CESTAT Allows Kotak Mahindra to Avail Cenvat Credit on Insurance Premium Paid [Read Order]

 In a recent case, the Mumbai bench of Customs, Excise & Service Tax Appellate Tribunal  (CESTAT) allowed the Kotak Mahindra to avail cenvat credit on insurance premium paid under Deposit Insurance and Credit Guaranteed Corporation Act, 1961.

M/s. Kotak Mahindra Bank Ltd, the Appellant is a banking company governed under Banking Regulation Act, 1949 and it has been providing taxable services of banking and other financial services as well as discharging applicable Service Tax thereon under the Finance Act, 1994.  Under the Deposit Insurance and Credit Guaranteed Corporation Act, 1961, which is commonly known as Deposit Insurance Act, banking companies are required to insure the deposits made by its customers/depositors in the Deposit Insurance Credit Guarantee Corporation, a Government of India enterprise so as  to protect deposits of customers up to Rs.1,00,000/- per customer/depositor. 

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Against payment of insurance premium to the deposit insurance corporation, Service Tax as liveable were paid by the Appellant and it had availed CENVAT Credit on the said tax paid on such premium in accordance with provisions of the CENVAT Credit Rules, 2004.  Respondent-Department questioned admissibility of the said CENVAT Credit on insurance premium paid on the ground that there was no nexus of the said credit with output services provided and it is not within the inclusive part of the definition of “input services". 

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A show-cause notice got merged with Appellant Company subsequently, demanding Service Tax of Rs.9,35,58,583/- and Rs.8,17,09,376/- respectively alongwith interest and proportionate penalty as well as equal penalty under various Sections of the Finance Act, 1994.  Commissioner had confirmed the said demand with interest and penalty, which are assailed by Assessee-Appellant before us. 

During course of hearing of the appeals Counsel for the Appellant Mr. Gopal Mundra, in citing decision of Larger Bench of this Tribunal passed in the case of South Indian Bank Vs. Commissioner of Customs, Central Excise & Service Tax, subsequent Larger Bench decision passed on 30.04.2024 in the case of Bank of Ameriaca, National Association & Others Vs. Principal Commissioner, CGST & Central Excise, Mumbai & Commissioner of Service Tax-V, it has argued that issue is no more res integra since Larger Bench has already given its finding that Service Tax paid towards such insurance deposit services were meant for fulfilment of legal requirement without which taxable service cannot be provided and therefore, it was opined by the Tribunal in the above referred decisions that such services received by Appellant would fall within the main part of the definition of input services and credit in respect of the same should be available.

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It was observed that premium is paid by the banks to the Deposit Insurance Corporation for providing the insurance service for which the banks pay service tax. It is this service tax paid by the banks on the insurance service received by the banks from the Deposit Insurance Corporation that is the bone of contention between the parties.

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A two member bench of Dr. Suvendu Kumar Pati, Member (Judicial) and Anil G. Shakkarwar, Member (Technical) observed that the service rendered by the Deposit Insurance Corporation to the banks would fall in the main part of the definition of “input service”, which is any service used by a provider of output service for providing an output service. Once this service falls in the main part of the definition of “Input service”, it would not be necessary to examine whether the service would be covered by the inclusive part of the definition. It has also been noted that the service is not excluded from the definition of “input service”.  While allowing the appeal, the bench set aside the order.

To Read the full text of the Order CLICK HERE

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