ST - CENVAT - Third party MV insurance - As per Rule 9, whatever ST has been paid, applicant is entitled to take credit - Question whether applicant has availed credit of input service without receiving service shall be dealt with at time of final hearing - Stay granted: CESTAT
By TIOL News Service
NEW DELHI, MAY 21, 2015: THE applicant is an insurance company. As per Insurance Regulatory and Development Authority (IRDA) Rules, in case of insurance other than motor vehicle insurance, except for the motor 3rd party insurance (for motor vehicle), the applicant is getting reinsured from the other insurance companies abroad as well as in India.
For service of reinsurance received from the Indian Insurance Co. they are paying the service tax and taking credit thereon. For service received of reinsurance from outside India, the applicant is paying service tax under reverse charge mechanism and availing credit thereof.
For 3rd party insurance for motor vehicle, there is a mechanism as per IRDA Rules. As per that mechanism, the pool is formed of all the insurance companies and the applicant is part thereof. At the end of each year, as per the direction of the Pool Manager, the insurance company has to issue invoice to the service recipient member of the pool of their share and to pay the service tax thereon.
The service tax paid by the applicant to the other insurance companies, the applicant is availing Cenvat credit of the same. After scrutiny of the record of the applicant, it was revealed that the applicant was issuing policies to their customers for covering various insurance. The applicants were depositing service tax on the amount of insurance premium. It was also found that the applicant has taken Cenvat Credit of service tax on the service tax paid by reinsurance company which has been categorized as under:
A. The invoices issued by reinsurer company; and
B. The invoices issued by pool member of the company on third party motor vehicle insurance.
Therefore, it was alleged that pool arrangement is sort of collective insurance as to which company is reinsurer company among other. The applicant is also a member of pool, as have been issuing similar invoices to other members. The pool is administered by General Insurance Corporation under the guidelines of the General Insurance Council and Insurance Regulatory and Development Authority. Therefore, it was concluded that the applicant has entered into an agreement with General Insurance Corporation (pool administrator and the other members of the pool), i.e. general insurer or re-insurer.
Therefore, the invoices issued by the other insurance companies do not appear to be proper document as per Rule 9 of the CCR, 2004 to avail Cenvat credit as the invoices issued by the other insurance companies against which the applicant has availed input service credit have not provided the insurance services to the applicant.
The matter was adjudicated - demands proposed in the SCN of Rs.115,78,81,098/- was confirmed along with interest & penalty.
The applicant is before the CESTAT seeking waiver of pre-deposit and grant of stay.
It is submitted that a similar issue came up before the Tribunal in the case of PNB Metlife India Insurance Co. Ltd. - 2014-TIOL-1314-CESTAT-BANG wherein Tribunal held that re-insurance is an input service and applicant is entitled to take Cenvat credit on reinsurance.
The AR justified the action by the lower authority.
The Bench observed that there are two issues that need to be examined -
(A) Whether the appellant is entitled to take input service credit on reinsurance service under Rule 2(l) of the CCR, 2004 or not?
&
(B) Whether the appellant is entitled to avail input service credit on the invoices issued by reinsurance company who is a member of pool as per Rule 9 of the CCR, 2004 without receiving the service.
After considering the submissions, the CESTAT held -
++ Prima facie, we are in agreement with the learned counsel for the applicant that when the applicant undertake the insurance, i.e. the insurance date of commencement of risk by the insurance company for covering the insurance of Policy holder and that service has to be provided for a particular period of time as per the agreement. So, the output service is provided by the applicant till the termination of agreement, therefore, the service received by the applicant is a service received for providing output service and qualify as input service as per rule 2(l) of the CCR, 2004. Therefore, the applicant is entitled to avail Cenvat credit on the reinsurance service received by them as per Rule 2(l) of the CCR, 2004.
++ For third party motor vehicle insurance, it is not disputed that applicant has paid the service tax. As per Rule 9, whatever the service tax has been paid by the applicant, he is entitled to take the Cenvat credit. The question whether the applicant has received the inputs without receiving the service shall be dealt with at the time of final hearing of the appeal. Therefore, as per Rule 9 of the CCR, 2004, whatever the service tax has been paid by the applicant, the applicant is entitled to take as Cenvat credit. In these circumstances, prima facie the applicant has made out a case for complete waiver of entire amount of service tax, interest and penalty.
By waiving the requirement of pre-deposit of entire amount of adjudged dues, the Bench granted a stay in the matter.
(See 2015-TIOL-911-CESTAT-DEL)
