Case Law Details
Commissioner of Central Excise And Service Tax Vs Corporation Bank (Karnataka High Court)
In Commissioner of Central Excise And Service Tax Vs Corporation Bank, the Karnataka High Court dismissed multiple appeals filed by the Revenue concerning the eligibility of banks to avail CENVAT credit on service tax paid towards deposit insurance premium to the Deposit Insurance and Credit Guarantee Corporation (DICGC). The Court held that the issues raised were already settled by earlier judgments of the Kerala High Court and the Bombay High Court.
The appeals raised common questions of law relating to whether banks could claim CENVAT credit on service tax paid for deposit insurance services received from DICGC. The Revenue questioned the correctness of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in holding that banks were entitled to treat deposit insurance services as “input services” under the Finance Act, 1994. The Revenue also challenged the Tribunal’s reliance on the Larger Bench decision in South Indian Bank vs. Commissioner of Customs, Central Excise & Service Tax, Calicut.
Additional questions raised by the Revenue included whether banking transactions involving “transactions in money only” could be treated as services under the Finance Act, whether such banking activities constituted output services, and whether deposit insurance services could qualify as input services when no separate service charges were collected for such transactions. The Revenue further questioned whether mandatory deposit insurance could be equated with reinsurance services and argued that CENVAT credit should not have been allowed after the omission of the phrase “activities relating to business” from the definition of input services through Notification No. 3/2011 dated 01.04.2011.
Counsel for the assessee submitted that the Tribunal had merely followed the Larger Bench decision of the CESTAT in South Indian Bank. It was further pointed out that the Larger Bench ruling had already been examined by the Kerala High Court in The Principal Commissioner of Central Tax and Central Excise vs. M/s South Indian Bank, where the High Court affirmed the Tribunal’s decision and answered the issues in favour of the assessee. The assessee also relied upon the Bombay High Court judgment in Commissioner of CGST and Central Excise vs. Yes Bank Ltd., which similarly followed the Kerala High Court’s ruling and decided the matter against the Revenue.
The Revenue argued that the judgments of the Kerala and Bombay High Courts were under challenge before the Supreme Court. The Revenue also contended that reliance on the Karnataka High Court’s earlier decision in Commissioner of Central Excise, Bangalore v. PNB MetLife India Insurance Co. Ltd. was misplaced and not applicable to the facts of the present case.
After considering the submissions, the Karnataka High Court observed that the Tribunal had followed the Larger Bench decision while deciding the controversy in favour of the assessee. The Court noted that the Kerala High Court had already extensively analysed the reasoning of the Larger Bench, including the regulatory framework governing banking operations and compliance requirements under the Banking Regulation Act, 1949. The Karnataka High Court also noted that the Bombay High Court had taken a similar view following the Kerala High Court judgment.
The Court rejected the Revenue’s contention regarding the reliance on the PNB MetLife judgment, observing that the Kerala High Court’s decision was based substantially on the regulatory framework applicable to banks and that the reference to PNB MetLife was only incidental. The Court further held that the Revenue had not shown any reason warranting a fresh examination of the controversy.
The Karnataka High Court concluded that the issues raised in the appeals were no longer res integra and stood concluded by the Kerala High Court judgment in South Indian Bank. Finding no reason to take a different view, the Court answered all substantial questions of law in favour of the assessee and against the Revenue. Consequently, all the appeals filed by the Revenue were dismissed.
FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT
Heard Sri. Aravind.V.Chavan, learned Senior Standing Counsel for the appellants and Sri. G.Shivadas, learned Senior Counsel on behalf of Smt. Tanmayee Rajkumar, learned counsel for the respondent.
2. All these appeals are filed by the Revenue and raise common questions of law. The learned Senior Standing Counsel and the learned Senior Counsel appearing for the respective parties advanced common arguments. Accordingly, all these appeals are disposed of by this common order.
3. This Court vide order dated 03.08.2022 admitted the following substantial questions of law for consideration, which read as under:
In C.E.A Nos.02 and 03/2022
i. Whether the CESTAT was right in setting aside the OIOs and allowing the appeals of the assesses, by holding that the banks are eligible to avail Cenvat credit of Service Tax paid on the premium amount for the Insurance Service received by the banks from ‘Deposit Insurance and Credit Guarantee Corporation’.
ii. Whether CESTAT was right in placing reliance on the Larger Bench Decision of the Hon’ble Tribunal, Bangalore in the assessee-banks’ own case vide interim order 1331/2020 dated 20.03.2020, which held that a commercial bank is entitled to treat insurance services provided by ‘Deposit Insurance and Credit Guarantee Corporation’ (DICGC) as an input service and is entitled to take Cenvat credit of Service Tax paid upon receipt of such service.
