Issuance of Insurance Policy by Insurer, taking of Re-insurance by it, is a continuous process, Service Tax benefit allowable: Rajasthan HC [Read Order]

Issuance - Insurance policy - Insurer - Re-insurance - Continuous process - Service Tax - Tax - Rajasthan High Court - Taxscan

The Rajasthan High Court has held that the issuance of insurance policy by insurer, taking of reinsurance by it, is a continuous process and the Service Tax benefits are allowable.

The appeal is filed by the revenue to challenge the judgement of Customs, Excise and Service Tax Appellate Tribunal, New Delhi dated 04.03.2020. The questions of law suggested by the revenue would show that the department objects to the respondent-assessee, Shriram General Insurance Company Limited claiming benefit of the service tax paid on reinsurance as allowable input service. We may record that the issue pertains to the period prior to 1.4.2012.

The respondent, who is an insurance company, had been depositing its service tax on the amount of insurance premium. In the process the assessee had availed amount of input service credit on the basis of invoices issued by other insurance companies with whom the assessee had a pooling agreement. 

The Commissioner was of the opinion that the assessee was not entitled to claim such credit. The Commissioner referred to the definition of term input service as contained in Rule 2(l) of the CENVAT Credit Rules, 2004 as it was prevailing at the relevant time and came to the conclusion that the assessee was not entitled to claim such credit on input service.

The assessee carried the matter in appeal. The tribunal allowed the appeal mainly proceeding on the basis of the judgement of the Division Bench of the Karnataka High Court in case of Commissioner of Central Excise, Bangalore Vs. PNB Metlife India Insurance Co.Ltd. reported in (2015) 51 GST 504 (Karnataka). The Tribunal noted that the decision of the PNB Metlife had been accepted by the revenue. In the said case, the Court was concerned with the allowability of the service tax paid on reinsurance premium as input service. The Division Bench referred to the provisions contained in rule 2(l) of the CENVAT Credit Rules, 2004 and observed that such re- insurance was required in terms of Section 101A of the Insurance Act, 1938.

The division bench headed by Chief Justice Akil Kureshi and Justice Sameer Jain has noticed that the term re- insurance has been defined under Section 2(16B) of the Insurance Act, 1938 as to mean the insurance of portion of one insurer’s risk by another insurer who accepts the risk for a mutually acceptable premium. Section 101A of the Act makes it compulsory for every insurer to re-insure such a percentage of the sum insured on each policy as may be specified by the authority with a previous approval of the Central Government.

“Under the circumstances we do not see any scope for deviating from the ratio in the case of PNB Metlife (supra). Incidentally we may record that the tribunal has also seen the entire situation as revenue neutral. Be that as it may, no question of law arises,” the court noted.

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