CENVAT credit of service tax paid for insurance service received by banks from DICGC was available

South Indian Bank Vs Commissioner of Customs (CESTAT Bangalore)

Conclusion: Insurance service provided by Deposit Insurance Corporation to banks was an “input service” and CENVAT credit of service tax paid for this service received by the banks from the Deposit Insurance Corporation could be availed by the banks for rendering output services.

Held: The service provided by the Deposit Insurance and Credit Guarantee Corporation to the banks for insuring the deposits of public with the banks had been considered by the banks to be an “input service” and CENVAT credit of service tax paid by the banks for this service had been availed by the banks for rendering “output services”. The issue involved in all these appeals was whether the banks could avail credit of this service tax paid by the banks for the service provided by the Deposit Insurance Corporation. It was held that in order to render any output service under the category of “banking and other financial services”, it was necessary for a bank to register itself with the Deposit Insurance Corporation and pay premium after registration. A bank, without obtaining registration and without payment of insurance premium on the deposits outstanding, could not render any “output service” of “banking and other financial service”. It, therefore, held that banks could avail CENVAT credit of the service tax paid by the banks on the premium amount paid to Deposit Insurance Corporation for the insurance service rendered by the Deposit Insurance Corporation to the banks.

FULL TEXT OF THE CESTAT JUDGEMENT

The service provided by the Deposit Insurance and Credit Guarantee Corporation¹ to the banks for insuring the deposits of public with the banks has been considered by the banks to be an ‘input service’ and CENVAT credit of service tax paid by the banks for this service has been availed by the banks for rendering ‘output services’. The issue involved in all these appeals is whether the banks can avail credit of this service tax paid by the banks for the service provided by the Deposit Insurance Corporation. This Larger Bench has been constituted as divergent views have been expressed by Division Benches of the Tribunal on this issue.

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