Page 110 - GSTL_7th May 2020_Vol 36_Part 1

68 GST LAW TIMES [ Vol. 36
“2.1 Life insurance companies provide services relating to risk cover and
managing investment for the policyholders. The former is already subjected to
service tax. The latter is now being brought into the tax net. Similar services ren-
dered by way of ULIP are already subject to service tax since 2008.”
It is evident that the amendment in life insurance service was not intended
to make any difference in the coverage of investment under ULIP Manage-
ment services.
19. If all the services provided by the insurer are made taxable in the
general provision of life insurance service, i.e. Section 65(105)(zx), then it would
lead to redundancy of Section 65(105)(zzzzf) of the Finance Act, 1994. Therefore,
both the provisions are to be harmoniously construed in a manner that effect can
be given to both, and one provision does not become redundant due to action of
another.
20. It is well accepted principle that there has to be a nexus, a link, be-
tween consideration and taxable event. Reference in this regard is made to the
decision of Bombay High Court in the case of C.K.P. Mandal v. CCE, Mumbai-IV
reported in 2006 (4) S.T.R. 183 (Bom.).
21. It is further urged that IRDA vide Circular No. 055/IRDA/Actl/
ULIP/2009-10, dated 24-9-2009, the terminology used by the IRDA is ‘surrender
penalty’. The relevant extract of the circular is produced herein below :
“2. Surrender penalty should be zero after completion of five policy years
and thereafter, irrespective of the number of premiums paid (e.g. if DOC is
1-1-2003 then no surrender penalty w.e.f. 1-1-2008)”.
22. The C.B.E. & C. has clarified that no service tax can be levied on
charges of penal nature. Reliance is placed on :- (i) C.B.E. & C. vide Circular No.
96/7/2007-S.T., dated 23-8-2007; (ii) C.B.E. & C. vide Circular No. 121/02/2010-
S.T., dated 26-4-2010; (iii) C.B.E. & C. vide its letter F. No. 137/25/2011-S.T., dat-
ed 3-8-2011.
23. Learned Counsel also urges that the show cause notice is bad for
invocation of extended period of limitation. He further urges that the depart-
mental audit of the appellant has been conducted by the office of the Commis-
sioner of Service Tax, LTU in 2008 and again in August, 2012, during which the
department was made aware of the business activity of the appellant and the
practice adopted by the appellant. In absence of any suppression or misstatement
by the appellant extended period of limitation could not have been invoked.
24. Practice of imposing surrender charges in case of premature termi-
nation of ULIP policy has been in existence even prior to 2008. All along the de-
partment was aware of the nature of transactions from financial and other doc-
uments and service tax returns filed. Despite being aware of the practice of the
industry, the Department did not raise any objections prior to 2011. Therefore, at
this juncture, the department cannot allege that the appellant has suppressed
facts.
25. Learned Authorised Representative for Revenue states that surren-
der charges defined by IRDA’s Notification dated 1-7-2010 which are as under :
The charges under dispute i.e. “surrender charges” are defined in
IRDA’s Notification No. F. No. IRDA/Reg./2/52/2010, dated 1-7-2010 as
follows :
“The surrender charges are imposed only to recoup expenses incurred
towards procurement, administration of the policy and incidental thereto.
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