The Principal Commissioner Of Central Tax And Central Excise vs. South Indian Bank

Held

The Court held that the insurance service provided by DICGC to the banks is an 'input service'. The CENVAT credit of the service tax paid for this service received by the banks from DICGC can be availed by the banks for rendering output services. The Court found that the assessee is under a statutory obligation to insure deposits received for conducting banking business, and this service is relatable to the banking business. The Court rejected the Revenue's suggestion to compartmentalize activities, stating it would be an odd way to deny the claim of CENVAT credit. The Court relied on a larger bench decision of the CESTAT which had already considered these issues and held in favour of the assessee. Therefore, the substantial questions raised by the Revenue were not tenable and were answered against the Revenue and in favour of the assessee.

Facts

The Principal Commissioner of Central Tax & Central Excise, Kochi Commissionerate (Revenue) filed appeals challenging the common order dated 23.09.2020 of the Customs, Excise & Service Tax Tribunal, Bangalore. The respondent in these appeals is M/s South Indian Bank. The controversy revolves around the assessee's claim for input tax credit (ITC) under the CENVAT Credit Rules, 2004, on the service availed from the Deposit Insurance & Credit Guarantee Corporation (DICGC). The assessee paid a premium to DICGC for insuring deposits, which is a statutory obligation for banking businesses. The assessee paid service tax on this premium and sought to avail CENVAT credit for the service tax paid to DICGC against the service tax payable by the assessee for rendering services to its customers. The primary authority rejected this claim.

Key Issues

1. Whether the service tax paid on the premium for insurance of deposits obtained from DICGC is eligible for CENVAT credit as an input service under the CENVAT Credit Rules, 2004, considering the statutory obligation of the bank to insure deposits and the relatability of this service to the banking business? Petitioner's arguments: The Revenue contended that the service tax paid on the premium for DICGC insurance cannot be claimed as CENVAT credit. The judgment does not explicitly detail the Revenue's specific arguments beyond this general contention, but it implies a compartmentalization of activities to deny the credit. Respondent's arguments: The assessee argued that the insurance service provided by DICGC is an 'input service' and the CENVAT credit of the service tax paid for this service can be availed for rendering output services. They relied on a larger bench decision of the CESTAT which held that insurance service provided by DICGC to banks is an input service and CENVAT credit is admissible.