Premium Collected Towards Savings (Investment) cannot be considered as an Exempted Service: CESTAT Rules in favour of HDFC Life Insurance CO. [Read Order]

The Bangalore bench of the Customs, Excise & Service Tax Appellate Tribunal(CESTAT) has held that premium Collected Towards Savings (Investment) cannot be Considered as an Exempted Service.

M/s. HDFC Life Insurance Company Limited, the appellants are engaged in providing taxable services under the category of Life Insurance Service and Management of Investment under Unit Link Insurance Plan (ULIP) as defined under Section 65(105)(zx) and Section 65(105)(zzzf), respectively of the Finance Act, 1994.

They also availed CENVAT credit of service tax paid on Insurance Auxiliary service under the provisions of Rule 6(5) of the CENVAT Credit Rules, 2004 read with Rule 2(1)(d)(iii) of the Service Tax Rule, 1994 and other input services and utilised the same for payment of service tax on taxable services.

It was alleged that the appellant had availed CENVAT credit both on taxable services and exempted services without maintaining separate records as per Rule 6 of CENVAT Credit Rules.  consequently, 6% of the value of the exempted services was demanded under the provisions of Rule 6(3)(i) of CENVAT Credit Rules, 2004 also read with Section 73(1) of the Finance Act, 1994 along with interest under provisions to Rule 14 of the CENVAT Credit Rules, 2004 read with Section 75 of the Finance Act, 1994 and equivalent penalty under provisions to Rule 15(3) of the CENVAT Credit Rules, 2004 read with Section 78 of the Finance Act, 1994.

The appellants are providing Life Insurance services and it comprises mainly three types of insurance policies i.e., Term Insurance, Traditional Policy (Endowment Policy) and Unit Link Insurance Policy. The services were taxable during the period under Section 65(105)(zx) of the Finance Act, 1994. Referring to Rule 6(7A) of the Service Tax Rules, the learned advocate submitted that it provides an option to pay an amount calculated at the rate of 1% of the gross amount of premium by the insurer towards discharge of the tax liability. The Appellant has been paying the tax accordingly.

He submitted that the definition of ‘exempted service’ was brought into effect with effect from 01.04.2011 and the Circular dated 12.07.2011 issued clarifying that other services related to investments/servicing were not chargeable to Service Tax before 01.04.2011. Accordingly, these services were clarified to be exempt from payment of service tax. Consequently, show-cause notices were issued to the appellant under Rule 6 of the CENVAT Credit Rules, 2004 on the value of the exempted service.

 A two-member bench of Dr. D.M. Misra, Member (Judicial) and Mr. Pullela Nageswara Rao, Member (Technical) concluded that “since no other service is provided by the appellant except life insurance service, a part of the premium collected towards savings(investment), cannot be considered as an ‘exempted service’ and demand of 6% of the value of the premium attributable to other than risk coverage be confirmed under Rule 6(3(i) of CENVAT Credit Rule,2004. “

 The CESTAT set aside the impugned orders and allowed the appeals.

To Read the full text of the Order CLICK HERE

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