Cenvat Credit of the Service tax wrongly paid under reverse charge is nothing but refund of the erroneously paid Service tax which cannot be denied

Bajaj Allianz General Insurance Co. Ltd. Vs. Commissioner of Central Excise, Pune-III [2014-TIOL-1540-CESTAT-MUM]

Bajaj Allianz General Insurance Co. Ltd. (“the Appellant”) is engaged in the business of providing General insurance service (“insurance service”) throughout India. The head office of the Appellant is located at Pune and is centrally registered with the Service Tax Department for discharge of Service tax liability on insurance service. To promote their business, the Appellant had appointed independent insurance auxiliary agents (“insurance agents”) providing services to the Appellant taxable under the category of ‘Insurance  auxiliary services’ under Section 65(105)(zl) of the Finance Act, 1994. Since, in terms of Rule 2(1)(d)(iii) of the Service Tax Rules, 1994, the service receiver was liable to pay Service tax on Insurance auxiliary services, the Appellant was duly discharging its Service tax liability as a receiver of service from the insurance agents.

Amongst other places, the Appellant also appointed insurance agents in Jammu & Kashmir (“J&K”) for procuring the policies for the clients/ assets located in J&K. Though the said services provided by the insurance agents in J&K were not taxable, the Appellant wrongly discharged the Service tax as a recipient of service and thereafter taken Cenvat credit of the same as input service. During the course of audit, the Department took objection that the Appellant have wrongly availed the Cenvat credit on Service tax paid on Insurance auxiliary services rendered in J&K on the ground that the services are exclusively used in the State of J&K on which no Service tax is liable to be discharged and the Service tax, if at all, paid by the Appellant is not available as Cenvat credit to the Appellant.

Accordingly, the Cenvat credit availed by the Appellant was denied and recovery proceedings were initiated. Being aggrieved, the Appellant preferred an appeal with the Hon’ble CESTAT, Mumbai and submitted that since the services rendered by the insurance agents in J&K were not taxable, Service tax deposited on the same was refundable to the Appellant and accordingly, they have taken credit of the same. The Appellant also relied on the judgment of Hon’ble Apex Court in the case of CIT Vs. Mahalakshmi Textile Mills Ltd. [1967 (66) ITR 710 (SC)] (“Mahalakshmi Textile”) and Nitco Tiles Ltd. Vs. CCE Mumbai [2007 (220) ELT 827 (Tri. Mum)] (“Nitco Tiles”).

The Hon’ble CESTAT, Mumbai determined the place of provision of the service rendered by the insurance agents located in J&K and held that the Insurance auxiliary services provided by the insurance agents in the State of J&K were not taxable and therefore, the Appellant was not liable to pay Service tax͘ Further, the Hon’ble Tribunal relied upon the decisions in the case of Mahalakshmi Textile and Nitco Tiles and held that the Cenvat credit taken by the Appellant is nothing but refund of the Service tax paid by them on the services on which they were not required to pay Service tax and the same cannot be denied.

(Bimal Jain, FCA, FCS, LLB, B.Com (Hons), Mobile: +91 9810604563, Email: bimaljain@hotmail.com)

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  1. Sanjay Chaturvedi says:

    Small query – Can excess service tax paid be mistake (case of wrong billing by vendor) will also be covered in above referred case of

    Cenvat Credit cannot be denied of Service tax wrongly paid under reverse charge.


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November 2020