Banks can avail CENVAT credit of Service Tax paid on Premium amount paid to Deposit Insurance Corporation: CESTAT [Read Order]

The Customs, Excise, Service Tax Appellate Tribunal (CESTAT) ruled that banks can avail CENVAT credit of the service tax paid by the banks on the premium amount paid to Deposit Insurance Corporation for the insurance service rendered by the Deposit Insurance Corporation to the banks.

The service provided by the Deposit Insurance and Credit Guarantee Corporation to the banks for insuring the deposits of the public with the banks has been considered by the banks to be an “input service” and CENVAT credit of service tax paid by the banks for this service has been availed by the banks for rendering “output services”.

The issue involved in the appeals is whether the banks can avail credit for this service tax paid by the banks for the service provided by the Deposit Insurance Corporation.

In the case of State Bank of Bikaner that was decided, the Principal Bench of the Tribunal at Delhi held that banks would be justified in availing credit of service tax paid as such a service would be an “input service”.

However, on the case of in ICICI Bank, a Division Bench of the Tribunal at Mumbai took a contrary view and held 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 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”

In view of the conflicting decisions of the Division Benches of the Tribunal at Delhi and Mumbai, the Bench ordered that the issue as to whether the Appellants would be entitled to avail CENVAT credit of service tax should be decided by a Larger Bench of the Tribunal.

The Tribunal headed by the President Justice Dilip Gupta, while answering the issue did not accept the view taken by the Division Bench of the Tribunal at Mumbai in ICICI Bank and said “the insurance service provided by the Deposit Insurance Corporation to the banks is an “input service” and CENVAT credit of service tax paid for this service received by the banks from the Deposit Insurance Corporation can be availed by the banks for rendering “output services”.”

Therefore, the tribunal ruled that banks can avail CENVAT credit of the service tax paid by the banks on the premium amount paid to Deposit Insurance Corporation for the insurance service rendered by the Deposit Insurance Corporation to the banks.