2026-VIL-1394-CESTAT-MUM-ST
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SERVICE TAX CESTAT Cases

Service Tax – Taxability of forfeiture of insurance premiums – Declared Service under Section 66E(e) – Appellant Life Insurance Corporation engaged in provision of life insurance services regularly paid service tax on premium amount received from policy holders – Department identified that where policy holders failed to pay premium for initial three-year period and policies were not revived within two years from first unpaid premium, forfeited premium amounts had not been subjected to service tax – Department interpreted forfeited amount as consideration for tolerating policy holder's breach and classified same as declared service under Section 66E(e) – Whether amount forfeited due to non-payment of premium or mis-declaration by policy holder constitutes taxable consideration for declared service under Section 66E(e) – HELD – Under Insurance Act, 1938 if policy lapses due to non-payment of premium and is not revived then policy does not acquire any surrender value and nothing is payable to policy holder. Similarly, in case of mis-representation by policy holder, insurer can reject claim or terminate policy without any obligation to pay benefit or surrender value. These forms part of regular insurance business between insurer and policy holder and do not involve any specific contract for repudiation or retention of surrender value of premiums paid - Forfeiture of insurance policy is not a separate service but part of insurance contract which becomes void ab initio. There is no service of nature involving arrangement where appellant agreed to obligation to tolerate breach of agreement – CBIC Circular No. 214/1/2023-Service Tax dated 28.02.2023 clarifies that activities contemplated under Section 66E(e) are activities where agreement specifically refers to such activity and there is flow of consideration for such activity. In absence of any contractual obligation or flow of consideration for specific act of tolerating act etc., amount forfeited cannot be treated as another taxable service under declared service category. Forfeiture cannot lead to double taxation as service tax was already paid on original life insurance service – The extended period of limitation is not invokable. Demand of service tax, interest and penalty under Sections 77 and 78 are not sustainable – The impugned order is set aside and appeal is allowed
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