Case Law Details
Commissioner of Central Goods And Service Tax Vs Shriram General Insurance Company Limited (Rajasthan High Court)
IRDA has issued the reinsurance regulation for re-insurance of general insurance business. One of the directions issued by the IRDA in exercise of powers conferred under Section 34 of the Insurance Act was for creation of an insurance pool. All general insurers registered to carry on general insurance business were directed to collectively participate in a pooling arrangement to share all motor third party insurance business underwritten by any of the registered general insurers. In pursuance of the said directions all general insurance companies in India entered into an agreement for creating the insurance pool.
It can thus be seen that there is little distinction between the case of the PNB Metlife (supra) and the present one. As noted, in case of PNB Metlife (supra) which judgment has been accepted by the department, the High Court has held that the service tax paid on re-insurance would be allowable as input service under the CENVAT Credit Rules, 2004. In the present case, we are concerned with such re-insurance being pooled through a mechanism provided by IRDA. These directives had statutory force and the act of the insurance companies to create such a pool was not a voluntary act. The tribunal correctly therefore was of the opinion that this pooling system is nothing but a form of re-insurance. We may notice that the term reinsurance has been defined under Section 2(16B) of the Insurance Act, 1938 as to mean the insurance of portion of one insurer’s risk by another insurer who accepts the risk for a mutually acceptable premium. Section 101A of the Act makes it compulsory for every insurer to re-insure such percentage of the sum insured on each policy as may be specified by the authority with a previous approval of the Central Government.
FULL TEXT OF THE JUDGMENT/ORDER of RAJASTHAN HIGH COURT
This appeal is filed by the revenue to challenge the judgment of Customs, Excise and Service Tax Appellate Tribunal, New Delhi dated 04.03.2020. The questions of law suggested by the revenue would show that the department objects to the respondent-assesee claiming benefit of the service tax paid on re-insurance as allowable input service. We may record that the issue pertains to the period prior to 1.4.2012.
We have heard learned counsel for the parties. From the order passed by the Commissioner as the adjudicating authority, we gather that the respondent who is an insurance company, had been depositing its service tax on the amount of insurance premium. In the process the assessee had availed amount of input service credit on the basis of invoices issued by other insurance companies with whom the assessee had a pooling agreement. The Commissioner was of the opinion that the assesseee was not entitled to claim such credit. The Commissioner referred to the definition of term input service as contained in Rule 2(l) of the CENVAT Credit Rules, 2004 as it was prevailing at the relevant time and came to the conclusion that the assessee was not entitled to claim such credit on input service.
The assessee carried the matter in appeal. The tribunal allowed the appeal mainly proceeding on the basis of the judgment of the Division Bench of the Karnataka High Court in case of Commissioner of Central Excise, Bangalore Vs. PNB Metlife India Insurance Co.Ltd. reported in (2015) 51 GST 504 (Karnataka). The Tribunal noted that the decision of the PNB Metlife (supra) had been accepted by the revenue. In the said case, the Court was concerned with the allowability of the service tax paid on re-insurance premium as input service. The Division Bench referred to the provisions contained in rule 2(l) of the CENVAT Credit Rules, 2004 and observed that such reinsurance was required in terms of Section 101A of the Insurance Act, 1938. The High Court had held and observed as under:-
“6. 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(1) 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(1) of the CENVAT Credit Rules 2004.
7. We may further add that the Service Tax is levied for certain service rendered and the provision of giving the CENVAT credit is so that there may not be double taxation. If a person has collected service tax, no doubt the same has to be deposited, but if in the process of the same transaction he has paid some service tax, which is necessary for its business, then he is entitled to the CENVAT credit to the extent of service tax which has been paid by it. In the present case, if the entire Service Tax which is collected by the Insurer, while selling its insurance policies, has to be deposited without being given the credit of the tax which is paid by it while procuring a policy of reinsurance as (mandatorily required in law), the same would be against the ethos of CENVAT credit policy, as the same would amount to double taxation, which is not permissible in law..”
The objection of the revenue in the present case to the applicability of the judgment of the High Court in case of PNB Metlife (supra) was that it is not a case of simple re-insurance but a case where the respondent-assesee insurance company and other insurance companies had created a common pool where such insurance liabilities were thrown in common hochpoch and at the end of the financial year the distribution was made between the pooling members.
Learned counsel for the revenue had highlighted this aspect of the matter and contended that since this pooling mechanism was not a statutory requirement, the decision in the case of PNB Metlife (supra) would not be applicable. However, we notice that the tribunal in the impugned judgment has also dealt with this issue by referring to the provisions of the Insurance Act, 1938 and noted that Section 114A of the Insurance Act empowers the IRDA to make regulations in respect of various matters including matter relating to reinsurance under Sections 101A and 101B of the Insurance Act. In exercise of the such powers IRDA has issued the reinsurance regulation for re-insurance of general insurance business. One of the directions issued by the IRDA in exercise of powers conferred under Section 34 of the Insurance Act was for creation of an insurance pool. All general insurers registered to carry on general insurance business were directed to collectively participate in a pooling arrangement to share all motor third party insurance business underwritten by any of the registered general insurers. In pursuance of the said directions all general insurance companies in India entered into an agreement for creating the insurance pool.
It can thus be seen that there is little distinction between the case of the PNB Metlife (supra) and the present one. As noted, in case of PNB Metlife (supra) which judgment has been accepted by the department, the High Court has held that the service tax paid on re-insurance would be allowable as input service under the CENVAT Credit Rules, 2004. In the present case, we are concerned with such re-insurance being pooled through a mechanism provided by IRDA. These directives had statutory force and the act of the insurance companies to create such a pool was not a voluntary act. The tribunal correctly therefore was of the opinion that this pooling system is nothing but a form of re-insurance. We may notice that the term reinsurance has been defined under Section 2(16B) of the Insurance Act, 1938 as to mean the insurance of portion of one insurer’s risk by another insurer who accepts the risk for a mutually acceptable premium. Section 101A of the Act makes it compulsory for every insurer to re-insure such percentage of the sum insured on each policy as may be specified by the authority with a previous approval of the Central Government.
Under the circumstances we do not see any scope for deviating from the ratio in the case of PNB Metlife (supra). Incidentally we may record that the tribunal has also seen the entire situation as revenue neutral. Be that as it may, no question of law arises.
Appeal is accordingly dismissed.
