Case Law Details

Case Name : Commissioner of Central Excise Vs PNB Metlife India Insurance Co. Ltd. (Karnataka High Court)
Appeal Number : CEA No. 56/2014
Date of Judgement/Order : 09/04/2015
Related Assessment Year :
Courts : All High Courts (4171) Karnataka High Court (209)

Brief of the case:

  • The Hon’ble Karnataka HC in the case of CCE Vs. PNB Metlife India Insurance Co. Ltd held that reinsurance service is an input service for rendering insurance service because the reinsurance is an integral part of insurance service rendered by the insurance co. and cannot be termed as an activity post completion of insurance services.
  • Hence, the Cenvat credit of service tax paid on procuring reinsurance services can be claimed.

Facts of the case:

  • The assessee insurance company (insurer) procured reinsurance services from foreign insurance companies and claimed Cenvat credit of service tax paid under Reverse charge mechanism.
  • The adjudicating authority (Commissioner of Central Excise) disallowed the Cenvat credit by contending that the reinsurance services are not eligible input services.
  • Accordingly , he confirmed the demand of credit taken to the tune of Rs. 12,04,06,544/- with penalty and interest.
  • The appeal of the assessee was allowed by tribunal who held that the reinsurance services were availed to complete the process of providing insurance services and thus, there is a direct nexus with the output service of providing insurance coverage to its customers.

Contention of Revenue:

  • The business of insurance continues till the validity of the insurance policy and the process of re-insurance is an integral part of issue of the insurance policy particularly when the statute requires certain percentage of insurance business to be mandatorily re-insured from another company.
  • Thus, the tribunal’s order required no interference.

 Contention of Assessee:

  • Re-insurance is a post insurance activity and it is in nature of reducing risk of insurer but its provision is subsequent to the provision of insurance service by the insurer. Thus, it cannot be termed as a service used for provision of output service of insurance.
  • Further, the services are not indispensable in provision of output service of insurance by the insurer.

Held by Hon’ble High Court:

  • The point of dispute is that whether the assessee can claim credit of service tax paid on reinsurance as input service for providing insurance service.
  • Rule 2(l) of Cenvat Credit Rules, 2004 provides that ‘Input Services’ means service used by a service provider for taxable output service.
  • The insurance service provided by service provider does not complete merely on issue of insurance policy by insurance company. Infact, the service continues till the existence of the term of policy.
  • Re-insurance of policy issued by insurer is a statutory requirement u/s 101A of the Insurance Act, 1938. Thus, reinsurance is a part of rendering of insurance service by insurer and its not a activity after completion of insurance service.
  • Thus, the transfer of a portion of risk by way of re-insurance has to be considered as having direct nexus with the output service of insurance.
  • On the basis of above findings, the court concluded that reinsurance services availed are input service for insurer credit of which can be claimed under Cenvat Credit Rules,2004.

In result the appeal filed by revenue was dismissed.

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