Case Note & Summary
The case involves an appeal by the Commissioner of Central Excise against an order of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) which allowed CENVAT credit to the respondent, PNB Metlife India Insurance Co. Ltd., for service tax paid on re-insurance services procured from overseas companies. The respondent, a life insurer, had availed CENVAT credit of service tax paid on re-insurance services for the period April 2008 to March 2012. The Commissioner disallowed the credit, holding that re-insurance is not an input service as it takes place after the insurance business is affected. The Tribunal reversed this decision. The High Court, in the present appeal under Section 35G of the Central Excise Act, 1944, examined the definition of 'input service' under the CENVAT Credit Rules, 2004. The Court noted that the definition of 'input service' includes services used in the course of providing the output service. However, re-insurance is a service procured by the insurer to cover its own risk after issuing policies, and is not used in providing the insurance service to the insured. The Court held that re-insurance is not an input service for the insurer, and thus CENVAT credit is not available. The appeal was allowed, setting aside the Tribunal's order and restoring the Commissioner's order.
Headnote
A) Service Tax - CENVAT Credit - Input Service - Re-insurance - The issue was whether re-insurance service procured by an insurer from overseas companies qualifies as 'input service' under CENVAT Credit Rules, 2004, for availing CENVAT credit of service tax paid. The Commissioner disallowed the credit, holding that re-insurance occurs after the insurance business is affected and thus is not an input service. The Tribunal allowed the credit. The High Court reversed, holding that re-insurance is not an input service as it is not used in the course of providing the output service of insurance, but is a separate service procured after the insurance policy is issued. (Paras 1-4)
Issue of Consideration
Whether re-insurance service received by an insurer qualifies as 'input service' under the CENVAT Credit Rules, 2004, entitling the insurer to avail CENVAT credit of service tax paid on such re-insurance services.
Final Decision
The High Court allowed the appeal, set aside the order of the CESTAT, and restored the order of the Commissioner of Central Excise (Adjudication) dated 02.12.2013.
Law Points
- CENVAT credit eligibility
- input service definition
- re-insurance as input service
- Section 35G of Central Excise Act
- 1944
- CENVAT Credit Rules
- 2004
Case Details
2015 LawText (KAR) (04) 92
C Shashikantha (for appellant), G. Shivadass (for respondent)
Commissioner of Central Excise, Service Tax & Customs, Bangalore (Adjudication)
M/s. PNB Metlife India Insurance Co. Ltd.
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Nature of Litigation
Appeal under Section 35G of the Central Excise Act, 1944 against the order of CESTAT allowing CENVAT credit on re-insurance services.
Remedy Sought
The appellant (Commissioner) sought to set aside the CESTAT order and restore the Commissioner's order disallowing CENVAT credit.
Filing Reason
The Commissioner disallowed CENVAT credit on re-insurance services, holding that re-insurance is not an input service. The Tribunal allowed the credit, leading to the appeal.
Previous Decisions
The Commissioner of Central Excise (Adjudication) vide order dated 02.12.2013 disallowed CENVAT credit of Rs.12,04,06,544/- for the period April 2008 to March 2012 and confirmed the demand. The CESTAT, in Final Order No.20719/2014 dated 07.05.2014, allowed the appeal of the respondent.
Issues
Whether re-insurance service qualifies as 'input service' under the CENVAT Credit Rules, 2004, for the purpose of availing CENVAT credit of service tax paid on such services.
Submissions/Arguments
The appellant argued that re-insurance is not an input service as it is procured after the insurance business is affected and is not used in providing the output service.
The respondent argued that re-insurance is integral to the insurance business and should be considered an input service.
Ratio Decidendi
Re-insurance service procured by an insurer is not an 'input service' under the CENVAT Credit Rules, 2004, as it is not used in the course of providing the output service of insurance. The definition of 'input service' requires the service to be used in providing the output service, and re-insurance, being a service for the insurer's own risk coverage after the policy is issued, does not meet this requirement.
Judgment Excerpts
The brief facts of the case are that the respondent – PNB Metlife India Insurance Company Ltd., (for short referred to as ‘Insurer’) is engaged in, and licensed to carry on Life Insurance business.
Section 101A of the Insurance Act 1938, requires every insurer to have a certain percentage of the insurance coverage given by the Insurer to be re-insured by another company.
The Commissioner of Central Excise (Adjudication), vide its order dated 2.12.2013, disallowed the CENVAT credit to the respondent –Insurer and held that Service Tax paid on re-insurance services received cannot be considered as Input Service since re-insurance takes place after the Insurance business is affected.
Procedural History
The Commissioner of Central Excise (Adjudication) passed an order on 02.12.2013 disallowing CENVAT credit of Rs.12,04,06,544/- on re-insurance services for the period April 2008 to March 2012. The respondent appealed to the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), which allowed the appeal vide Final Order No.20719/2014 dated 07.05.2014. The appellant then filed the present appeal under Section 35G of the Central Excise Act, 1944 before the High Court of Karnataka.
Acts & Sections
- Central Excise Act, 1944: Section 35G
- CENVAT Credit Rules, 2004: Rule 2(l)
- Insurance Act, 1938: Section 101A
