The Commissioner Of Service Tax vs. M/S.Lakshmi Vilas Bank

Facts

The Revenue (Commissioner of Service Tax, Central Excise and GST) filed appeals against a common Final Order passed by the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Chennai. The CESTAT had allowed appeals filed by various banks, including Lakshmi Vilas Bank, City Union Bank, and The Karur Vysya Bank Ltd. The dispute concerned the eligibility of CENVAT credit availed by these banks on service tax paid for premiums to the Deposit Insurance and Credit Guarantee Corporation (DICGC). The Revenue contended that deposit insurance is not an input service connected with the taxable output services of the banks. The adjudicating authority and the Commissioner (Appeals) had previously confirmed the denial and recovery of this CENVAT credit, along with interest and penalties.

Held

The Court held that the insurance service provided by the Deposit Insurance Corporation to the banks is an input service and that CENVAT credit of the service tax paid for this service is admissible. The Court agreed with the CESTAT's finding that the statutory obligation to insure deposits is part of the banking business and does not fall within the negative list. The Court found that the argument of the Revenue to compartmentalize banking activities to deny CENVAT credit was not persuasive. The Court affirmed that the payment of premium on insurance together with service tax for valid reasons has been held by the larger bench as an input service. The substantial questions of law were answered against the Revenue and in favour of the assessee. The Court also noted that similar views have been followed by other High Courts, including the Bombay High Court in Commissioner of CGST & Central Excise v. Yes Bank Ltd. and IndusInd Bank Ltd., and that the pendency of a Special Leave Petition against a Kerala High Court judgment does not suspend the legal position.

Key Issues

1. Whether the insurance service provided by the Deposit Insurance & Credit Guarantee Corporation to the Banks constitutes an 'input service' for the purpose of the CENVAT Credit Rules, 2004, as per Section 66D of the Finance Act, 1994? 2. Whether CENVAT credit can be availed by the Banks in respect of service tax paid for such insurance service received from DICGC? 3. Whether the CESTAT was correct in holding that the CENVAT credit availed by the assessee-banks is eligible, following the ratio of a Larger Bench order of the CESTAT, Bengaluru, on similar facts? The Revenue argued that deposit insurance is not an input service because it is not directly related to the taxable output services of the banks and may fall under the negative list. The banks, relying on the CESTAT Larger Bench decision in South Indian Bank vs. CC, Kozhikode and Yes Bank Ltd. vs. CST, Mumbai, contended that deposit insurance is a statutory obligation and an essential part of banking business, thus qualifying as an input service. The Revenue also questioned the CESTAT's reliance on the Larger Bench order and its decision to set aside the Orders-in-Original.