Page 108 - GSTL_7th May 2020_Vol 36_Part 1

66 GST LAW TIMES [ Vol. 36
activity of discontinuance of service, and such discontinuance of service was not
eligible to service tax, during the material period.
(emphasis supplied)
13. At the time of entering into a contract of ULIP services with the pol-
icyholder, the appellant does not charge/recover any surrender charges from the
policyholder. It is, therefore, apparent that surrender charges are not meant for
management of investment under ULIP and there is no question of ULIP service
being provided to the policyholder in lieu of the surrender charges. Thus, sur-
render charges, which are merely a charge for premature termination of the poli-
cy, cannot be treated as a consideration for provision of the service.
14. It is further submitted that Service Tax has been paid by the appel-
lant on charges recovered from a policy, under the heads of premium allocation
charges, policy administration charges, fund management charges, etc., under
the taxable service category of “management of investment under ULIP”. Sur-
render charges, however, are deducted by the appellant from the fund value of
prematurely terminated policy at the time of surrender. Therefore, surrender
charges are an outcome of surrender of policy by policyholder and hence cannot
be deemed to have a nexus with the provision of “life insurance services” or
“management of investment under ULIP”.
15. Learned Counsel submits that similar issue arose before the Coor-
dinate Bench of this Tribunal in the case of Reliance Life Insurance Company Ltd. v.
CST, Mumbai-II - 2018-TIOL-1308-CESTAT-MUM = 2018 (19) G.S.T.L. J66 (Tri. -
Mumbai). In the said decision, the Tribunal has held that surrender charges un-
der ULIP are not charges towards fund management and hence are not taxable.
Further, the Tribunal observed as follows :
 In nutshell, whatever amount is charged for the management of in-
vestment portion in ULIP policy is a taxable service and thus liable
for service tax. On the contrary, the surrender charges are charged
by the assessee when the person dilutes the policy completely or
partially.
 Notification F. No. IRDA/Reg./2/52/2010, dated 1-7-2010 issued by
the Insurance Regulatory and Development Authority (Treatment of
Discontinued Linked Insurance Policy) Regulations, 2010 specifies
that the major objective of discontinuance charges are either to re-
coup expenses incurred towards procurement, administration of the
policy and incidental thereto and design the discontinuance charges
to encourage the policyholder to continue with the contract for full
term.
 The fact which emerges from the above shows that the charges are
either in the nature of ‘penalty’ or liquidated damages or a combina-
tion of both. Thus, in no way it can be considered as charges to-
wards providing of any services of management of investment un-
der Unit Linked Insurance Plan. The clause 2 of Letter Ref. :
055/IRDA/Act/ULIP/2009-10, dated 24-9-2009 defined it as sur-
render penalty.
 ULIP is primarily a contract between the insurer and insured and
thus when seen in the context of Sections 73 and 74 of the Contract
Act, 1872 what transpires is that surrender of policy is nothing but
ending of contract for which compensation in the form of damages
which cannot be termed as charges towards management.
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