Shriram Life Insurance Company Versus CC, CE & ST, Hyderabad –IV and CC, CE & ST, Rangareddy –GST (Vice-Versa)
Service Tax
2019 (2) TMI 868 – CESTAT HYDERABAD – [2019] 69 G S.T.R. 295W (CESTAT – Hyd), 2019 (31) G. S. T. L. 442 (Tri. – Hyd.)
CESTAT HYDERABAD – AT
Dated:- 8-2-2019
Appeals No. ST/30263, 30327/2016 & ST/30141/2017 – FINAL ORDER No. A/30187-30189/2019
Service Tax
Mr. M.V. RAVINDRAN, MEMBER (JUDICIAL) and Mr. P. VENKATA SUBBA RAO, MEMBER (TECHNICAL)
Shri Vishal Aggarwal, Advocate for the Appellant.
Shri Arun Kumar, Joint Commissioner (AR) for the Respondent.
ORDER
These three appeals are filed against very same Order-in-Original hence being disposed of by a common order.
2. Appeal No. ST/30141/2017 is filed against Order-in- Original No. 004/Com-39-16-17 dated 14.10.2016 by Shriram 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 1
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e insurer will not pay anything while in the case of endowment policy the insurer will pay out the sum assured under the policy along with all benefits that have accrued till date upon the death of the policy holder within the policy term or expiry of the policy term. While in the case of Unit Linked Insurance Plans (ULIP), allows the policy holders to direct part of their premium into investment in different types of funds wherein, a part of the investment goes towards providing life cover, while the residual portion of the ULIP is invested in a fund which in turn invests in stocks/bonds/ various investment instruments. It is not in dispute that appellant assessee is covered under the life insurance services. As per the policy of the appellant assessee, and insurer or policy holder is eligible to surrender /discontinuance 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
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st that part of the order which held in favour of the appellant assessee on the part of the premium recovered towards management and fund under ULIP which was attributable to premium allocation charges, policy administration charges etc., which did not fund a part of the taxable value of service under ULIP and consequently, assessee was required to comply with the provisions of Rule 6 of the CENVAT Credit Rules, 2004 or otherwise and the Adjudicating Authority has held that compliance with the provisions of Rule 6(3) (ii) is enough and there is no need for demand under Rule 6(3) of the CENVAT Credit Rules, 2004.
5. Heard both sides and perused the records.
6. Learned Counsel appearing for the appellant assessee submits as under:
a) regarding tax on surrender charges:
i) Option to terminate the surrender insurance policy 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 8
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ns, 2010 to contended that surrender/discontinuance charges consideration for life insurance service that had been rendered in as much as the regulation specifically stated that the said charges were to be recovered only to recoup the expenses already incurred towards procurement, administration of the policy and incidental thereto and encourage policyholder to continue with the contract for the full term, to ensure the charges reflect the actual expenses incurred. All that the said regulation prescribed was the manner in which surrender value was to be arrived at which hitherto, was not provided for the regulation applied only in respect of policies issued after 01.07.2010 and were completely irrelevant insofar policies issued prior to that date so concerned.
v) Demand of service tax has been confirmed by the Adjudicating Authority 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 resp
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h cash and by utilising CENVAT credit. It is his further submission that undisputedly in their financial records appellant assessee had made appropriate entries towards the tax liability in cash as also by debiting the CENVAT account. It is the submission that it was only due to an error/omission while filing CENVAT returns (in form ST-3) the credit utilisation towards payment of tax for the month of June was understated by the amount. This error was corrected in the year April, 2013.
C) regarding demand of service tax of Rs. 8,17,779/-
It is his submission that neither notice nor the impugned order has suit out any head of taxable service under which the tax in respect of said amount was being demanded. It is settled law that without specifying the head of taxable service under which the demand is being raised, tax cannot be 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
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26.6 to 26.14. on the issue of what would surrender would means. After reading the findings recorded by the adjudicating authority, it is his submission that surrender value of the policy means termination of the contract in its entirety at the instance of the policy holder, the consequence of such action is specified by the appellant assessee in their brochures/ documents such as policy conditions and privileges. It is the submission that by accepting the surrender of the policy by the insurer, it is the service rendered by the appellant assessee. It is his further submission that the Adjudicating Authority has erred in traversing beyond the remand order dated 15.05.2014 passed in the earlier grounds in the proceedings wherein, it was admitted by the appellant that they are liable to pay interest were excess utilisation and also liable 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 si
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1938, even though, the amount may not be a liability which is immediately payable, the difference between the fund value as on the date of surrender vis-a-vis the amount paid as surrender value, is accounted as surrender charges in the books of account.
