ST – Tribunal has not discussed applicability of provisions proposed in SCN, hence there is a mistake apparent on record, which calls for rectification: CESTAT
By TIOL News Service
MUMBAI, MAR 20, 2019: ON the ground that the surrender/partial withdrawal charges collected from the policy holders are liable for service tax under the taxable service category of 'Management of Investment under ULIP Services', demand notice was issued for the period 01.04.2009 to 30.06.2012.
Against the order of the Commissioner confirming the tax demand, the assessee went in appeal and the CESTAT allowed the same by observing thus-
++ Notification F. No. IRDA/Reg/2/52/2010 dt. 01.07.2010 issued by the Insurance Regulatory and Development Authority (Treatment of Discontinued Linked Insurance Policy) Regulations, 2010 specifies that the major objective of discontinuance charges are either to recoup expenses incurred towards procurement, administration of the policy and incidental thereto and design the discontinuance charges to encourage the policyholder to continue with the contract for full term.
++ The fact which emerges from the above shows that the charges are either in the nature of 'penalty' or 'liquidated damages' or a combination of both. Thus in no way it can be considered as charges towards providing of any services of management of investment under Unit Linked Insurance Plan. The clause 2 of Letter Ref:055/IRDA/Act/ULIP/2009 – 10 DT. 24.09.2009 define it as surrender penalty.
++ ULIP is primarily a contract between the insurer and insured and thus when seen in the context of Section 73 and 74 of the Contract Act, 1872 what transpires is that surrender of policy is nothing but ending of contract for which compensation in the form of damages which cannot be termed as charges towards management.
The appeal was also allowed on the ground of the demand being hit by limitation. In as much as it was held that the issue involved is of interpretation and, therefore, no element of suppression, fraud or intention to evade taxes can be made against the appellant more so since the information of surrender charges stood disclosed in the books of account as well as in the Balance sheet.
We reported this order as -2018-TIOL-1308-CESTAT-MUM.
Revenue opines that there is a mistake in this order and, therefore, has filed a miscellaneous application seeking rectification thereof.
It is contended that the allegations leveled in the show cause notice at paragraph 17 are that the appellant had contravened the provisions of sub-clause (zzzzf) of clause (105) of Section 65 and sub-clause (zx) of clause (105) of Section 65 of the Finance Act, 1994 have not been considered in proper perspective inasmuch as the Tribunal has only discussed the applicability of the provisions of sub-clause (zzzzf) and did not consider the other aspect proposed in the show cause notice i.e. sub-clause (zx) of Section 65 ibid.
The Division Bench considered the submissions and observed -
"On perusal of the order dated 10.04.2018 vis-à-vis the proposals made in the show cause notice, we find that the Tribunal has not discussed about the applicability of the provisions of clause (zx) of clause (105) of section 65 ibid to the facts of the present case. Therefore, we are of the view that there is apparent mistake in the order dated 10.04.2018, which can be called for rectification."
The miscellaneous application filed by Revenue was allowed.
Quick reference:
SECTION 65. Definitions. - In this Chapter, unless the context otherwise requires,-
(105) "taxable service" means any service provided or to be provided,
(zx) to a policy holder or any person, by an insurer, including re-insurer carrying on life insurance business;
(zzzzf ) to a policy holder, by an insurer carrying on life insurance business, in relation to management of investment, under unit linked insurance business, commonly known as Unit Linked Insurance Plan (ULIP) scheme.
Explanation.-x x x
(See 2019-TIOL-824-CESTAT-MUM)
