2019 (2) TMI 868 – CESTAT HYDERABAD – TMI – Levy of service tax – difference between the fund value and the surrender value in case of pre-mature surrender/discontinuance of ULIP – whether the exercise of the right of the insurer to receive money is merely a transaction in actionable claim, so as to be out of the purview of service tax?
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Held that:- The actionable claim as defined under Transfer of Property Act means a claim to any debt, secured by any beneficial interest in moveable property not in the possession, either actual or constructive, of the claimant. From the definition of actionable claim, the insurance policy or the surrender value thereof would become an actionable claim or otherwise was a matter of dispute in the Apex Court in the case of Union of India Vs. Sri Sarada Mills Ltd., [1972 (9) TMI 145 – SUPREME COURT] wherein, it has been explained that right to receive insurance money is an actionable claim.
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While, it is true that the expression of ‘Service’ u
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2013 till the date on which debit entry was made in CENVAT register, interest liability on the ₹ 91,92,096/-, needs to be worked out as per the provisions of Section 75 of the Finance Act, 1994 and paid by the appellant assessee – penalty need not be imposed – decided against assessee.
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Service tax demand of ₹ 8,17,779/ Held that:- The demand for the period needs to be upheld as appellant assessee is not able to show from the records that they had indicated the amount as other income in the service tax returns – demand with interest upheld – penalty set aside.
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Applicability of Rule 6 of the CENVAT Credit Rules – Held that:- Revenue has not challenged the findings of the Adjudicating Authority on merits qua the applicability of Rule 6, on this count itself, the appeal filed by the Revenue deserves to be dismissed.
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The mere fact that service tax was payable on the part of the value of the services subject to tax, that part of the value on which tax being levi
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Life Insurance Company (herein after referred to as appellant assessee) while appeal No. ST/30263/2016 is filed against Order-in-Original No. 004/COM/55-15-16 dated 18.12.2015 and Revenue has preferred an appeal against that portion of the impugned order dated 18.12.2015 in appeal No. ST/30327/2016. 3. Appellant assessee is engaged in the business of providing life insurance services since 2016, and are covered under the taxing head of Section 65(105) (zx) of the Finance Act, 1994; the appellant is duly licensed by the Insurance Regulatory Development Authority of India (IRDA for short); avails CENVAT credit on the inputs and input services. During the period in question i.e. 2011-2012 to 2014-2015, appellant was providing two types of life insurance policies i.e. the traditional plan though pure risk insurance policies, participating and non-participating policies (endowment policies) and unit linked insurance plans (ULIP for short). In respect of Traditional Plan/Policy, the appellan
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charges, on pre-mature termination of the policy in which case appellant assessee reduces a sum as surrendered/discontinuance charges which the Revenue is seeking to tax. The common issue in dispute in the appeals filed by the assessee appellant is whether for the period in question, they are liable to discharge service tax on the difference between the fund value and the surrender value in case of pre-mature surrender/discontinuance of ULIP. In appeal No. ST/30141/2017, two additional issues are also raised in the impugned orders viz., a) whether the assessee appellant was liable to discharge interest on service tax amount of ₹ 91,92,096/-, which was discharged by utilising the CENVAT balance on due date, however, the necessary entries were not carried out in CENVAT return due to an omission, and, b) whether service tax of ₹ 8,17,779/- in respect of other income such as Alteration Fee, Assignment Charges, Re-assignment charges etc. for the period 2010-2011 to 2014-2015 nee
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y and recover insurance money is an actionable claim has held by Apex Court in it is judgment in the case of Union of India Vs. Sri Sarada Mills Ltd., [1972 (2) SCC 877]; Sunrise Associates Vs. Government of NCT, Delhi [2006 (5) SCC 603] as also LIC of India Vs. Insure Policy Plus Services Pvt. Ltd., [2016 (2) SCC 507]. ii) Definition of Service under Section 65B(44) specifically excludes from it is purview in transaction in money or actionable claim, consequently, exercise of the right by policy holder to receive insurance money (surrender value) is transaction in an actionable claim and not a service to be taxed under Finance Act. iii) Without prejudice to the submissions, the Tribunal in the case of Reliance Life Insurance Company Ltd., [2018 -TIOL-1308-CESTATMumbai] held that the surrender/discontinuance charges represent penalty or liquidated damages are cannot be considered as a consideration for any services. iv) Reliance placed by the Adjudicating Authority on Notification date
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ority under the head of Life Insurance Services taxable under Section 65(105) (zx) whereas the show cause notice has proposed to recovery of service tax in respect of the same under the head of Management of ULIP as defined under Section 65(105) (zzzzf). It is contended that the Adjudicating Authority could have traverse beyond the show cause notice. vi) It is his submission that taxable service under the head of Life Insurance Services, tax was leviable only to any services provided to a policy holder by an insurer carrying on life insurance business. The act to terminating life insurance policy for which charges are collected, cannot be said to be rendition of life insurance services so as to taxed under Life Insurance Services. B) regarding interest on service tax of ₹ 91,92,096/-. It is the submission that there was no short payment, the appellant assessee had showed and discharged applicable tax in ST-3 return wherein, self assessment of tax liability and discharge thereof w
