Unreported Decisions – ST – January 2020
By Vinay Jain & Sachin Mishra, Advocates
1. Whether ‘other charges’ such as processing charges, administrative charges, etc., collected by the Insurance Company from its customers in addition to the risk cover shall be considered as ‘exempted service’ for the purposes of reversal of CENVAT Credit under Rule 6 of CCR, 2004? Whether investment portion shall also be included in the value of such ‘exempted service’ for the purposes of reversal of CENVAT Credit under Rule 6 of CCR, 2004?
Facts and Pleading: M/s. SBI Life Insurance Company Ltd. (hereinafter referred to as the ‘Appellant’) is inter alia engaged in business of providing Life Insurance services. The appellant is offering Term Policy, Endowment Policy, ULIP Scheme as insurance schemes to policyholders/customers. The appellant duly discharged service tax on the risk cover of the Endowment Policy and Term Policy. The Appellant discharged service tax on risk cover and management fees in case of ULIP schemes. The appellant availed CENVAT credit on all the input services utilised for providing such insurance services.
The Department alleged that ‘other charges’ such as processing charges, administrative charges, etc. collected by the Insurance Company from its customers in addition to the risk cover shall be considered as ‘exempted service’ for the purposes of reversal of CENVAT Credit under Rule 6 of CCR, 2004 as the appellant has not paid service tax on the same. Herein the department extrapolated the demand by including the value of investment portion in the taxable value. Further, the department alleged that services related to management of investment were exempted during the Period 01-04-2008 to 15-05-2008 i.e., prior to introduction of the ‘Management of Investment under ULIP Scheme’.
With respect to first issue, the appellant submitted that there is only one integrated service provided by the appellant i.e., Life Insurance Service. Appellant also submitted that within the Endowment Policy, no services are being provided with respect to service of management of investment. It is a component of the Life Insurance Service and only risk cover charges are subject to service tax. It further submitted that Life Insurance Service is not wholly exempt from service tax and the same cannot be treated as exempted service. In cases of Endowment Policy, ULIP Scheme or Term policy, the appellant is discharging service tax liability on risk cover under the category of ‘Life Insurance Services’. It was also submitted by the appellant that pre-2008, management of segregated funds under ULIP Scheme is not a service in itself and hence, cannot be treated as exempted service. It also submitted that investment portion of premium under ULIP Scheme is excluded from exempted services as tax is levied on the amount of premium reduced by the amount allocated for investment or savings on behalf of the policyholder. Amount of investment is not part of the taxable value of service.
Judgment: The Hon’ble CESTAT agreed with the appellant submission that the service of the appellant remains single and indivisible as ‘Life Insurance Business’. The Hon’ble CESTAT further held that services related to that part of premium, other than risk cover charges, are not exempted services. The Hon’ble CESTAT noted that Rule 6 of CCR, 2004 requires that in the definition of exempted services, the whole of the service needs to be exempt for the restriction of Rule 6 of CCR, 2004 to be applicable. Hence, Life Insurance Service is a taxable service not wholly exempt from service tax. The charges including investment portion other than risk portion Life Insurance Service shall not be considered as exempted service for the purpose of reversal of CENVAT Credit under Rule 6 of CCR, 2004. It also held that the investment portion of premium does not represent service and amount of investment made out of the premium cannot be included to calculate the value of exempted service. Accordingly, the Hon’ble CESTAT set aside the orderin- original and allowed the appeal.
SBI Life Insurance Company Ltd. vs. Commissioner of Central Excise, Mumbai-II, decided on 18.12.2019 in the Final Order No. A/87354 /2019.
2. Whether CENVAT Credit on input services used for broadcasting channels of overseas entity can be availed by the appellant, which has the exclusive right to distribute channels owned by the overseas entity and is discharging service tax, wherever applicable on the revenue generated from such activities? Whether CENVAT credit on ‘rent-a-cab service’, ‘outdoor catering service’ and ‘club and association service’ for business purposes post 1-4-2011 shall be considered as ‘input service’?
Facts and Pleading: M/s. Sony Pictures Networks India Pvt. Ltd. (hereinafter referred to as the ‘Appellant’) entered into agreement with M/s. MSM Satellite (Singapore) Pte. Ltd. (hereinafter referred to as the ‘overseas entity’). As per the agreement, the appellant was appointed as the exclusive agent of the overseas entity in India to have the exclusive right to distribute channels owned by the overseas entity, to sell air time slots for advertisements on such channels and further to conclude agreement on behalf of such channels. Further, the appellant collected revenue generated from aforesaid activities and remitted the same to the overseas entity. The appellant also discharged service tax liability wherever applicable on the said revenue. The appellant also availed credit on the input services utilised for the said services.
The Department alleged that credit availed on 12 of the input services were utilised for the broadcasting of channels by the overseas entity. Appellant is the agent of the broadcaster and not the provider of broadcasting service. The department alleged that the broadcasting service requires certain ‘input services’ entitling the provider of service to be eligible for credit of tax discharged, the agent of such broadcaster cannot lay claim to it. With respect to remaining input services, Department alleged that the appellant wrongly availed credit on ‘rent-a-cab service’, ‘outdoor catering service’ and ‘club and association service’ as the same falls under the exclusion component of the definition of ‘input service’. The department alleged that the CENVAT credit of tax paid on these three activities which are specifically excluded from the ambit of input service after 1-4-2011 is liable to be recovered.
The appellant submitted that the appellant acted on behalf of the overseas entities for sale of channel subscription, from sale of slots to advertisers and sponsors and conclusion of contract within the domestic territory. Appellant further submitted that they are the provider of broadcasting service. The appellant further submitted that part of the credit availed on the remaining three services is with respect to corporate membership fee which is paid for various association and is not personal in nature and availing credit with respect to receiving ‘outdoor catering service’ cannot be denied.
Judgment: The Hon’ble CESTAT agreed with the submissions of the appellant and held that for the eligibility to avail credit, there are two conditions: Levying of tax and being provider of taxable service. After July 2012, the levy of tax from the appellant suffices to bring them within the definition of ‘provider of taxable service’ in CCR, 2004. The Hon’ble CESTAT also held that the tax liability has been discharged by the appellant. According to the Hon’ble CESTAT, the CENVAT Credit can be taken only by the entity burdened with the incidence of tax. Once the tax liability is accepted by the appellant and discharge has been acknowledged by the State, CENVAT credit cannot be denied, save for express exclusion in the CCR, 2004. The Hon’ble CESTAT held that exclusions incorporated in April 2011 are intended to disallow those services which are patently not for use in rendering ‘output service’. The exclusion is contingent only upon utilisation for personal benefit. As per the Hon’ble CESTAT, there is no allegation of personal benefit and the appellant utilises the services for the business purpose only. Hence, CENVAT credit was allowed.
Sony Pictures Networks India Pvt. Ltd. vs. Commissioner of Service Tax, Mumbai-VI, decided on 18-12-2019 in the Final Order No. A/87355- 87357/2019.