in such case. He relies upon following judgments:

(i) Continental foundation Jt. Venture v. CCE : 2007 (216) ELT 177 (SC)

(ii) Larsen & Toubro Ltd. vs. CCE : 2007 (211) ELT 513 (SC)

(iii) CCE v. Telco Ltd. 2006 (204) ELT 83 (T) as upheld in 2009 (234) ELT 156 (Bom)

(iv) CCEC & ST v. N.R. Agarwal Industries : 2014 (300) ELT 213 (Guj)

(v) Marsha Pharma Pvt Ltd.v. CCE 2009 (248) ELT 687 (T)

(vi) CCE & C v. Alicon Pharma P Ltd : 2015 (322) ELT 47 (Guj)

He also submits that in identical case of SBI Life Insurance Co. Ltd. the Commissioner (Adj) Central Excise, Mumbai vide Order-in-Original No. 03/Commr/(AK)/08 dt 18.01.2008 held that in order to levy service tax u/s 66, the service should be "taxable service". Accordingly incase of pension products, the same are not taxable at all and cannot be construed as "exempted service". He also relied upon the letter dt. 29.08.2011 by the department to Joint Secretary (TRU), CBEC, North Block requesting to issue circular on the reversal of cenvat credit availed by the Life Insurance Companies. That in the said letter the department itself admitted that Life Insurance Companies have been audited from time to time and therefore extended period should not be invoked against them for issue of show cause notice. That in view of above judgments the ingredients of suppression of facts with intent to evade duty and malafide intentions proviso to Section 73 (1) of the Finance Act, 94 are not attracted. He also submitted that since in the present case they are not liable to pay service tax hence there is no question of imposing penalty on them and interest also cannot be imposed.

3. Shri M.K. Sarangi, Ld. Additional Commissioner (AR) appearing for the Revenue reiterates the finding of the impugned order. He has also filed written submission and submitted that during audit it was found that the Appellant availed credit of common services used in taxable and exempted service i.e. Traditional Gold Year Plan. Such credit proportionate to exempted service was required to be reversed. The appellant was not maintaining separate cenvat credit account neither exempted service was declared and no declaration under Rule 6 (3A) (a) was filed. That the proportional reversal of credit was not made. That credit of Rs. 39.14 lakhs pertained to services under exclusively in "Traditional golden year plan" policy which is exempted and hence falls outside scope of taxable service. It is exempted service within the meaning of Rule 2(e) of CCR i.e service on which no service tax is payable. Hence the amount is recoverable. He relies upon the judgments in Pratyusha Associate Shipping v. CCE, Vishakapatnam : 2014-36-STR-1145-TRI-BANG, CCE v. Nicholas piramal India Ltd. 2009-244-ELT-321-Bom, Amrit Paper v. CCE: 2008-12-STR-536-SC, Lakhan Singh v. CCE, Lathur : 2016-46-STR-297-TRI and Tigrania Metal & Steel Ind v. CCE 2015 (326) ELR 650 (Bom) -35-STR amongst others. He submits that during the impugned period the activity of Appellant was not within the scope of "taxable Service" as defined in section 65(105)(zx). For the purpose of Rule 6 of CCR, 2004 the only aspect relevant is "taxable service" and "exempted service" and there is no scope of craving out third entry. That reference to Section 6 (7A0 of S. Tax (Valuation Rules) is not relevant in case of service or activity which is exempted service but in case of "taxable service" as defined in the act only for the purpose of payment of S. Tax. In the present case the whole of the service is exempt and there is no dispute that the investment portion is exempt. The Appellant did not approach the department for clarification hence the extended period has been rightly invoked.

4. We have carefully considered the rivals submissions and perused the records. We find that the controversy in the case has evolved as the Appellant were availing credit on input services. The revenue's case is that the Appellant was not entitled for the credit of services which has been exclusively used in providing the Life Insurance services under the Traditional Golden Plan which is not taxable simultaneously they have availed credit of common input service used in taxable policies as well as policies which had no risk portion and hence not liable to tax. However we are of the view that in terms of explanation to Rule 2(e) of CCR, 2004 the services on which no service tax is payable is to be considered as "exempted service" and the credit of input or input services is not available to the service provider. The Traditional golden plan which does not have any risk cover and thus being not liable to tax falls under the category of "exempted service" at the relevant time. The Appellant at the relevant time on the basis of interpretation of the provisions of the Finance Act and Cenvat Credit Rules, 2004 considered their service as not exempted and availed cenvat of input service which were commonly used. The Appellant though litigating the show cause notice and demand on merit had also prayed for reversal of credit instead of demand of 6% value of the exempted goods contending that the substantial benefit of reversing the credit should not be denied to them. Before us also it is their submission that they have been given option to reverse the proportionate credit and they cannot be forced to reverse 6% of the value of exempted goods in terms of Rule 6(3) of CCR, 2004. In our considered view the assessee cannot be forced to pay 6% of the value of exempted goods in case where they have availed the credit of input services used in exempted output services. The Rule 6(3A) of CC Rules, 2004 only contemplates procedure for application of Rule 6(3) and does not mandates that on failure to intimate in writing for availing option the manufacturer or the service provider shall lose their choice to avail option under Rule 6(3)(ii) for reversing proportionate credit. The procedure given therein and the conditions in said Rule 6(3A) is intended to make Rule 6(3) workable. It nowhere mandates to take away options exercisable available to the assessee. Rule 6(3)(i) cannot be made automatically applicable on failure to intimate in writing about option to be availed by the assessee. The assessee has the option either to reverse the proportionate credit pertaining to such exempted service or to pay 6%. It has been consistently held by this Tribunal that there is no bar on the assessee for reversal of credit said to have been accrued while providing exempted services. This analogy has been accepted by the Tribunal in case of Mercedez Benz India (P) Ltd. v. CCE : 2015 (40) STR 381 (TRI-MUM), Tata Technologies ld. v. CCE : 2016 (42) STR 290 and by the Hon'ble High Courts in case of maize Products : 2009 (234) ELT 431 (Guj), Hello Minerals Water (P) Ltd. v. UOI 2004 (174) 422 (ALL), Ashima Dyecot lt: 2008 (232) ELT 580 (GUJ-HC). Further we find that in case of M/s Commissioner of Central Excise, New Delhi v. Max New York Life Insurance Company Ltd reported in -the Tribunal that assessee is entitled for reversal of credit. The Tribunal held as under:

