General Insurance Business services were brought under the Service Tax net by the Finance Act, 1994 (32 of 1994) w.e.f. 1-7-1994 vide Notification No. 1/94, dated 28-6-1994. The service shall be taxed, if provided by an insurer to a policy holder.

Rate of Service Tax: The rate of service tax is specified in section 66 of the Act. The Finance (No. 2) Act, 2004 has substituted the charging section 66, and the rate of service tax is enhanced from 8% to 10% ad valorem. The increase in tax rate has come into force from the date of enactment of the Finance (No. 2) Act, 2004 i.e. 10-9-2004. Further, the Finance (No. 2) Act, 2004, w.e.f. 10-9-2004 has also levied an education cess @ 2 % of the service tax. The cess paid on inputs services shall be available as credit for payment of cess on output services. For further discussion in this regard, refer to Chapter -'Payment of Service Tax'.

General insurance business services refer to any service provided to a policy-holder, by an insurer in relation to general insurance business.

(1) General insurance business

The definition of general insurance business has been given under clause (49) of section 65. It states -

‘general insurance business has the meaning assigned to it in clause (g) of section 3 of General Insurance Business (Nationalization) Act, 1972".

As per the clause (g) of section 3 of General Insurance Business (Nationalization) Act, 1972 -

“general insurance business' means fire, marine or miscellaneous insurance business, whether carried on singly or in combination with one or more of thembut does not include capital redemption business and annuity certain business".

Therefore, the general insurance business service includes

§ Fire insurance business;

§ Marine insurance business or

§ Miscellaneous insurance business;

§ whether carried on singly or in combination with one or more of them,

The general insurance business service does not include

§ capital redemption business and

§ annuity certain business.

(2) ‘Fire insurance business'

As per the clause (6A) of section 2 of the Insurance Act, 1938 -

"'Fire insurance business' means the business of effecting, otherwise than incidentally to some other class of insurance business, contracts of insurance against loss by or incidental to fire or other occurrence customarily included among the risks insured against in fire insurance policies".

(3) ’Marine insurance business'

As per the clause (13A) of section 2 of the Insurance Act, 1938 -

"'Marine insurance business' means the business of effecting contracts of insurance upon vessels of any description, including cargoes, freights and other interest which may be legally insured, in or in relation to such vessels, cargoes and freights, goods, wares, merchandise and property of whatever description insured for any transit by land or water, or both, and whether or not including warehouse risks or similar risks in addition to such transit, and includes any other risks customarily included among the risks insured against in marine insurance policies".

(4) 'Miscellaneous insurance business'

As per the clause (13B) of section 2 of the Insurance Act, 1938

"'Miscellaneous insurance business' means the business of effecting contracts of insurance which is not principally or wholly of any kind or kinds included in clauses (6A), (11) and (13A) (viz. fire insurance, life insurance and marine insurance business respectively)".

Taxable service

The definition of taxable service provided by an insurer has been given under sub-clause (d) of clause (105) of section 65. That is:

any service provided "to a policy holder, by an insurer carrying on general insurance business in relation to general insurance business".

(1) Re-insurance is taxable service

No, general insurance services are taxable only when premium is charged from policy holder for providing such services, in case of re-insurance, to share the same risk, insurer, re-insures either partially or wholly with another insurance company. Re-insurance is subject to all the conditions of the original policy. Therefore, the continuance of a contract of re-insurance is dependent on the continuance of the original contract of insurance. Re-insurer is not directly liable to the policy holder as it is a contract between two insurance companies.

Liable to pay service tax

As per sub-clause (ii) of clause (d) of sub-rule (1) of Rule 2, in relation to general insurance business, the person liable to pay service tax means

(a) the Chairman of the General Insurance Corporation of India, Mumbai; or

(b) the Chairman-cum -Managing Director of the National Insurance Company Ltd., Calcutta; or

(d) the Chairman-cum -Managing Director of the Oriental Insurance Company Ltd., Delhi; or

(e) the Chairman-cum -Managing Director of the United India Insurance Company Ltd., Chennai; or

(f) any other person carrying on general insurance business and who has obtained a certificate of registration under section 3 of the Insurance Act, 1938 (4 of 1938).

