Whether the appellant is eligible to avail CENVAT credit of service tax paid under RCM for availing services of insurance agents when portion of premium amount (consideration towards output service) is not liable to service tax?

PJ/Case Law/2020-2021/3651

M/s Metlife India Insurance Company Limited Final Order No.20467/2020 dated 18^th August 2020

Issue: Whether the appellant is eligible to avail CENVAT credit of service tax paid under RCM for availing services of insurance agents when portion of premium amount (consideration towards output service) is not liable to service tax?

Brief Facts: The assessee is engaged in insurance business offering Life Insurance Policy (Term Insurance Policy), Endowment Policy and Unit Linked Insurance Policy (ULIP). During the period in dispute, premium money is collected for Term Life Insurance and Endowment Life policies were fully taxable. In the case of ULIP, the premium is collected for two components – risk coverage portion and investment portion, the premium payable on the portion of risk coverage was only taxable, i.e. the premium attributable to investment portion was not taxable. Necessary break-up of premium for both the components are duly mentioned in the Policy document. The appellant was availing CENVAT credit of service tax paid on commission paid to agents through whom the Policies were being booked. Service tax on said commission was being paid by appellant under the category of Insurance Auxiliary Services under Reverse Charge Mechanism considering them to be eligible “input service” used for providing output service i.e. insurance services incl. ULIP. The department contends that since exempt service is being provided Credit on input service shall not be availed as per the provision of Rule 6(5) of the Cenvat Credit Rules.

Applicant’s Contention: Appellant has submitted his contention in the following manner-

a. They were engaged in the provision of only one service i.e. life insurance service in the course of carrying out life insurance business and therefore, no exempt service has been provided.

b. Customers have to purchase the ULIP as a whole and cannot choose to avail only the investment portion and not the insurance component and therefore, the services rendered by the insurance agents towards soliciting a ULIP can be considered as input service exclusively in relation to an exempt service.

c. Payment of commission cannot be exclusively attributed to the investment component of ULIP inasmuch as commission amount is paid to the agents for soliciting the entire policy and not just exclusively towards selling the investment component.

d. Merely for the reason that service tax was imposed on fund management charges in 2008 cannot be a ground to suggest that the life insurance companies are providing two distinct services prior to 16th May, 2008.

Reasoning of Judgement: Considering the definitions of Input service and exempted service, it was held that merely for the reason that a portion of the total premium amount is taxable, which may be referred as assessable value for tax purpose, would not render the other portion of Premium as ‘exempt service’. So it was held that no exempt service has been rendered by the appellant so as to deny credit of service tax paid on insurance agents services. Further reliance has been placed in the case of Max New York Life insurance Co Ltd Vs. CCE & ST wherein it was observed that when premium amount is collected for investment portion on which tax is not paid, there is no separate identifiable service attributable to the investment portion.

Decision: The appeal is allowed in favour of the appellant.

Comment: As it is evitable that proportionate reversal of credit related to exempted supplies or blocked credit of exempted supplies has been matter of dispute since service tax regime. However, this is definitely a landmark judgment provided that both the taxable and exempted services can’t be separately identified.

M/s Metlife India Insurance Company Limited Final Order No.20467/2020 dated 18^th August 2020
Issue: Whether the appellant is eligible to avail CENVAT credit of service tax paid under RCM for availing services of insurance agents when portion of premium amount (consideration towards output service) is not liable to service tax?
Brief Facts: The assessee is engaged in insurance business offering Life Insurance Policy (Term Insurance Policy), Endowment Policy and Unit Linked Insurance Policy (ULIP). During the period in dispute, premium money is collected for Term Life Insurance and Endowment Life policies were fully taxable. In the case of ULIP, the premium is collected for two components – risk coverage portion and investment portion, the premium payable on the portion of risk coverage was only taxable, i.e. the premium attributable to investment portion was not taxable. Necessary break-up of premium for both the components are duly mentioned in the Policy document. The appellant was availing CENVAT credit of service tax paid on commission paid to agents through whom the Policies were being booked. Service tax on said commission was being paid by appellant under the category of Insurance Auxiliary Services under Reverse Charge Mechanism considering them to be eligible “input service” used for providing output service i.e. insurance services incl. ULIP. The department contends that since exempt service is being provided Credit on input service shall not be availed as per the provision of Rule 6(5) of the Cenvat Credit Rules.

Applicant’s Contention: Appellant has submitted his contention in the following manner-
a.      They were engaged in the provision of only one service i.e. life insurance service in the course of carrying out life insurance business and therefore, no exempt service has been provided.
b.     Customers have to purchase the ULIP as a whole and cannot choose to avail only the investment portion and not the insurance component and therefore, the services rendered by the insurance agents towards soliciting a ULIP can be considered as input service exclusively in relation to an exempt service.
c.      Payment of commission cannot be exclusively attributed to the investment component of ULIP inasmuch as commission amount is paid to the agents for soliciting the entire policy and not just exclusively towards selling the investment component.
d.     Merely for the reason that service tax was imposed on fund management charges in 2008 cannot be a ground to suggest that the life insurance companies are providing two distinct services prior to 16th May, 2008.

Reasoning of Judgement: Considering the definitions of Input service and exempted service, it was held that merely for the reason that a portion of the total premium amount is taxable, which may be referred as assessable value for tax purpose, would not render the other portion of Premium as ‘exempt service’. So it was held that no exempt service has been rendered by the appellant so as to deny credit of service tax paid on insurance agents services. Further reliance has been placed in the case of Max New York Life insurance Co Ltd Vs. CCE & ST wherein it was observed that when premium amount is collected for investment portion on which tax is not paid, there is no separate identifiable service attributable to the investment portion.

Decision: The appeal is allowed in favour of the appellant.

Comment: As it is evitable that proportionate reversal of credit related to exempted supplies or blocked credit of exempted supplies has been matter of dispute since service tax regime. However, this is definitely a landmark judgment provided that both the taxable and exempted services can’t be separately identified.

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PJ/Case Law/2020-2021/3651

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