CENVAT Credit Valid on DICGC Deposit Insurance Services: CESTAT Kolkata Ruling Explained

Background of the Dispute

The case of Principal Commissioner of Service Tax Vs Allahabad Bank came before the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata, arising from a challenge by the Revenue to an order passed by the adjudicating authority in favour of the assessee bank.

The core controversy centred on whether the assessee was rightly entitled to avail CENVAT credit of Service Tax paid on deposit insurance services rendered by Deposit Insurance and Credit Guarantee Corporation (DICGC) and whether such services qualified as input services under Rule 2(l) of the CENVAT Credit Rules, 2004.

An investigation initiated by DGCEI, Kochi Regional Unit led to the issuance of a show cause notice and, subsequently, to the appeal before the Tribunal.

Investigation and Allegations by the Revenue

Intelligence and Inquiry

The proceedings originated from intelligence gathered by the DGCEI that the assessee had:

  • Availed CENVAT credit on Service Tax charged by DICGC on deposit insurance services, and
  • Such services allegedly did not fall within the ambit of input services as per Rule 2(l) of the CENVAT Credit Rules, 2004.

During investigation, the following factual aspects were noted by the Department:

  1. The deposit insurance premium was computed and paid exclusively in relation to deposits accepted by the assessee bank.
  2. The premium was payable by the assessee to DICGC for each deposit accepted, and not based on any identifiable outward taxable service rendered by the bank.
  3. The assessee was not permitted to levy a separate fee on depositors for insuring their deposits.

On the basis of these facts, the Revenue formed the view that:

  • Payment of deposit insurance premium to DICGC was nothing but a transaction in money, unconnected with the provision of any taxable output service.
  • The service provided by DICGC, therefore, did not constitute an input service for the assessee within the meaning of Rule 2(l) of the CENVAT Credit Rules, 2004.
  • Consequently, the assessee was alleged to have wrongly availed CENVAT credit on such services.

The investigation revealed that the assessee had taken CENVAT credit in relation to deposit insurance services in the following amounts and periods:

  • Rs. 5,46,79,524/- during March 2012
  • Rs. 7,07,26,382/- during September 2012
  • `Rs.