Service Tax Leviable On Policy Administration Charges From 1 May, 2011: CESTAT

The Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that service tax is leviable on policy administration charges with effect from 01.05.2011.

The two-member bench of Anil Choudhary (Judicial Member) and P.V. Subba Rao (Technical Member) has observed that in view of the clarification by the Board in TRU Circular dated 26.02.2010, 2010, policy administration charges are chargeable to tax under Section 65 (105) (zx). Thus, the department cannot be permitted to take a U-turn in light of the board's circular. Board circulars are binding on the officers of the department.

The appellant or assessee is an insurance service provider who is registered with the Department and has been paying taxes regularly as well as filing returns. The other service provided by the appellant, i.e., life risk coverage service, was taxable under Section 65 (105) (zx), which provides "taxable services."

"Taxable Services" means any service provided or to be provided to a policyholder or any person by an insurer, including a re-insurer carrying on life insurance business, in relation to risk cover in life insurance.

With effect from January 5, 2011, the definition of "taxable services" was amended by substitution to include "any service provided to a policyholder or any other person by an insurer, including a reinsurer carrying on life insurance business."

A show cause notice was issued to the appellant. The notice alleged that the appellant has collected charges from the policy holders like administration charges, front-end load charges, and switching charges but has not paid service tax under the Investment Management Service of the ULIP. The appellant has not discharged service tax liability on unallocated premium pertaining to the period March 2011, on or before the due date but paid it late by 36 days, and accordingly, interest was chargeable.

The appellant contended that the administrative charges also became taxable as part of the insurance premium with effect from January 5, 2011. The period of dispute was from July 2010 to March 2011. These administrative charges were not subject to service tax prior to 1.5.2011, and accordingly, the demand was set aside with consequential benefits.

The department contended that the appellant was collecting policy administration charges, etc., from the insurer and that the onus was on the appellant to prove that it was related to the management of investments, which they have failed to establish. Investment management broadens the scope and includes charges such as policy administration fees, front-end load fees, and switching fees. Thus, the service tax has been rightfully demanded.

The court held that prior to 1.5.2011, policy administration charges, etc. are not chargeable to service tax.

Case Title: M/s. Max Life Insurance Company India Ltd. Versus Commissioner of Central Excise & Service Tax

Citation: Service Tax Appeal No.51743 of 2016 (DB)

Date: 19.10.2022

Counsel For Appellant: Advocate Sanjeev Sachdeva

Counsel For Respondent: Radhe Tallo

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