CESTAT deletes claim of CENVAT Credit of Oriental Insurance Company
The Customs, Excises, Service Taxes Appellate Tribunal (CESTAT), Delhi Bench headed by Justice Dilip Gupta (President) and P V Subba Rao (Member Technical) deleted the claim of Central Value Added Tax (CENVAT) Credit of Rs.196.46 crore against Oriental Insurance Company (appellant) and allowed the appeals.
The appellant, M/s Oriental Insurance Company Ltd. claimed to be a registered insurer under the provisions of Insurance Act 1938 and is currently engaged in providing general insurance services. It issues various kinds of insurance policies like motor vehicle insurance, fire insurance and marine insurance. The insurance business in India at present is regulated by the Insurance Act.
The appellant claimed that because of the requirement set out under Section 101A of the Insurance Act, it claimed as a prudent business practice it has been availing re-insurance services from Indian as well as foreign reinsurance companies in respect of the insurance policies.
In respect of re-insurance services rendered by Indian Companies, service tax was charged from the appellant and then later on it was deposited in the Government account. In respect of re-insurance services rendered by foreign companies, the appellant discharged the service tax under the reverse charge mechanism. The appellant argued that it has been availing CENVAT credit of service tax paid on such re-insurance services.
The Commissioner of Central Excise and Service Tax framed three questions for determination.
1. Whether CENVAT Credit of Rs. 627.17 crore should be disallowed and recovered from the appellant under Rule 14 of the CENVAT Credit Rules, 2004 read with proviso to Section 73(1) and Section 73(4) of the Finance Act, 1994.
2. Whether interest as applicable should be charged and recovered from them under Section 75 of the Finance Act, 1994.
3. Whether penalty should be imposed under Rule 15(4) effective up to 26th February, 2010 or 15(3) effective from 27th February, 2010 of the CENVAT Credit Rules, 2004 read with section 78 of the Finance Act, 1994.
The Commissioner of Central Excise and Service Tax had confirmed the demand of CENVAT credit of Rs. 196.46 crore with interest and penalty.
The respondent, Commissioner, Large Tax Payer Unit supported its defense from the impugned order and emphasized that since re-insurance services pertaining to a motor vehicle has been excluded in the definition of 'input service' by way of an amendment made in Rule 2(l) of the CENVAT Rules with effect from 1st April, 2011, it will not qualify to be 'input service' with effect from the said date.
The CESTAT after considering all the submissions proceeded to deal with the definition of 'input service' which was amended by adding an exclusion clause in rule 2(l) of the CENVAT Rules during the subsequent period 1st April, 2011.
The CESTAT remarked, "In the instant case, the reinsurance services availed by the Appellant are for insuring its business risks and not in respect of any particular motor vehicle. Reinsurance, by its nature, pertains to the insurance of business of the Appellant".
"Reinsurance services have never been availed by the Appellant in respect of a particular motor vehicle. In such a case, the above exclusion clause has no applicability to the present case and denial of CENVAT credit on basis of such a clause is not sustainable", added the CESTAT.
The CESTAT cited the case Shriram General Insurance Company case where the Tribunal had observed, "Insurance services received by an owner of motor vehicle for insurance of such vehicle stands excluded from the definition of 'input service'. However, a re-insurance service is not in respect of a motor vehicle, but is in respect of the assumed risks of an original insurer and thus, the aforesaid exclusion clause has no application to qualification of re-insurance services as input service."
Thus, even after the amendment of the definition of input service in Rule 2(l) of the CENVAT Rule with effect from 1st April, 2011, the appellant would be eligible to avail CENVAT credit on both the aforesaid reinsurance services, observed the CESTAT.
Therefore, the Tribunal while allowing the appeal held that it was not possible to sustain the order of the Commissioner that confirms the demand of CENVAT Credit of Rs. 196.46 crore with interest and penalty.