By TIOL News Service

BANGALORE, MAY 01, 2015: THE assessee is engaged and licensed to carry out life insurance business and had procured reinsurance service from overseas companies. The service tax paid on such services was availed as CENVAT credit by them.

It is the case of the Revenue that the credit taken is not admissible as it is not an input service, as reinsurance had taken place after the insurance business was effected.

The assessee got a favourable order from the Tribunal vide 2014-TIOL-1314-CESTAT-BANG, but revenue filed an appeal in High Court against the order of Tribunal.

Before the High Court, revenue submitted that it is only after the insurance policy is issued by the Insurer that the re-insurance is taken from another company, on which it pays Service Tax and as such it would not be entitled to CENVAT credit, as the same cannot be termed as 'Input Service' within the meaning of Rule 2(l)(i) of CENVAT Credit Rules, 2004. It is also contended that there is no justification for the essential or indispensable nature of input service (i.e., re-insurance service) for provision of output service (i.e., insurance service).

After hearing both sides, the High Court held:

Having heard the learned counsel for the parties and in the fact of this case, we are of the opinion that the order of the Tribunal does not require any interference. Rule 2(l) of the CENVAT Credit Rules 2004 provides that 'Input Service' means service used by a provider of taxable service for providing an 'Output Service'. The submission of the learned counsel for the appellant that once the Insurance Policy is issued by the Insurer, the transaction comes to an end (and would not depend on the re-insurance policy) and as such the service provided would not come within the ambit of input service, is not worthy of acceptance. The process of issuance of an Insurance Policy by the Insurer and subsequent procurement of re-insurance policy from another company (which is a statutory requirement) is an integral part of the total process. The process of insurance does not come to an end merely on the issuance of the Insurance Policy by the Insurer. In fact, it continues till the existence of the term of the policy. The re-insurance is taken by the Insurer immediately after the insurance policy is issued, as is required under Section 101A of the Insurance Act, 1938. Since re-insurance is a statutory obligation, and the same is co-terminus with the Insurance policy issued by the respondent, we are of the opinion that the stand taken by the Tribunal is correct that the transfer of a portion of the risk of the re-insurance has to be considered as having nexus with the output service, since the re-insurance is a statutory obligation and the same is co-terminus with the Insurance Policy. We only re-iterate that the issuance of insurance policy by insurer, and then taking of re-insurance by it, is a continuous process, and in the facts of the present case, it cannot be said that the same would not be an 'input service' eligible for CENVAT credit within the meaning of Rule 2 (l) of the CENVAT Credit Rules 2004.

(See 2015-TIOL-1097-HC-KAR-ST)