Max Life Insurance Co. India Ltd. Vs. Commissioner Central Excise and Service Tax (CESTAT Delhi)
CESTAT Delhi has held that service tax was not payable on surrender charges deducted from the fund value of policy holder on pre-mature withdrawal, as it was not for asset management but a penalty. The Tribunal, considering clarification by CBEC Circular TRU No. 334/1/2010, observed that the charge pertaining to asset management alone formed the value in case of ULIP policy. It observed that surrender charges are permitted to be levied by IRDA by way of penal charges towards recovery of initial expenses. Clarification by substitution of clause (ii) in explanation to Section 65(105)(zzzzf) of Finance Act 1994, was relied upon. [Max Life Insurance Co. India Ltd. v. Commissioner – 2019 VIL 550 CESTAT DEL ST]
FULL TEXT OF THE CESTAT JUDGEMENT
The issue in the present case is whether Service Tax under the category of ―Management of Investment under ULIP service” is leviable on Surrender Charges, which are deducted from fund value, as per policy provisions for pre-mature withdrawal from the scheme.
2. With effect from 16.05.2008, the activity of Management of Investment under ULIP was brought under the Service Tax net in form of Clause 105 (zzzzf) of Section 65 of the Act i.e. ―Management of Investment under ULIP service”.
3. Sometimes the policy holder or the insurer opts for pre mature termination of the policy. In such case, the insurer / appellant levy surrender charges, which is deducted from the fund value or the benefit value accrued in the policy. The appellant in the business of life insurance and provides several products which are broadly classifiable into term plant product, Unit Link Insurance Product (ULIP) etc. vide show cause notice dated 16.04.2014, invoking the extended period of limitation, service tax was demanded on surrender charges for the following period:
