Facts of the Case

This case concerns Service Tax and CENVAT credit under the pre-GST Finance Act, 1994 — not GST law — even though the appellant Commissioners are today styled as GST/Central Excise authorities. Eight connected Central Excise Appeals were filed by the Revenue under Section 35-G of the Central Excise Act, 1944, against a common CESTAT order dated 23 September 2020, which had allowed several banks (Corporation Bank, State Bank of Mysore, Bank of Baroda, Canara Bank, Syndicate Bank, and Karnataka Bank) to avail CENVAT credit of Service Tax paid on insurance premiums for deposit insurance obtained from the Deposit Insurance and Credit Guarantee Corporation (DICGC).

The Tribunal had followed a Larger Bench ruling in South Indian Bank v. Commissioner of Customs, Central Excise & Service Tax, Calicut, holding that such deposit insurance qualifies as an eligible “input service” for banks. That Larger Bench view was subsequently affirmed by the Kerala High Court (Pr. Commissioner of Central Tax v. South Indian Bank, 2022) and followed by the Bombay High Court (Commissioner of CGST v. Yes Bank Ltd., 2023).

Issues Involved

  1. Whether the business of banking (transactions in money) constitutes a taxable “service”/“output service” under the Finance Act, 1994.
  2. Whether the deposit insurance premium paid to DICGC qualifies as an eligible “input service” for CENVAT credit, particularly after the 2011 amendment omitting the general “activities relating to business” entry from the definition of input services.

Petitioner's Arguments

  • (Revenue) The Tribunal erred in equating mandatory deposit insurance, which is not linked to any specific output service, with other forms of mandatory insurance that are genuinely input services; banking (transactions in money only) does not itself generate an output service for which no charges are collected.
  • Reliance on the Kerala and Bombay High Court judgments was misplaced, and in any event those decisions were pending challenge before the Supreme Court.

Respondent's Arguments

  • (Banks) The issue was no longer res integra: the CESTAT Larger Bench ruling had already been affirmed by the Kerala High Court after an extensive analysis of the Banking Regulation Act, 1949, and followed by the Bombay High Court, and the Revenue had shown no ground to depart from that settled position.

Court Order / Findings

  • The Court held the questions raised were no longer open, having already been answered in favour of the assessee-banks by the Kerala High Court in South Indian Bank (affirming the CESTAT Larger Bench) and by the Bombay High Court in Yes Bank.
  • Finding no grounds to take a different view, the Court answered the substantial questions of law in favour of the assessee-banks and against the Revenue.
  • All the connected Central Excise Appeals were dismissed.

Important Clarification

This ruling settles a Service Tax/CENVAT credit question under the erstwhile Finance Act, 1994 for the period before GST — it does not decide any GST input-tax-credit issue. Banks facing similar Service Tax-era CENVAT credit demands on DICGC deposit insurance premiums may rely on this consistent line of High Court authority.

Sections Involved

  • Central Excise Act, 1944 — Section 35-G
  • Finance Act, 1994 — Service Tax on banking services; CENVAT Credit Rules (input service definition, as amended by Notification No. 3/2011)

Decision – In Favour of

Decided against the Revenue. All the Central Excise Appeals were dismissed, and the banks' entitlement to CENVAT credit on DICGC deposit insurance premiums was upheld.

Case Details

Court: High Court of Karnataka at Bengaluru
Case No.: Central Excise Appeal No. 9 of 2022, with connected CEA Nos. 2, 3, 7, 8, 10, 11 and 12 of 2022
Neutral Citation: 2026:KHC:22182-DB
Coram: Justice S.G. Pandit and Justice K.V. Aravind
Date of Judgment: 23 April 2026

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