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recovered. D) regarding reversal of tax as required under Rule 6 as sought in the Revenue s appeal. It is his submission that the appellant was not recovered any taxable or exempted services and has availed credit attributable to the inputs and input services were correctly availed and provisions of Rule 6 cannot be invoked in the case in hand. It is also his further submission that for the demand under Rule 6, it is partially beyond 5 years which is the maximum period prescribed as raising a demand and even otherwise the primary input service credit availed by the appellant assessee was in respect of insurance auxiliary service to which the restrict of for which tax liability does not apply as has been held by the Hon ble Mumbai Tribunal in the case of Tata Aig Life Insurance Co. Ltd., [2015 (37) STR 570]. 7. He relies upon the decisions of the Supreme Court in the case of Union of India Vs. Sri Sarada Mills Ltd., [(1972) 2 SCC 877] and Sunrise Associates Vs. Government of NCT, Delhi
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iable to reverse CENVAT credit under proportionate basis for the period 01.07.2010 to 30.04.2011. 9. On careful consideration of submissions made by both sides, we find that it is not in dispute as to the amounts which are paid by the appellant assessee to an insured person under nomenclature of surrender charges, it represents the difference between the fund on the date of surrender vis-a-vis the amount agreed to be paid to the policy holder of his surrendering the policy before expiry of the locking period as provided in the policy. It is also seen that the policy document which is the contract between the insurer and the insured stipulates the manner in which surrender value of the policy would be computed in case a policy holder wishes to exercise his right to receive the insurance money by surrendering the policy. In another words, if the insured exercises right to receive insurance money prior to expiry of its lock-in period, the insurer is contractually obligated to pay him the
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r in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; or (iii) a transaction in money or actionable claim; (b) a provision of service by an employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or tribunal established under any law for the time being in force. Explanation 1 . – For the removal of doubts, it is hereby declared that nothing contained in this clause shall apply to,- (A) the functions performed by the Members of Parliament, Members of State Legislative, Members of Panchayats, Members of Municipalities and Members of other local authorities who receive any consideration in performing the functions of that office as such member; or (B) the duties performed by any person who holds any post in pursuance of the provisions of the Constitution in that capacity; or (C) the duties performed by any person as a C
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ulation) Act, 1998;. (Finance Act 2016) (b) by a foreman of chit fund for conducting or organising a chit in any manner.; Explanation 3. – For the purposes of this Chapter,- (a) an unincorporated association or a body of persons, as the case may be, and a member thereof shall be treated as distinct persons; (b) an establishment of a person in the taxable territory and any of his other establishment in a non-taxable territory shall be treated as establishments of distinct persons. Explanation 4. – A person carrying on a business through a branch or agency or representational office in any territory shall be treated as having an establishment in that territory; It can be seen that the definition of Service in Section 65B(44) excludes from its purview an activity which is construed merely a transaction in actionable claim. The term actionable claim is defined in Section 65B(2) (1) have the meaning assigned to it in Section 3 of the Transfer of Property Act, 1882 we reproduce the said rele
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ceive insurance money is an actionable claim. The relevant portion of Apex Court observations are reproduced as below: 13. Section 130 of the Transfer of Property Act however speaks of transfer of actionable claim. Actionable claims under the Indian Law include claims recognised by the Court either as to unsecured debts or as to beneficial interests in moveable property not in possession. A debt is an obligation to pay a liquidated or certain sum of money. A beneficial interest in moveable property will include a right to recover insurance money or a partner s right to sue for an account of a dissolved partnership or a decretal debt or a right to recover the insurance money or the right to claim the benefit of a contract not coupled with any liability. The principle that beneficial interests in moveable property would include right to recover insurance money was reiterated by Apex Court in the case of Sunrise Associates (supra) the relevant observations of the Apex Court are in para No
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he security for such debts charged upon the property or the stocks or funds of the insurer. A policy of the insurance represents money due and owing to the assured at his death, and it forms part of his estate. A policy of life insurance can be said to be an actionable claim within the meaning of Section 3 of the Transfer of Property Act and is not a mere right to sue. In a policy of life insurance the sum insured is certain, the premium, or the consideration for its payment is certain and the time when its payment is to become due is certain to come. Even the present value of the policy which is called the surrender value can be calculated. A policy of insurance is a present contract in the hands of the assured of which he has a present right to the benefit although the fruits are to be enjoyed in future. A life assurance policy as such would be property. Coitton, L.J. in (Tucan)2, (1888) 40 Ch. D5 remarked It was contended that the policies did not come within the term property but i
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e definition of service. In our view, the amounts entered as surrender/discontinuance charges in the appellant assesse s books of accounts are not consideration for any service rendered by them, but it represents the amount that is retained by insurer on the insured, exercise his right to receive the insurance money. The entirety of the transaction being that in actionable claim is outside the purview of the service tax and does not get covered under provisions of Finance Act, 1994. 12. While, it is true that the expression of Service under Section 65B(44) only w.e.f. 01.07.2012, however, even for the period prior thereto the transaction in question is a actionable claim and not a service. It has to be also noted that for the period prior to 01.07.2012, for an activity to be tax it had to qualify as a taxable service in one of the specified services. Since we are of the view, the transaction in question is not a service at all but the transaction in a actionable claim hence could not h