"6. The proceedings against the respondent is to recover an amount equivalent to 6% of the value of the exempted service. The Original Authority held that the respondent is liable to follow one of the two options in terms of Rule 6(3) of CCR, 2004. The respondent followed second option and reversed the proportionate credit attributable to the exempted service, along with interest for delayed reversal of such credit. We find that the only objection of the Revenue is to the effect that the respondent failed to exercise the option for reversal at the time of availing credit. We note that the annuity products are considered as exempted service as held by the impugned order. It is also held that the appellant has to follow the consequences of such finding. We note that upon the direction of the impugned order, the respondent did exercise the second option and reversed the credit along with interest. In such factual background, we find that there is no reason to insist that the respondent should necessarily follow the first option of paying 6% of the value of exempted service. We find no merit in the appeal by Revenue. Accordingly, we dismiss the same."

4.1 We are in agreement with the aforesaid order of the Tribunal and the other judgments and hold that the Appellant is entitled for reversal of credit attributable to the exempted service and the demand of 6% is not sustainable against them. The Appellant has also argued that there reversal of cenvat credit ought to be computed by taking the entire cenvat credit of the services of Insurance Auxiliary Service as the same fall in ambit of Rule 6 (5) of Cenvat Credit Rules, 2004 in line with Tribunal's decision in case of TATA AIG Life Insurance Company Ltd. reported in -. We find that in terms of Rule 6(5) of CCR, 2004 the credit of tax paid on Insurance Auxiliary Service cannot be denied if the person availing such credit is engaged in both categories of services i.e. Taxable as well as exempted. In the present case it is not disputed that the Appellant is engaged in providing both categories of services and therefore there is no reason to demand cenvat reversal in respect of credit of Insurance Auxiliary services. However, input services which are exclusively used for providing exempted service the cenvat credit on such services is not admissible in terms of Rule 6(5) of Cenvat Credit Rules, 2004.

4.2 Coming to the plea of the Appellant regarding demands being time bar, we find that the Appellant has argued that the demand raised by invoking extended period of limitation cannot be made against them as there was no intention to evade the service tax or fraudulent availment of credit. We find that the adjudicating authority has confirmed demands raised against the Appellant by invoking extended period of limitation. The Adjudicating authority held that the Appellant did not declare the value of exempted service in their ST-3 returns and having been failed to do so, said to have suppressed facts from the department. From the facts of the case we find that the Appellant were of the belief that since the life insurance service as such is not exempted from service tax, hence their services cannot be termed as exempted. We find that apart from the non declaration of exempted service or the credit pertaining to input services used therein, no other facts has been brought to the fore which can show that behind such alleged non declaration or availment of Cenvat Credit there was an intention to evade. The facts of such credit availment were recorded in books of accounts and the same was also presented before audit. There is no finding during investigation that the Appellant was intentionally availing cenvat credit with malafide intention. Based upon interpretation of the provisions of the Finance Act, 1994 and CC Rules, 2004 they bonafidely believed that they are entitled for the credit. Their registration was only for the purpose of payment of service tax under reverse charge mechanism and not as an actual service provider and therefore they obtained service tax registration. We also find from the letter 29.08.2011 addressed by the department to the Joint Secretary (TRU), CBEC, North Block that the life insurance companies availed credit on bonafide belief and that there was no reason to invoke extended period for demands. In such these facts, we are of the view that extended period for demands. In such these facts, we are of the view that the availment of cenvat credit cannot be held to be with the malafide intention as none of the ingredients of malafide intention or any contumacious conduct on the part of the Appellant has been brought forward in show cause notice. In order to invoke the extended period, there should be suppression or willful misstatement with intention to evade payments of tax. The issue involved is of interpretation wherein the department is of the view that the Appellant is not eligible for credit and they were liable to maintain separate accounts in order to avail credit when input services were common or non entitlement when the services were exclusively used in exempted service. Whereas, the appellant were under the belief that the activities not being exempted, the credit is eligible. On such ground also there is nothing to establish suppression or willful misstatement with intention to evade payment of duty on the part of appellants. Apart from above facts our views are also based upon the judgments in case of Cosmic Dye Chemical v. Collector of Central Excise, Bombay : 1995 (75) ELT 721 (SC), Tamil Nadu Housing Board 2004 (74) ELT 9 (SC), M/s. Aditya College of Competitive Exam v. CCE : 2009 (16) STR 154 (TRI-BANG). We are therefore of the view that that demands raised against the Appellant by invoking extended period is not sustainable and is time barred. The period involved is May' 2010 to January' 2011 for which show cause notice was issued on 3.8.2012 i.e. after one year. Therefore the entire demand is set aside being time barred.

4.3. As regard penalty imposed against the Appellant, since we have held that there is no suppression of fact or intention to avail any illegal credit, we, for the reasons set out in preceding paras, set aside the penalty imposed against the Appellant. The Appeal is allowed
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