2022 (9) TMI 1578 - AT - Service Tax

Denial of CENVAT Credit - input services - insurance services under group Medishield policies and personal accident policies provided to its employees and their families - period January, 2006 to July, 2007 - penalty u/s 78 of FA - HELD THAT - The service on which Cenvat credit is admissible must fall in the same category as the listed services. Medical insurance does not fall in that list and is also not similar to the services indicated in that list. Therefore, the appellant is not entitled to Cenvat credit. He relies on the judgment of the Hon ble Gujarat High Court in the case of COMMISSIONER OF CENTRAL EXCISE, AHMEDABAD II VERSUS M/S CADILA HEALTH CARE LTD. 2013 (1) TMI 304 - GUJARAT HIGH COURT . The issue of Cenvat credit on insurance services provided to the employees has been dealt with by the Larger Bench of this Tribunal in the case of M/S. RELIANCE INDUSTRIES LTD., VADODRA VERSUS COMMISSIONER CENTRAL EXCISE SERVICE TAX (LTU) , MUMBAI 2022 (4) TMI 1357 - CESTAT MUMBAI (LB) and it has been held that Cenvat credit is available on the service tax paid on such premium. Reliance Industries Ltd dealt with the question whether such premium was paid for insurance of not the employees but those who have opted for voluntary separation scheme announced by the company. In other words, the persons who would benefit from this insurance premium will cease to be employees of the company in that case. In the present case, the claim of the appellant is on a much better footing, inasmuch as the premium in this case is paid for medical insurance of its own employees and their families. The impugned order cannot be sustained and needs to be set aside - Appeal allowed.

Summary

Issues:
1. Denial of CENVAT credit on service tax paid on insurance services under group Medishield policies and personal accident policies.
2. Imposition of penalty under section 78 of the Finance Act, 1994.

Issue 1: Denial of CENVAT Credit
The appeal challenged the denial of CENVAT credit amounting to Rs.4,15,09,544/- on service tax paid on insurance services under group Medishield policies and personal accident policies provided to employees and their families for the period January 2006 to July 2007. The appellant initially reversed the CENVAT credit based on department advice but later reinstated it, leading to a show cause notice seeking recovery of the credit. The appellant argued that the insurance premium qualifies as an input service under Cenvat Credit Rules, 2004, as it is related to business activities. The appellant relied on various decisions and the wide amplitude of the definition of input service. The Revenue contended that medical insurance did not fall under the listed services in the definition and was not similar to them, thus not qualifying for CENVAT credit. The Tribunal analyzed conflicting High Court judgments on the term "activities relating to business" and referred to a Larger Bench decision on a similar issue. The Tribunal held in favor of the appellant, stating that CENVAT credit is available on the service tax paid on insurance premium for employees and their families, setting aside the impugned order.

Issue 2: Imposition of Penalty
The order also imposed a penalty of Rs.4,16,00,000/- under section 78 of the Finance Act, 1994. However, the detailed analysis and judgment primarily focused on the denial of CENVAT credit on insurance services. The Tribunal's decision to set aside the impugned order included consequential relief to the appellant, indicating that the penalty imposed was likely linked to the CENVAT credit issue and would be affected by the overall decision. Therefore, the penalty aspect was not discussed separately in detail, as the primary issue of CENVAT credit denial was the central point of contention and resolution in the judgment.

In conclusion, the Appellate Tribunal CESTAT Hyderabad, comprising Hon'ble Mr. Anil Choudhary (Judicial) and Hon'ble Mr. P. Venkata Subba Rao, Member (Technical), allowed the appeal filed by the appellant against the denial of CENVAT credit on insurance services under group Medishield policies and personal accident policies. The Tribunal's detailed analysis considered the wide amplitude of the definition of input service, conflicting High Court judgments, and a Larger Bench decision, ultimately ruling in favor of the appellant. The impugned order was set aside, providing consequential relief to the appellant. The penalty imposed under section 78 of the Finance Act, 1994, was likely affected by the decision on CENVAT credit and not discussed separately in the judgment.