In C.E.A Nos.07, 08, 09, 10, 11 and 12/2022
i. Whether the Tribunal is right in considering that the activity of business of banking, viz., “transactions in money only” as “services” within the ambit of the Finance Act, 1994?
ii. Whether the Tribunal is right in further considering the above activity of business of banking as an output service within the ambit of the Finance Act, 1994, especially when no service charges were collected by banks for transactions in money only?
iii. Whether the Tribunal is right in extending deposit insurance scheme as an input service when essentially there was no service at all by banks, and therefore no output services also, in the business of banking, i.e., when the business of banking was transactions in money only?
iv. Whether the Tribunal is right in extending deposit insurance scheme as an “input service” merely because it is mandatory and without deposit insurance banks cannot function at all?
v. Whether the Tribunal is right in equating reinsurance service, which is mandatory and which is for insurance, which is a service, with deposit insurance, which, though mandatory, is not linked to any output service or for that matter any service vis-à-vis the business of banking?
vi. Whether the Tribunal is right in allowing the CENVAT credit on deposit insurance even after omission of the general entry activities relating to business from the definition of input services vide Notification No. 3/2011 dated 01.04.2011?
4. The facts in C.E.A No.11/2022 are referred to for convenience.
5. At the outset, Sri G. Shivadas, learned Senior Counsel appearing for the respondent, submitted that the Customs, Excise and Service Tax Appellate Tribunal (for short, ‘CESTAT’), while answering the controversy in favour of the assessee, had followed the order of the Larger Bench of CESTAT in South Indian Bank vs. Commissioner of Customs, Central Excise & Service Tax, Calicut.
5.1 It was further submitted that the order of the Larger Bench was the subject matter of appeal before the High Court of Kerala in The Principal Commissioner of Central Tax and Central Excise vs. M/s South Indian Bank 2022:KER:76979. It is submitted that the High Court of Kerala, by judgment dated 05.12.2022 in C.E. Appeal No.1/2021 and connected matters, answered the questions in favour of the assessee and against the Revenue by affirming the order of the Larger Bench of the CESTAT.
5.2 It is also submitted that the Bombay High Court answered the questions in favour of the assessee in Commissioner of CGST and Central Excise vs. Yes Bank Ltd. in Central Excise Appeal No.21/2021 dated 12.09.2023, following the judgment of the High Court of Kerala in the case of M/s South Indian Bank (supra). It is further submitted that, in view of the judgments of the High Court of Kerala and the Bombay High Court, the questions of law arising in these appeals ought to be answered in favour of the assessee and against the Revenue.
6. Sri Jeevan J. Neeralgi and Sri Aravind V. Chavan, learned Senior Standing Counsel appearing for the appellants–Revenue, submit that the judgments of the High Courts on the identical issue are pending consideration in appeal before the Supreme Court of India.
6.1 Sri Jeevan J. Neeralgi, learned Senior Standing Counsel, submits that the reliance placed on the judgment of this Court in Commissioner of Central Excise, Bangalore v. PNB MetLife India Insurance Co. Ltd. [2015 (39) STR 561 (Kar)] is misplaced and that the said decision is inapplicable to the facts of the present cases. On the strength of the above submission, the learned Senior Standing Counsel seeks to distinguish the judgment of the High Court of Kerala.
7. We have considered the submissions made by the learned Senior Standing Counsels for the appellants-revenue and learned Senior Counsel for the respondent-assessee.
8. On a perusal of the impugned order, it is evident that the Tribunal, following the order of the Larger Bench, allowed the appeals by answering the controversy in favour of the assessee and against the Revenue. The order of the Larger Bench was the subject matter of consideration before the High Court of Kerala in the case of M/s South Indian Bank (supra).
8.1 The High Court of Kerala, by judgment dated 05.12.2022 in C.E. Appeal No.1/2021 and connected matters, after an extensive analysis of the reasoning assigned by the Larger Bench, including reference to the Banking Regulation Act, 1949, answered the questions in favour of the assessee, thereby affirming the order of the Larger Bench. Similar questions have also been answered by the Bombay High Court, following the judgment of the High Court of Kerala.
8.2 The submission of the learned Senior Standing Counsels appearing for the appellants–Revenue that reliance placed on the judgment of this Court in the case of PNB MetLife India Insurance Co. Ltd. (supra) is incorrect, is of no consequence. The High Court of Kerala has noticed that substantial consideration was given to the nature of, and the requisite compliances to be adhered to by, banks in terms of the regulatory framework governing the grant and continuance of a banking licence. The reference to PNB MetLife India Insurance Co. Ltd. (supra) is only incidental. The submissions made by the learned Senior Standing Counsels appearing for the appellants–Revenue do not substantiate the need for any further examination of the controversy in question.
8.3 On a perusal of the impugned order and upon considering the judgment of the High Court of Kerala, we are of the view that the questions raised in these appeals are no longer res integra and stand answered by the judgment of the High Court of Kerala. We find no grounds and reasons to take a different view from the view taken by the High Court of Kerala.
9. In the light of the above, by following the judgment in the case of M/s South Indian Bank (supra) in C.E. Appeal No.1/2021 decided on 05.12.2022, we answer the substantial questions of law framed herein in favour of the assessee and against the Revenue. Accordingly, the appeals stand dismissed.
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