2014 (9) TMI 877 - AT - Service Tax

Benefit of Cenvat credit scheme - Insurance service - Held that - first part of the definition reads that input service means any service used by the manufacturer whether directly or indirectly, in or in relation to the manufacture of the final product. When employees are at work in the factory, if an accident happens, the employer is liable to pay compensation and a prudent businessman will be interested in taking an accident insurance policy for his worker to cover the business risk and it cannot be considered that such insurance is not relation to the manufacturing activity. Even in the case of health insurance of the workmen, when employees fall sick, it is necessary that they are provided proper treatment so that they are brought back to work without loss of man hours and desruption of manufacturing lines and the employer may take insurance for arranging proper medical attendance for sick workman or other employees of the company. Therefore, the medical insurance in relation to the employees of the company are also within the broad definition of input service given at Rule 2(l) of the Cenvat Credit Rules, 2004. When there is a direct decision of a High Court 2013 (1) TMI 304 - GUJARAT HIGH COURT , on the particular service in question, it is only proper that the same is followed. Therefore, I follow the decision of the Hon ble Karnataka High Court in this matter and hold that the Service Tax paid on such service which is attributable to insurance premium for employees will qualify to be taken as Cenvat credit. However, in the case of premium attributable to the families of employees it cannot have any direct nexus and will not qualify as input services. The impugned order is set aside and the matter is remanded back to the adjudicating authority to quantify the eligibility of Cenvat credit. - Decided partly in favour of assessee.

Summary

Issues:
- Dispute over Cenvat credit on Service Tax paid for insurance of employees and their families.
- Interpretation of the definition of "input service" under Rule 2(1) of the Cenvat Credit Rules, 2004.
- Applicability of previous High Court judgments on similar cases.
- Imposition of penalty under Rule 15 of the Cenvat Credit Rules, 2004.

Analysis:
1. Dispute over Cenvat Credit on Insurance: The appellant, a manufacturer of excisable goods, availed Cenvat credit on Service Tax paid for insurance of employees and their families. An amount was denied by the impugned order, along with a penalty imposed under Rule 15 of the Cenvat Credit Rules, 2004.

2. Interpretation of "Input Service" Definition: The appellant argued that insurance for employees is necessary to cover business risks, as accidents or sickness can disrupt operations and lead to unforeseen expenses. Citing High Court judgments, the appellant contended that insurance premiums for employees qualify as "input service" under Rule 2(1) of the Cenvat Credit Rules, 2004, as they are related to manufacturing activities.

3. Applicability of Previous Judgments: The Revenue relied on a Gujarat High Court decision to argue that only services directly linked to manufacturing should be considered "input services." However, the Tribunal noted that the Gujarat High Court decision did not address insurance for employees, unlike the Karnataka High Court rulings cited by the appellant, which supported the inclusion of such insurance under "input services."

4. Judgment and Remand: The Tribunal held that insurance premiums for employees qualify as "input service" for Cenvat credit, following the Karnataka High Court decisions. However, premiums for employees' families lack a direct nexus and do not qualify. The matter was remanded to quantify eligible Cenvat credit, with the appellant directed to provide necessary information. The penalty was set aside due to no mala fide intention.

5. Conclusion: The appeal was disposed of based on the above findings, emphasizing the importance of following High Court decisions on specific services in dispute. The Tribunal's decision clarified the eligibility of Cenvat credit for insurance related to employees and their families, highlighting the need for a direct nexus to manufacturing activities for a service to qualify as an "input service."