(1) Government Clarification

The Government in its Circular No. 1/194 [F. No. 137/1/94 CX-4], dated 29-6-1994 (appended as Annexure 1) has clarified, "in relation to general insurance business also the facility of one point payment of service tax by the chairman or chairman-cunt-managing director of the insurance companies has been extended. For this purpose, the service tax will be paid by the General Insurance Corporation and New India Assurance Company Ltd. in Bombay (Mumbai); National Insurance Company will be paying the tax in Calcutta (Kolkata); Oriental Insurance Company will be paying the tax in Delhi; United India Insurance Company Ltd. will be paving the service tax in Madras (Chennai). The Branches and divisions of the insurance companies will not pay the service tax and it is their head office which has been made responsible for payment of service tax. The Government in its Press Note, dated 30-6-1994 issued by the CBEC, Department of Revenue, Ministry of Finance, New Delhi [appended as Annexure II] has explained, "the service tax in relation to general insurance will be paid by the General Insurance Company through their head office to the jurisdictional Collector of Central Excise where the head office is located. A provision has been built to collect tax from others who may enter this field".

General insurance business services liable to be charged to tax

General insurance business services are liable to be charged when provided to

§ a policy holder

§ by an insurer

carrying on business in relation to general insurance business in India.

(1) 'policy holder'

"policy holder has the meaning assigned to it in clause (2) of section 2 of the Insurance Act, 1938" [clause (80) of section 65].

As per clause (2) of section 2 of the Insurance Act, 1938 -

“policy holder includes a person to whom the whole of the interest of the policyholder in the policy is assigned once and for all, but does not include an assignee thereof whose interest in the policy is defeasible or is for the time being subject to any condition".

Therefore, a person shall be treated as policy holder if he has absolute interest but, a person who has defeasible or conditional interest in the policy shall not be treated as policy holder. The word 'defeasible' refers to 'that may be annulled' (reference, the Chambers English Dictionary).

(2) 'Insurer'

The definition of 'insurer' has been given under clause (58) of section 65. That is: -

"insurer means any person carrying on the general insurance business or life insurance business in India".

Therefore, an insurer must be a person.

(3) Meaning of 'person'

The term 'person' has not been defined in the context of service tax. But, the term 'person' has been defined as "person shall include any company or association or body of individuals, Whether incorporated or not" [clause (42) of section 3 of General Clauses Act, 1897].

Therefore, even though, in general, person is understood as only natural person (i.e. human being) but in the context of service tax, it includes natural, artificial and juristic person also. Thus, partnership firm, company, corporation, societies, government enterprises, Hindu undivided family (HUF) etc. will also fall under the definition of person.

Therefore, an 'insurer' may be artificial or juristic person or may be a natural person; when services are provided by any such person, it will fall under the service tax net.

(4) 'carrying on business in India'

The insurer must be carrying on general insurance business in relation to general insurance business in India. The Board in its Circular No. 3/3/94 [F. No. 150/l/94-CX.4], dated 28/7/94 (appended as Annexure IX) has clarified that any person who carries a general insurance business and possesses a certificate of registration under section 3 of the Insurance Act, 1938 is required to be registered as an assessee of the Department for the purpose of collection of Service Tax. Therefore, general insurance business being carried out by any State Government department (like in Kerala by KSID) and registered under the Insurance Act is covered under the Service Tax.

The value of taxable services for charging tax

The value of taxable service in relation to general insurance business services provided by the insurer shall be the gross amount charged from the policy holder [section 67]. For the removal of doubt, it is declared that the value of a taxable service in relation to services provided by an insurer includes " the amount of premium charged by the insurer from the policy-holder" [clause (c) to the Explanation 1 of section 67].

(1) Charges for the late payment of insurance premium included in the taxable value

No, The Government has issued M.F. (D.R.) Circular No. 32/3/2000-CX, dated 20-12-2000 (appended as Annexure V in Chapter on 'Telephone Services') in respect of telephone services provided by telegraph authority in which it is clarified that service tax is not leviable on the amount of surcharge collected for delayed payment of telephone bills, since it does not alter the value of taxable services. The said circular was issued by withdrawing the earlier Circular No. 29/3/99, dated 15-7-1999 in which it was stated that surcharge is also to be included in the taxable value. Though, the aforesaid circular is issued in respect of telephone services provided by telegraph authority but the same holds good and can be followed in respect of all other taxable services.

