By TIOL News Service

MUMBAI, AUG 20, 2014: THE appellant is engaged in the business of providing General Insurance Service throughout India. The head office of the appellants is located at Pune and is centrally registered with the service tax department for discharge of service tax liability on general insurance services.

The appellant had appointed independent insurance auxiliary agents to promote their business. These insurance agents are providing services to the appellant and the said service is taxable under the category of insurance auxiliary services under Section 65(105)(zl) of the Finance Act, 1994. In terms of Rule 2(1)(d)(iii) of the Service Tax Rules, 1994, the liability to pay the service tax on insurance auxiliary services has been shifted to service receiver i.e. on insurance company.

Accordingly, the appellants discharged the service tax liability as a receiver of service from the insurance auxiliary agents. After paying the service tax on the said service, the appellants take CENVAT Credit of the service tax paid by them.

The appellants also rendered general insurance services for the clients and assets located in Jammu & Kashmir through its own branches located in Jammu & Kashmir. The appellants were not liable to pay service tax on the general insurance services so provided as the provisions of the Finance Act, 1994 do not extend to Jammu and Kashmir. The appellants also appointed insurance agents in Jammu & Kashmir. The said agents were procuring the policies for the clients/assets located in Jammu & Kashmir. Though the services provided by the agents in Jammu & Kashmir were also not taxable, the appellants have wrongly discharged the service tax as a recipient of service and taken CENVAT Credit of the same as input service.

This came to the notice of the department during audit and rest as they say is history - proceedings for recovery were initiated and the demand was confirmed along with penalty and interest.

The appellant is before the CESTAT and inter-alia submitted that taking credit of service tax which was not required to be paid amounts to payment of CENVAT credit wrongly availed.  Reference is made to the decisions in CIT v. Mahalakshmi Textile Mills Ltd. - 1967 (66) ITR 710 (SC) & Nitco Tiles Ltd. vs. CCE Mumbai.

The Bench observed - it was very much clear that the insurance auxiliary services provided by the agents in the State of Jammu & Kashmir are not taxable. Therefore, the appellants are not liable to pay service tax for the said services of the insurance agents. In these terms, whatever credit is taken by the appellant is nothing but the refund of tax erroneously paid by them.

In fine, the o-in-o passed by the CCE, Pune-III was set aside and the appeal was allowed with consequential relief.

(See 2014-TIOL-1540-CESTAT-MUM)