Life Insurance Corporation of India Vs Commissioner of CGST & Central Excise (CESTAT Mumbai)
The CESTAT Mumbai allowed Life Insurance Corporation of India’s appeal against the Order-in-Original dated 14.12.2018, which had confirmed service tax demands and imposed penalties on amounts retained by LIC when life insurance policies lapsed due to non-payment of premiums or were repudiated due to mis-declaration by policy holders. LIC, a state-owned insurance corporation providing taxable life insurance services, had been paying service tax on premiums received from policy holders in accordance with Section 67(4) of the Finance Act, 1994 and Rule 6(7A) of the Service Tax Rules, 1994. Following intelligence developed by the Directorate General of Central Excise Intelligence, the department treated the forfeited amounts as consideration for tolerating an act and sought service tax under the declared service covered by Section 66E(e) of the Finance Act, 1994, for the period from 01.07.2012 to 30.06.2017. The Commissioner confirmed the demand, invoked the extended period of limitation, and imposed penalties under Sections 77 and 78.
Before the Tribunal, LIC submitted that its insurance contracts were governed by the Insurance Act, 1938 and related statutory provisions. It contended that where a policy lapsed because of non-payment of premiums and was not revived, the policy did not acquire surrender value, while misrepresentation could result in rejection of claims or termination of the policy. According to LIC, these consequences were part of the regular insurance contract and did not constitute a separate agreement to tolerate a breach. LIC also relied upon CBIC Circular No. 214/1/2023-Service Tax dated 28.02.2023 and Circular No. 178/10/2022-GST dated 03.08.2022, as well as several judicial decisions. The Revenue reiterated the findings in the impugned order.