Exempted General insurance business services

The following insurance schemes/ services are exempted from service tax under general insurance business

(A) Specified General Insurance Scheme

The Government w.e.f. 1-7-1994, has exempted following general insurance schemes from the whole of the service tax (vide Notification No. 3/94-ST, dated 30-6-1994 (appended as Annexure III)

1. Personal Accident Social Security and Hut Insurance Scheme.

2. Comprehensive Crop Insurance Scheme.

3. Cattle Insurance under Integrated Rural Development Programme.

4. Scheme for Insurance of Tribals.

5. Janata Personal Accident Policy and Gramin Accident Policy.

6. Group Personal Accident Policy for Self-Employed Women.

7. Agricultural Pumpset and Failed Well Insurance.

8. Premia collected on insurance of export of goods from India and export credit insurance.

9. Premium received from Re-insurance both domestic and overseas.

10. All business for which premium is booked outside India.

11. Small transactions involving premium of less than rupees fifty except motor insurance.

(B) Non-life insurance premium to diplomatic mission

The Government has exempted all the taxable services provided by any insurer to carry on general insurance business for non-life insurance premium to specified diplomatic missions from the whole of the service tax (vide Notification No. 10/96-ST [GSR 543(E)], dated 26-11-1996 (appended as Annexure IV).

(C) Jan Arogya Bima Policy

The Government has exempted all the taxable services provided by any insurer in relation to general insurance business to a policy holder of Jan Arogya Bima Policy from the whole of the service tax (vide Notification No. 12/97-ST, dated 14-2-1997 (appended as Annexure V).

(D) Group Personal Accident Scheme of Rajasthan

The Government has exempted all the taxable services provided by the Government of Rajasthan under scheme of Group Personal Accident to its employees in relation to general insurance business from the whole of the service tax (vide Notification No. 1/2000-ST [F. No. 150/2/99-CX, 4], dated 9-22000 (appended as Annexure VI).

(E) National Agricultural Insurance Scheme (Rashtriya Krishi Bima Yojana) or the Pilot Scheme on Seed Crop Insurance

The Government has exempted all the taxable services provided under the National Agricultural Insurance Scheme (Rashtriya Krishi Bima Yojana) or the Pilot Scheme on Seed Crop Insurance in relation to general insurance business from the whole of the service tax (vide Notification No. 3/2000-ST, dated 6-7-2000 (appended as Annexure VII).

(F) Cattle insurance services under the Central Sector Scheme

The Government has exempted all the taxable services provided under the Central Sector Scheme on Cattle insurance in relation to cattle insurance business from the whole of the service tax (vide Notification no. 4/2000-ST, dated 31-7-2000 (appended as Annexure VIII).

(G) Universal Health Insurance Scheme

The Central Government has exempted the taxable service provided by an insurer carrying on General Insurance Business provided under the Universal Health Insurance Scheme from the whole of the service tax leviable vide Notification No. 16/2003-S.T., dated 11-7-2003 (appended as Annexure X).

(H) General Exemption

The Government has granted exemption from the whole of Service Tax in respect of all taxable services, for services provided to United Nations or an International Organisation. Similarly, the exemption, subject to certain conditions, has also been granted for taxable service provided to a developer or units of Special Economic Zone (SEZ). The Government, w.e.f. 20 November, 2003 has restored the exemption, as an interim measure, from the whole of service tax when payment is received in convertible foreign exchange for the taxable services rendered in India provided it was not repatriated from or sent outside India, such exemption was earlier withdrawn w.e.f. 1-3-2003. The reader may note that detailed discussion about aforesaid exemptions along with relevant notifications have been given in the Chapter on 'Exemption from whole of Service Tax - Some Cases'.

N.B. The readers may note that provisions, procedures and other related discussion related to registration, payments of service tax, filing of return, interest and penalty, assessment procedure, appeal, refund of tax, etc., which are same, as applicable in respect of other taxable services, have been given in separate Chapters of this Book.

