Order Date – 12 April 2023

Parties: M/s Max Life Insurance Company Limited Vs Commissioner, Central Excise and Service Tax, New Delhi

Facts –

• The Appellant, M/s Max Life Insurance Company Limited, collected re-instatement interest on delayed payment of premium by the policy holder to reinstate a lapsed policy. The appellant considers this to be interest on delayed payment of premium by the policy holder, and hence, not exigible to service tax in view of the provisions of rule 6(2)(iv) of the Service Tax (Determination of Value) Rules, 2006
• The department, however, believes that the appellant camouflaged the amount received towards processing/administrative charges as reinstatement interest collected on delayed payment of premium.

Issue –

• Whether Service tax is leviable on re-instatement interest on delayed payment of premium?

Order –

• The Tribunal observed that a policy holder is under an obligation to make timely payments of the premium and if such payments are not made in time, the policy may lapse and to revive this policy interest has to be paid under the terms of the contract. The overdue premium interest is, therefore, linked to the obligation of timely payment of premium.
• The manner in which interest has to be paid is governed by the terms of contract agreed between the parties. The department cannot, therefore, urge that since uniform rate of interest has not been levied, the amount collected would not partake the character of “interest‟ but would be in the nature of administrative/processing fee.
• Hence the appeal is allowed.

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