10. The issue which falls for consideration is 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. The provisions of Finance Act, 1994 more specifically Section 65B(44) defines what would mean the service which we reproduce:
“service” means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include- (a) an activity which constitutes merely,-
(i) a transfer of title in goods or immovable property, by way of sale, gift or 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 arti
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emed as an employee before the commencement of this section.
'Explanation 2. – For the purposes of this clause, the expression “transaction in money or actionable claim” shall not include –
(i) any activity relating to use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged;
(ii) any activity carried out, for a consideration, in relation to, or for facilitation of, a transaction in money or actionable claim, including the activity carried out –
(a) by a lottery distributor or selling agent on behalf of the State Government, in relation to promotion, marketing, organising, selling of lottery or facilitating in 7 organising lottery of any kind, in any other manner, in accordance with the provisions of the Lotteries (Regulation) Act, 1998;. (Finance Act 2016)
(b) by a foreman of chit fund for conducting or organising a chit in any manner.;
Expl
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by mortgage of immovable property or by hypothecation or pledge of moveable property, or to any beneficial interest in moveable property not in possession either actual or constructive, of the claimant, which the civil courts recognise as affording grounds of relief whether such debt or beneficial interest be existent, accruing or conditional or contingent”.
It can be seen that 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., (supra) wherein, it has been explained that right to receive insurance money is an actionable claim. The relevant portion of Apex Court observations are reproduced as
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or a partner's right to sue for an account of a dissolved partnership or the right to claim the benefit of a contract not coupled with any liability (see Union of India Vs. Sri Sarada Mills Ltd., SCC at P. 880)”
11. In fact, Hon'ble High Court of Bombay in the case of Insure Policy Plus Services Pvt. Ltd., Vs. LIC of India as reported at [2007 (109) BOMLR 559] held that life insurance policy is a actionable claim within the meaning of Section 3 of the Transfer of Property Act. The relevant portion of the ratio is in paragraph No. 7 which we reproduce:
” 7. A long time ago Romilly, M.R., in (Strokes Vs. Cowan)1, (1860) 30 L.J. Ch.882, observed that “Policies of insurance” “must be considered to be securities for money.” The amount payable under a policy of insurance is a debt due from the insurer to the insured on the happening of a certain event or the lapse of a certain time, and the policy is the security for such debts charged upon the property or the stocks or funds of the insure
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contracts by which the policy holder has a right to recover certain sums of money from the insurance office in certain events, and the premium which he pays may be considered as an investment so as to obtain for him a benefit of the policy holder.” Life policies are now construed not as contracts of indemnity but to pay a certain sum in a certain event depending on the duration of human life.”
The judgment of the Hon'ble High Court of Bombay in the case of Insure Policy Plus Services Pvt. Limited was affirmed by Apex Court as reported at [2016 (2) SCC 507]. In our view, the judgments and the ratio thereto clearly supports the contention of the appellant that life insurance policy / the right to receive insurance policy money is an actionable claim. The exercise of the right to receive insurance money by the insured is an activity which is a transaction in actionable claim and is outside the scope of the definition of service. In our view, the amounts entered as surrender/discontinuan
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e heads of service even for the period prior to 01.07.2012. It is to be noted coordinate bench has already taken a view no service tax has been payable on the amounts retained by the surrender/discontinuance in the period prior to 01.07.2012 in the case of Reliance Company Limited Vs. CCE reported at [2018-TIOL-1308-CESTAT-Mumbai] wherein, the bench considered all aspects of the issue and came to a conclusion that the amount is not taxable and are not part of taxable services rather it is in the nature of penalty or liquidated damages which is not a service hence cannot be made liable for tax during the period involved. The said observation of the bench would cover the issue in the case in hand, even after 01.07.2012 as has been recorded by us herein before.