Annexure I

Imposition of service tax on insurance

[Circular No. 1/7/94 [F. No. 137/1/94-CX-4], dated 29-6-1994, relevant extracts]

Insurance. -In relation to general insurance business also the facility of one point payment of service tax by the chairman or chairman-cum-managing director of the insurance companies has been extended. For this purpose, the service tax will be paid by the General Insurance Corporation and New India Assurance Company Ltd. in Bombay; National Insurance Company will be paying the tax in Calcutta; Oriental Insurance Company will be paying the tax in Delhi. The United India Insurance Company Ltd. will be paying the service tax in Madras. The branches and divisions of the insurance companies will not pay the service tax and it is their head office which has been made responsible for payment of service tax. They will apply for registration to the jurisdictional Collector of Central Excises. The jurisdictional Collector of Central Excises may advise them to furnish a list of their officers will addresses who will be involved in the mechanism of collection of service tax and from whom returns indicating computation of service tax is furnished to their head office. These assessees will be required to furnish at the time of filing their quarterly return for the first time, a list of accounts maintained by them. This will include the statement that they receive from their banks/division offices for their headquarters for consolidation of service tax figures.

Annexure II

Press Note explaining the Salient Features of Service Tax Rules, 1994

[Issued by the CBEC, Department of Revenue, Ministry of Finance, New Delhi, dated 30-6-1994]

Service tax is being levied on,

(1) Telephone,

(2) General insurance, and

(3) Stock brokerage

Service Tax Rules, 1994, providing procedural details have been notified. The tax will be collected with effect from 1st July, 1994. The salient features are as follows:

In relation to telephone connections provided to the subscriber, the tax will be paid by the Director-General of Telephones and Chairman-cum-Managing Director, MTNL. There is a provision to collect tax from others who may enter the field.

(ii) The service tax in relation to general insurance will be paid by the General Insurance Company through their head office to the jurisdictional Collector of Central Excise where the head office is located. A provision has been built in to collect tax from others who may enter this field.

(iii) Stock brokers will pay the tax on jurisdictional Collectors of Central Excise where the stock exchange is located.

(iv) The Collector of Central Excise will supervise collection of service tax. The staff assisting him will be at Collectorate headquarters.

(v) Format for registration is simple and easy to fill up. The assessee is expected to fill in the registration format and thereafter it is the obligation of the Department to see that registration number is allotted to the assessee within seven days.

(vi) The computerised records maintained by the assessee is acceptable to the Department.

(vii) The Central Excise Officers will not ordinarily visit the assessee. The assessee may, however, be called to the Central Excise Office to produce records, returns, etc., if necessary, in relation to finalisation of assessment.

(viii) The assessee is also expected to file a simple quarterly return as prescribed.

(ix) The procedure governing levy and collection of service tax is simple and easy to comply.

(x) Exemption for certain class of services to be provided by insurers and telephone authorities will be granted. This is being notified separately.

Annexure III

Exemption to specified general insurance schemes from service tax

[Notification No. 3/94-ST, dated 30-6-1994]

In exercise of the powers conferred by section 93 of the Finance Act, 199.4 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services, as are specified in column (2) of the Table hereto annexed, from the whole of the service tax leviable thereon under section 66 of the said Act.

Table

S. No.	Specified Taxable Services
(1)	(2)
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.	Personal Accident Social Security and Hut Insurance Scheme. Comprehensive Crop Insurance Scheme. Cattle Insurance under Integrated Rural Development Programme. Scheme for Insurance of Tribals. Janata Personal Accident Policy and Gramin Accident Policy, Group Personal Accident Policy for Self-Employed Women. Agricultural Pumpset and Failed Well Insurance. Premia collected on insurance of export of goods from India and export credit insurance. Premium received from Re-insurance both domestic and overseas. All business for which premium is booked outside India. Small transactions involving premium of less than rupees fifty except motor insurance.
2.	This notification shall come into force on the 1st day of July, 1994.

Annexure IV

Exemption of general insurance business, for non-life insurance

premium, to Diplomatic Missions from service tax

[Notification No. 10/96-ST [GSR 543(E)], dated 26-11-1996 as amended upto date]

In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service provided by any insurer carrying a general insurance business, for non-life insurance premium, to the Diplomatic Missions specified in column (2) of the Schedule hereto annexed from the whole of Service Tax leviable thereon under section 66 of the said Act.

Schedule

SI. No.

Name of the Diplomatic Mission

SI. No.

Name of the Diplomatic Mission

10.

11.