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rendered and such charges are designed to recoup the expenses already incurred towards procurement administration of the policy and incidental thereto. The finding of the Adjudicating Authority are premised entirely are incorrect reading of the IRDA (treatment of discontinuance linked insurance policy) regulations, 2010 and overlooking the first principle and fundamental position that for an activity to be taxed as service under provisions of Finance Act, 1994, the activity has to first qualify as a service. In our view, a regulation framed by IRDA with the aim of protecting of the insured by providing for a yardstick for computation for the surrender and the consequent discontinuance charges cannot be read and applied out of services rendered a transaction in an actionable claim, as a service, liable to be taxed under the provisions of Finance Act, 1994. In any case, the said regulation will apply only to the policy issued after 01.07.2010 and does not apply to the policy prior there
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he ST-3 do not indicate any debit of the said amount. It is also on records, and undisputed that appellant assessee in April, 2013 corrected the utilisation of column of the CENVAT return by debit of the amount of ₹ 91,92,096/-. The entire arguments of the Learned Counsel is that this was a clerical error and during the relevant period in question i.e. June 2012 to April, 2013, the balance in the CENVAT registers was more than the amount which needs to be debited hence there was no reason to the appellant to make short payment for the month of June, 2012 hence interest liability be set aside. In our considered view, the appellant assessee, having not debited the CENVAT register for the period June, 2012, needs to pay the interest on the said amount till the liability of ₹ 91,92,096/- has been paid i.e. to say for the period from July, 2012 to April, 2013 till the date on which debit entry was made in CENVAT register, interest liability on the ₹ 91,92,096/-, needs to b
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y the Revenue is concerned, show cause notice issued to the appellant assessee has alleged that the policy administration charges, premium allocation charges, surrender charges which are recovered as a part of management of ULIP services did not paid tax during the period 16.10.2006 to 15.05.2008 & 01.07.2010 till 31.03.2011 and consequently were to be treated as exempt services, thereby the notification of CENVAT credit Rules, we find that the Adjudicating Authority has concluded that services rendered by the appellant assessee are only taxable services in as much, no taxable service rendered by them is exempt from whole of tax leviable on them nor was had rendering non taxable services, he has also held that merely because of service tax was payable on a part of a value on taxable service, it could not be contended by the Revenue that remaining part of the value on which tax was not being paid was an exempt service. We find that Revenue in it is appeal has not disputed any of the
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ed order covering all the issues and dealing with all the submissions that may be made by the assessee and have also been made before the Tribunal whether discussed in the order or not. For ease of reference, we reproduce the relevant paragraphs Nos. 12 to 15 dated 15.05.2014. 12. Coming to the issues relating to the CENVAT credit, learned counsel submitted that for the period from October, 2006 to March, 2008, there was a restriction of utilization of CENVAT credit to the extent of ₹ 20,000/-. It is settled law that it would be sufficient if the appellants paid the interest on such excess utilisation according to the learned counsel. We find that this submission has to be accepted since it would only be accepted. 13. Further as regards the demand relating to ₹ 3.98 crores @ 8% /6% on the exempted services, learned counsel fairly agrees that the appellants had in fact not maintained separate accounts. Nevertheless it is their claim that in respect of these services, because
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rse the proportionate credit attributable to such values. The learned counsel submits that according to their own calculation the amount of proportionate credit reversible would come to about ₹ 86 lakhs. 14. The observations hereinabove would show that prima facie, we have not found a case in favour of the appellant for approximately ₹ 92 lakhs going by the calculation of the appellants. In our opinion, this liability with a portion of interest should be deposited by the appellants and compliance should be reported before the Commissioner for fresh adjudication in the public interest. 15. In view of the above discussion, the impugned order is set aside and the matter is remanded to the original adjudicating authority with a request to adjudicate the matter afresh and pass a very reasoned detailed order covering all the issues and dealing with all the submissions that may be made by the appellants and have been made before us during the course of hearing whether discussed in
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is that undisputedly as per notice the charges towards policy administration, premium allocation and surrender charges are attributable to management of ULIP. Since management of ULIP services are taxable, merely because w.e.f. 01.07.2010 the taxable value qua services was a gross amount charged towards fund management charges, the same did not by any stretch of imagination result in any part of ULIP services being exempt from tax. The mere fact that service tax was payable on the part of the value of the services subject to tax, that part of the value on which tax being levied cannot be said to be an exempt service. Only to draw an analogy, abatement was granted from the levy of service tax in excess of 33% on construction services in terms of Notification No. 01/2006-ST, the grant of said abatement did not result in the construction service being an exempt service. Juxtaposing to the issue in hand, management of ULIP being a taxable service, merely because a part of the value of the
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