Relief to Kalyan Jewellers: CESTAT allows Cenvat Credit on Service Tax Paid by Insurance  Company on premium paid by Appellant [Read Order]

The Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) of the Bangalore bench ruled in favour of Kalyan Jewellers India Limited and allowed the  Cenvat Credit on service tax paid by insurance  company on premium paid by appellant.

Mr. M.S. Nagaraja, Advocate appeared for the Appellant and Mr. Dyamappa Airani, Authorised Representative appeared for the Respondent.

 M/s Kalyan Jewellers, the appellant engaged in retail business of gold jewelry. The issue involved in the appeals are eligibility of CENVAT credit of service tax paid on the services provided by M/s Oriental Insurance Co., Ltd., to the appellant.

The appellant is an interface between M/s Oriental Insurance Co. Ltd., and customers purchasing jewelry. As per the Tripartite agreement dated 10.04.2011 with insurance company and M/s ALEgION Insurance Broking Ltd, the Insurance Company shall arrange for issue of master insurance policy to the appellant and appellant in turn issues subsidiary policy to the customers. Appellant had collected certain amount from its customers towards the issue of such subsidiary policies, which include premium amount and administration charges and had paid service tax on the said amount. The appellant had paid premium along with service tax to the insurance company on receipt of invoices/documents from the said insurance company. The appellant had taken CENVAT credit of the service tax paid by the insurance company on the premium for the master insurance policy issued to the appellant, which is the subject matter of dispute as to its eligibility.

Through the impugned order, it was held that said service is not eligible as input service and not eligible for CENVAT credit. The adjudicating authority has not considered the submission made by the appellant and as per the impugned order, it is held that the Insurance Company was providing service in relation to insurance of the gold belonging to the customers of the appellant and which was purchased from the appellant. Thus, adjudicating authority confirmed demand of Rs.55,02,796/- and Rs. 45,13,601/ with interest and penalty. 

It was argued that the adjudicating authority held that appellant is providing service under the category of Business Auxiliary Service by implementing the GKL warrant scheme. However, while doing so, it cannot be alleged that insurance service, which is an inevitable part of providing gold care warranty scheme is not an input service of the appellant. The Commissioner has not given any cogent reason as to how the insurance service received by the appellant would not qualify as input service. Further the finding in the impugned order that the appellant has not received any service is contradictory to the actual facts of the case.

Counsel further submitted that the issue in the present appeal is also covered by judgment of High Court of Karnataka in Commissioner of Central Excise, Bangalore Vs. PNB Metlife India Insurance Co. Ltd, M/s Carrier Air conditioning & Refrigeration Ltd Vs CCE, Gurgaon and  CCE, & C, Vadodara Vs. M/s  Narmada  Chematur Pharmaceuticals Ltd.

 It was submitted that as per the Reserve Bank of India Act, 1934, definition of Financial institution is given and it include “carrying on any class of insurance business”. Further, the proviso of Rule 4(a)(1) Service Tax Rules, 1994 make it abundantly clear that in case of service provided by a non-banking financial company, any document by whatever named called would be used in the place of an invoice, bill or challan. Thus, the reason given by the Adjudicating authority denying the benefit on the ground that the document is without proper serial number is illegal and unsustainable. 

The Counsel submitted that the appellant had availed the CENVAT credit on bonafide belief that insurance service is being an inevitable part of the Gold Care warranty scheme and insurance service utilized for said scheme would an eligible input. Therefore, the provisions of Section 11(AC), which are conditional proceeding for imposing penalty under Section 15(1) of the CENVAT Credit Rules is unsustainable. Moreover, there is no evidence to allege that the appellant had suppressed the details of the transactions so as to attract the provisions of Section 11(AC) of the Central Excise Act, 1944. Thus, the penalty imposed on the appellant is also unsustainable.

 The Tribunal viewed the judgement in M/s South Indian Bank where in it was held that 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’.

A two member bench comprising P.A. Augustian, Member (Judicial) and Mr. Pullela Nageswara Rao, Member (Technical)  in view of the ruling of High Court of Karnataka in M/S Pnb Metlife India Insurance  held that the cenvat credit on the service tax paid by the Insurance Company on the premium paid by the appellant cannot be denied and has to be considered as input service received from the Insurance Company.  The CESTAT allowed the appeal.

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