2010 (9) TMI 537 - AT - Service Tax

Demand - Cenvat credit - Rule 2(l) of CCR - insurance service and outdoor catering service - In the definition of input service also there is a specific and substantive part as well as an inclusive part - the credit could be availed on the tax paid on the input service as long as the manufacturer could demonstrate that the advertisement services availed had an effect or impact on the manufacture of the final product and establish the relationship between the input service and the manufacture of the final product - Once the cost incurred by the service had to be added to the cost and was so assessed it was a recognition by Revenue of the advertisement services having a connection with the manufacture of the final product - Appeal is partly allowed by way of remand

Summary

Issues Involved:
1. Denial of credit of service tax on health insurance policies for employees.
2. Denial of credit of service tax on insurance premium under the Director and Officers liability Insurance Policy.
3. Denial of credit of service tax on outdoor catering services.

Detailed Analysis:

1. Denial of Credit of Service Tax on Health Insurance Policies for Employees:
The original authority denied credit of service tax paid on health insurance policies obtained for the benefit of employees, amounting to Rs. 3,43,483/-. The Commissioner vacated this order by relying on the Tribunal's decisions in the cases of CCE, Mumbai-V v. GTC Industries Ltd. and Stanzen Toyotetsu India Pvt. Ltd. v. CCE, Bangalore. The Tribunal in Stanzen Toyotetsu India Pvt. Ltd. had settled the dispute in favor of the assessee, allowing credit for group medical insurance for employees. Thus, the appeal of the revenue on this service was rejected, affirming that the service tax paid on health insurance policies for employees is admissible as credit.

2. Denial of Credit of Service Tax on Insurance Premium under the Director and Officers Liability Insurance Policy:
The original authority also denied credit for service tax paid on insurance premiums under the Director and Officers liability Insurance Policy. The Commissioner vacated this order, but the Tribunal pointed out that the insurance service for directors and officers would be admissible if it pertains to business activities and forms part of the cost of the assessee's final products on which duty is paid. This has to be established by the assessee with records. Therefore, the Tribunal remanded this issue to the original authority to decide following the principles laid down in the Coca Cola India case.

3. Denial of Credit of Service Tax on Outdoor Catering Services:
The original authority denied credit for service tax paid on outdoor catering services. The Commissioner vacated this order, relying on the Tribunal's decisions in the cases of CCE, Mumbai-V v. GTC Industries Ltd. and Stanzen Toyotetsu India Pvt. Ltd. v. CCE, Bangalore. The Tribunal noted that the dispute regarding the admissibility of credit of service tax paid for outdoor catering services had been decided in favor of the respondents in their own case in previous orders. The Tribunal affirmed that outdoor catering services provided to employees within the factory premises, as mandated by the Factories Act, 1948, are activities relating to business and thus eligible for credit.

General Interpretation of Input Service:
The Tribunal discussed the definition of 'input service' under Rule 2(l) of the Cenvat Credit Rules, 2004, emphasizing the inclusive nature of the definition. It highlighted that activities relating to business need not necessarily be used directly in the manufacture of final products. The Tribunal referred to the Apex Court's interpretation in P. Kasilingam and Others v. P.S.G. College of Technology, explaining that the term 'includes' enlarges the scope of the definition. The Tribunal also cited the High Court of Mumbai's decision in the Coca Cola India case, which held that activities relating to business cover all activities related to the functioning of a business, thereby broadening the scope of 'input service'.

Conclusion:
The Tribunal rejected the revenue's appeal concerning health insurance policies for employees and outdoor catering services, affirming these as admissible input services. However, it remanded the issue of insurance premiums for directors and officers to the original authority for reconsideration, instructing adherence to the principles established in the Coca Cola India case. The Tribunal clarified that the definition of 'input service' includes a broad range of activities related to business, not limited to direct manufacturing processes.