Service Tax to Deposit Insurance & Credit Guarantee Corporation (DICGC) - Board takes U Turn
In DDT 1092, we reported that by a letter dated 12.01.2009, the Deposit Insurance And Credit Guarantee Corporation informed the bankers that the Commissioner, LTU Mumbai had informed them that Service Tax was payable with effect from 1st May 2006 and the Corporation informed the bankers that if at all Service Tax is payable, it has to be paid at short notice. Later by another letter dated 20th March 2009, the Corporation informed the bankers that the Finance Ministry has clarified the charges collected by DICGC are not taxable under the taxable service of “General Insurance Service.
End of the story?. There is no END in a tax story - there are only ends, the ones which may or may not justify the means.
Board has reviewed its earlier decision and now clarifies that the insurance activity of DICGC falls within the ambit of Section 65(105)(d) [general insurance] of the Finance Act, 1994 (FA, 1994) and is chargeable to service tax. Board has given a long explanation for this volte-face.
DICGC is fully owned by the Reserve Bank of India. All commercial banks including the branches of foreign banks functioning in India, Local Area Banks and Regional Rural Banks are covered under the Deposit Insurance Scheme. The rate of insurance premium is 10 paise per Rs. 100. The premium paid by the insured banks to the Corporation is required to be absorbed by the banks themselves so that the benefit of deposit insurance protection is made available to the depositors free of cost.
The DICGC collects about 5000 Crores annually and now perhaps the Government would like to collect Service Tax with interest and maybe a hefty penalty for intent to evade taxes by following the Board clarification which was bound to change!
Board does not clarify as to the date from which this tax has to be collected.
CBEC F.No.187/135/2008-CX.4 Dated: September 20, 2011