2015 (7) TMI 231 - AT - Service Tax

Denial of CENVAT Credit - insurance auxiliary services - Cenvat credit of Service Tax paid on premium paid to insurance companies for group insurance/insurance - Held that - Karnataka High Court in the case of Millipore India Ltd. (2008 (11) TMI 97 - CESTAT, BANGALORE), wherein, after examining the CAS-4 Standards, the Hon ble High Court accepted that all factors have to be taken into consideration while fixing the cost of the final products. The Hon ble High Court further observed that the definition of input services is too broad. Further it is not disputed in the facts of the case that the premium so paid in the present appeal has formed part of the cost of excisable goods on which Excise Duty has been paid on removal. Therefore, the appellant is entitled to avail, Cenvat credit for the insurance premium paid in respect of group insurance/insurance of employees including retired employees/mediclaim which are covered under the definition of input services and have a nexus. - Decided in favour of assessee.

Summary

Issues:
1. Availing and utilization of Cenvat credit on input services, particularly insurance auxiliary services - general insurance.
2. Disallowing Cenvat credit on insurance premium paid for group insurance/insurance of employees including retired employees/mediclaim.
3. Interpretation of the definition of 'input services' in relation to the manufacture of final products.

Detailed Analysis:
Issue 1: The appellant, a manufacturer of polyester yarn, availed Cenvat credit on duty paid on inputs, capital goods, and input services, including insurance auxiliary services - general insurance. A show cause notice was issued questioning the eligibility of availing Cenvat credit on insurance services. The appellant argued that the premium paid for group insurance and mediclaim is part of the costing of the final product as per CAS-4 standards. They relied on a Bombay High Court judgment regarding advertisement costs to support their claim that expenses related to final products are eligible for credit. Additionally, they referenced a Tribunal ruling on medical and personal accident policies as input services under CAS-4 standards.

Issue 2: The Revenue contended that there must be a direct nexus between the expenditure and the manufacture of goods to claim Cenvat credit. They argued that the insurance premium for retired employees lacked this nexus. Referring to previous judgments, the Revenue emphasized the broad interpretation of 'activities relating to business' as input services, provided there is a connection to the manufacturing process.

Issue 3: The Tribunal, after considering the submissions, agreed with the ruling of the Karnataka High Court in the Millipore India case. The Tribunal acknowledged the broad definition of 'input services' and the importance of considering all cost factors in determining the final product cost. It was noted that the insurance premium paid by the appellant formed part of the cost of excisable goods, making it eligible for Cenvat credit. Consequently, the appeal was allowed, granting the appellant the benefit of availing Cenvat credit for insurance premiums related to group insurance/insurance of employees, including retired employees/mediclaim, as they were deemed to have a nexus with the manufacturing process.

In conclusion, the judgment clarified the eligibility of Cenvat credit on insurance premiums paid for group insurance/insurance of employees, emphasizing the importance of a direct nexus with the manufacturing process and compliance with CAS-4 standards in determining input services for claiming credit.