Afghanistan

Algeria

Angola

Austria

Bangladesh

Bhutan

Brunei Darussalam

Bulgaria

Burkina Faso

Cambodia

Canada

China

Colombia

Croatia

Cuba Republic

Cyprus

Czech Republic

Finland

Germany

Ghana

Greece

Holy See

Hungary

Indonesia

Iran

Iraq

Israel

Japan

Kazakstan

Kenya

Domocratic People Republic of Korea

Republic of Korea

Kuwait

Kyrghzstan

Malta

Mauritius

Mexico

Mongolia

Morocco

Myanmar

Namibia

Nepal

Nigeria

Norway

Oman

Palestine

Philippines

Poland

Qatar

Russia

Sahrawi Arab Democratic Republic

Saudi Arabia

Senegal

Singapore

Slovakia

Sir Lanka

Switzerland

1 1 [* * *]

Trinidad and Tobago

Turkey

Turkmenistan

Uganda

Ukraine

United Arab Emirates

U.S.A

Uzbekistan

Venezuela

Vietnam

Yemen

Yugoslavia

Zaire

Zambia

Zimbabwe

Annexure V

Exemption to Jan Arogya Bima Policy (General Insurance)

[Notification No. 12/97-ST, dated 14-2-1997]

In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services provided, by an insurer carrying on general insurance business, to a policy holder of Jan Arogya Bima Policy in relation to general insurance business, from the whole of service tax leviable thereon under section 66 of the said Act.

Annexure VI

Exemption from Service Tax on Group Personal Accident Scheme provided by Rajasthan to its employees in relation to General Insurance Business

Notification No. 1/2000-ST [F. No. 150/2/99-CX, 4], dated 9-2-2000

In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest, so to do, hereby exempts the taxable services provided, by Government of Rajasthan under Group Personal Accident Scheme, to its employees in relation to general insurance business, from whole of the service tax leviable thereon under section 66 of the said Act.

Annexure VII

Exemption to taxable services in relation to general insurance business provided under the National Agricultural Insurance Scheme (Rashtriya Krishi Bima Yojana) or the Pilot Scheme on Seed Crop Insurance

[Notification No. 3/2000-Service Tax, dated 6-7-2000]

In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest, so to do, hereby exempts the taxable services in relation to general insurance business provided under the National Agricultural Insurance Scheme (Rashtriya Krishi Bima Yojana) or the Pilot Scheme on Seed Crop Insurance, from the whole of the service tax leviable thereon under section 66 of the said Act.

Annexure VIII

Exemption to cattle insurance services provided under the Central Sector Scheme

[Notification No. 4/2000-Service Tax, dated 31-7-2000]

In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services in relation to Cattle Insurance provided under the Central Sector Scheme on Cattle Insurance, from whole of the service tax leviable thereon under section 66 of the said Act.

Annexure IX

Tax on Insurance/Registration of State Insurance Department of an assessee - Regarding

[Board's Circular No. 3/3/94, F. No. 150/1/94-CX.4, dated 28/7/94]

I am directed to enclose herewith a copy of Controller of Central Excise & Customs, Cochin's letter No. Collector/ MICS/1/94/ST, dated 20-7-1994 on the above subject.

2. It has been stated that in the State of Kerala, apart from the major nationalised Insurance Companies, general Insurance business is also being undertaken by the Kerala State Insurance Department (KSID). The said Department which is headed by Director, KSID, a State Government official, has its Head Office at Trivandrum and District level Officers in 10 districts of Kerala. The said Department, which is functioning under the supervision and control of the State Finance Ministry, is registered under Insurance Act, 1938 with the Controller of Insurance, New Delhi and is in possession of a Registration Certificate No. 539, dated 31-7-1970.

3. In terms of Notification No. 2/94-ST, dated 28-6-1994, any person who carries a general insurance business and possesses a certificate of registration under section 3 of the Insurance Act, 1938, is required to be registered as an assessee of the Department for the purpose of collection of Service Tax.

Annexure X

Exemption to service provided by Insurer of General Insurance to

Policy Holder under Universal Health Insurance Scheme

Notification No. 16/2003, dated 11-7-2003

In exercise of the power conferred by the section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest, so to do, hereby exempts the taxable service provided by an insurer carrying on general insurance business to a policy holder in relation to General Insurance Business provided under the Universal Health Insurance Scheme, from the whole of the service tax leviable thereon under section 66 of the said Act.