13. We are unable to agree with the Adjudicating Authority that the amounts recorded as surrender/discontinuance charges are consideration for services rendered and such charges are designed to recoup the expenses already incurred
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e tax on the surrender charges for the period in question is unsustainable accordingly is set aside so also the interest and the penalty imposable.
15. As regards the levy of interest on the amount of Rs. 91,92,096/-, allegedly short paid for the month of June, 2012 is concerned, after going through the ST-3 returns records for the period April to June 2012 as also subsequent periods we find that there is an omission/error in the CENVAT portion of the return. It is noticed that assessee had in fact indicated in those returns the correct tax liability and discharge of the same by payment in case debit in CENVAT balance. There is no dispute that the said ST-3 returns discharge of the entire liability was payable by cash has been paid. That portion of the amount of the discharge of tax liability, indicated in the returns has been paid by utilisation of CENVAT credit, we find that the CENVAT portion registered in the ST-3 do not indicate any debit of the said amount. It is also on records
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he appellant assessee. To that extent we hold that the appellant assesse's appeal does not merit acceptance.
16. In view of the foregoing, on this point, we hold that the appellant assesee needs to discharge the interest liability on the said amount, but at the same time we hold that there is no necessity to visit the appellant with any penalty on this point.
17. In so far as the service tax demand of Rs. 8,17,779/-, we find 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. Accordingly, we find the arguments put forth by the Learned Counsel on this point do not merit any acceptance and we uphold the confirmation of demand of Rs. 8,17,779/- along with interest. We set aside the penalties imposed on them on this count also.
18. In so far as the appeal filed by the Revenue is concerned, show cause notice issued to the appellant assessee has alleged t
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traverse beyond the scope of the remand order dated 15.05.2014 of the Tribunal more specifically in paragraph No. 12 & 13 which held that for the period from October, 2006 to March 2008 interest was leviable on restriction of utilisation of CENVAT credit under Rule 6 and for the period 01.07.2010 to 31.03.2011 tax under Rule 6 was leviable on proportionate basis in terms of Rule 6(3) (ii) of CENVAT Credit Rules, 2004.
19. We have perused our order dated 15.05.2014 and find that the same disposed of the appeal filed by the appellant assessee at the stay stage itself by directing appellant assessee to make a pre-deposit of Rs. 1 crore based on prima facie observations in paragraph No. 12 & 13. In fact, in paragraph 15 it was categorically held that the matter was being remanded to the Adjudicating Authority with request to re-adjudicate the matter afresh and pass a reasoned detailed order covering all the issues and dealing with all the submissions that may be made by the assessee and
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er charges, funds administration charges are only to be excluded and therefore exclusion of such value and such excluded value cannot be considered as attributable to exempted services. However, he fairly agrees that this issue had been considered by this Tribunal in the case of ING Vysya Life Insurance Co. Ltd., Vs. CCE, C & ST, Bangalore [Misc. Order No. 2088-20882/2014 dt. 01/04/2014, and we had taken a prima facie view in favour of the Revenue. However in view of the fact that the issue as to whether the portion of such leviable amount can be considered as exempted service or not is a debatable issue and therefore the appellant could not be found fault with if they had not opted to pay proportionate credit attributable to such value. This Tribunal in the case of ING Vysya had allowed such option to be exercised now and accordingly took a view that appellant should reverse the proportionate credit attributable to such values. The learned counsel submits that according to their own c
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ant deposits an amount of Rs. 1 crore (Rupees one crore only) within eight weeks and report compliance to him. Needless to say that the appellants shall be given reasonable opportunity to present their case before the matter is adjudicated.”
20. We are unable to understand why the Revenue is contesting that the Adjudicating Authority was not required to decide on the applicability of Rule 6 of the CENVAT Credit Rules, to the facts of the present case. In our view 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. However, as both sides had made extensive arguments with respect to the no exempt service being rendered by the assessee, we proceed to record of our findings on the same.
21. The primary contention of the assessee is that undisputedly as per notice the charges towards policy administration, premium allocation and surrender charges are
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