In a ruling related to Oriental Insurance Company, the Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) has quashed the service tax demand on insurance auxiliary services and short accounts of insurance premium income. It was observed that the CENVAT credit of the group health insurance policy for the employees cannot be denied to the assessee.
The appellant assessee is a company incorporated under the provisions of the Companies Act, 1956, and is engaged in the business of insurance. It entered into a Memorandum of Understanding with Dena Bank, Mumbai, under which the bank agreed to provide adequate space and specific facilities, such as a working desk and chair, in mutually selected branches of the bank to the appellant.
In consideration of the facilities provided by the bank, the appellant agreed to pay a fixed amount of Rs. 12500 per month per branch for each of the 300 selected branches. The appellant was required to ensure the presence and stationing of its authorized employees in the branch of the bank. The appellant can utilize the space provided by the bank as an ‘insurance desk’ for the purposes of publicity and marketing its insurance products to the customers of the bank.
The bank did not charge service tax on the amount payable by the appellant under the Memorandum up until March 2009. From April 2009 onwards until June 2010, the bank started charging service tax on the consideration payable by the appellant under the Memorandum, which was also deposited by the bank.
The department had issued a show cause notice demanding service tax for the period prior to April 2009. The bank raised invoices against the appellant for demanding service tax. A show cause notice was also issued to the appellant, proposing a demand for service tax and the reversal of CENVAT credit.
It was contended that service tax on the provision of service stands deposited by the bank under forward charge, therefore the demand proposed against the appellant under the Reverse Charge Mechanism would amount to double taxation. The denial of CENVAT credit to Group Health Insurance Services for employees is untenable.
The department argued that the appellant is not entitled to take CENVAT credit for service tax paid on Group Health Insurance Policy premiums for their employees, as the same is not allowed under Rule 3 of the CENVAT Credit Rules 2004, not being an input service for the appellant. The law does not provide credit for service tax paid on such group health insurance policy premiums for their employees.
The appellant stated that it correctly reported its premium for calculating service tax liability and there is no short accounting. The appellant has stated that as per the audited trial balance of the Regional Office at Delhi, the total premium is Rs. 253,63,68,125/- and because of an error in the Annexure, the said trial balance has been recorded as 253,72,82,715/-. The appellant has enclosed the audited trial balance from which it is clear that the total premium is Rs. 253,63,68,125/- and, therefore, there is no short accounting of premium.
The two member bench of Justice Dilip Gupta (President) and Hemambika R. Priya (Technical Member) has held that the appellant had correctly discharged service tax on “business support services” and, therefore, once the service tax stands paid on the transaction, it is not open to the department to seek its recovery again.
The appellant states that they discharge service tax under “business support services” as the bank had provided space to the appellant along with ancillary facilities such as chairs and desks, and these infrastructural support services provided by the bank are covered under “business support services.” The service is not liable to tax under the reverse charge mechanism.
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