The Mumbai Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) granted relief to M/s. HDFC Ltd by allowing the Cenvat credit on the service tax paid for insurance services provided by the Deposit Insurance and Credit Guarantee Corporation (DICGC), declaring the insurance services as essential for banking operations and qualifying as input services under the Cenvat Credit Rules, 2004.
M/s. HDFC Ltd,appellant-assessee challenged the denial of Cenvat credit on the service tax paid for the insurance services provided by the DICGC. The issue revolved around whether the insurance services provided by the DICGC to banks, specifically for insuring deposits under the Deposit Insurance Scheme, qualified as an input service under the provisions of Rule 2(l) of the Cenvat Credit Rules, 2004.
The assessee argued that the insurance services were essential to its business operations and, as such, the Cenvat credit on the service tax paid for these services should be allowed.
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The assessee relied on the ruling of the Larger Bench of the Tribunal in South Indian Bank, which had previously held that the insurance services provided by DICGC to banks were input services. This decision was based on the reasoning that such services were essential for banks to carry out their primary functions, particularly because the insurance was mandated by the Reserve Bank of India (RBI) for ensuring the safety of deposits.
The tribunal in South Indian Bank had concluded that the service tax paid on the premiums for such insurance could be claimed as Cenvat credit because the service directly benefited the banks’ operations.
The Kerala High Court and the Bombay High Court had both upheld the Larger Bench’s decision in South Indian Bank, agreeing that the insurance service was an integral part of the bank’s operations, directly linked to the statutory obligation to protect depositors’ interests. These courts reaffirmed the view that the Cenvat credit on service tax paid for such services could be availed by the banks.
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In the present case, the assessee emphasized that the insurance service was mandatory for the functioning of the bank, as it was required to comply with the statutory obligations set forth by the RBI.
The Tribunal examined the matter in detail, noting that the insurance service was directly related to the bank’s core operations and that the statutory requirement to insure deposits made it an essential input for the appellant-assessee’s business.
The appellate tribunal concluded that the Cenvat credit on the service tax paid for the insurance service from DICGC was indeed allowable under the Cenvat Credit Rules, as it was an input service used to support the bank’s financial services to customers.
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The two member bench comprising Ajay Sharma(Judicial Member) and Anil.G.Shakkarwar (Technical Member) ruled in favor of the assessee, allowing the Cenvat credit on the service tax paid for the DICGC insurance services.
This decision was in line with the consistent view taken by the Larger Bench of the Tribunal and the High Courts, which had affirmed that such insurance services were integral to the bank’s operations and therefore qualified as input services under the Cenvat Credit Rules.
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