SBI Life Insurance, one of the leading life insurers in India, has got a relief from the Customs Excise & Service Tax Appellate Tribunal (CESTAT) in a tax dispute case involving ₹387 crore. The Mumbai Bench of CESTAT has set aside the revenue department’s demand of ₹387 crore from SBI Life Insurance for alleged service tax evasion.
What was the dispute about?
The revenue department had claimed that SBI Life Insurance had shown a service turnover of ₹10,382 crore when filing its income tax returns for the period October 2013-March 2014. However, the insurer had paid service tax on a turnover of ₹7,254 crore, resulting in a shortfall of ₹3,128 crore. Based on this difference, the revenue department had raised a demand of ₹387 crore at 12.36% service tax rate.
SBI Life Insurance had challenged this demand before CESTAT, arguing that the revenue department had wrongly compared the income tax returns and service tax returns, which are based on different accounting principles and methods. The insurer had contended that service tax is levied on the consideration received for the services rendered and not on the income declared in the income tax returns.
How did CESTAT rule in favour of SBI Life?
The Mumbai Bench of CESTAT, comprising Judicial Member Raju and Technical Member P Anjani Kumar, agreed with the arguments of SBI Life Insurance and held that the revenue department had erred in comparing the income tax returns and service tax returns. The Bench observed that service tax is based on the accrual system of accounting, whereas income tax is based on the mercantile system of accounting. The Bench also noted that income tax returns include various other incomes, such as dividend income, interest income, capital gains, etc., which are not subject to service tax.
The Bench further held that the revenue department had failed to establish any evidence of suppression of facts or wilful misstatement by SBI Life Insurance to evade service tax. The Bench also relied on various judicial precedents to support its decision. The Bench concluded that the demand of ₹387 crore was unsustainable and liable to be set aside.
What is the impact of this ruling?
The ruling of CESTAT is a significant relief for SBI Life Insurance, which had faced a huge tax liability due to the revenue department’s demand. The ruling also sets a precedent for other similar cases involving comparison of income tax returns and service tax returns. The ruling clarifies that service tax is payable only on the consideration received for the services provided and not on the income declared in the income tax returns.