Availment of CENVAT Credit for Service Tax paid to Car Dealers for Violation of IRDAI Guidelines: CESTAT upholds Demand and Penalty [Read Order]

The Chennai bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) upheld the demand for CENVAT credit and penalty imposed for the wrongful availed credit on the ground of violations of Insurance Regulatory and Development Authority of India (IRDAI) guidelines. 

Royal Sundaram General Insurance Company Ltd, the appellant assessee was engaged in providing General insurance like Motor, Health, Personal Accident and Fire, and Burglary insurance services and Miscellaneous policies and centralized registration, and are registered for payment of service tax under reverse charge mechanism on commissions paid to insurance agents, etc. 

The assessee appealed against the order passed by the adjudicating authority for confirming the demand for credit and imposition of penalty for wrongly availed CENVAT credit. 

Raghavan Ramabadran, the counsel for the assessee contended that the dealers/service providers have stated the description of service to be like infrastructure support services and have paid service tax accordingly. 

Further submitted that the dispute was regarding classification and hence CENVAT credit cannot be denied at the hands of the recipient-assessee. 

The counsel for the department contended that the assessee being the provider of output service, while taking CENVAT credit, on the impugned invoices had not satisfied the proper officer regarding the admissibility of the credit, as required under provision to Rule 9(2) of the CENVAT credit Rules, 2004 and the credit had hence been irregularly availed. 

Further stated that the assessee violated the terms Insurance Regulatory and Development Authority of India (IRDAI) guidelines and wrongly availed the credit.

Ajith Kumar (Technical member) observed that this was a case where tax laws have been subverted by using colorable legal devices like agreements tailor-made to serve as a legal cover for blame-worthy conduct. Hence penalty had been correctly imposed for a deliberate act of fraud by the assessee. 

The two-member bench comprising Sulekha Beevi (Judicial) and Ajith Kumar (Technical) upheld the demand for credit and imposition of penalty imposed on the assessee. 

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