2016 (6) TMI 1071 - AT - Service Tax

Cenvat Credit - Input services - providing output services to State of Jammu & Kashmir and to other parts of India - The department is of the view that when the Finance Act, 1994 itself is not applicable to Jammu & Kashmir, the services rendered in that State are exempted services. - CENVAT credit on service tax paid on insurance premium in respect of dependants / family members of the employees. Held that - The department cannot construe the services provided to Jammu & Kashmir as exempted services and press into application, in such situations, Rule 6 of CENVAT Credit Rules 2004. As the services provided to Jammu & Kashmir are not subject to levy of service tax, whether such services would fall into the definition of output service during the relevant period is itself doubtful. As per the definition of input service, only if the service provider uses for providing output service will the service be qualified as input service. In any case, the services rendered to Jammu & Kashmir do not fall in the category of exempted services. - Rule 6(3)(1) of CENVAT Credit Rules will not apply. Further, the group insurance services availed for the benefit of employees qualify as input services. The period involved is prior to 01/04/2011 when the definition of input service had a wide ambit. -disallowance of credit on insurance services is illegal and unjustified. Demand set aside - Decided in favor of assessee.

Summary

Issues involved:
1. Availing irregular credit on service tax paid on input services for providing output services to the State of Jammu & Kashmir and other parts of India.
2. Availing irregular credit on service tax paid on insurance premium for dependants/family members of employees.

Analysis:

Issue 1:
The appellant availed CENVAT credit on input services for providing output services in Jammu & Kashmir, which the department deemed irregular due to the exclusion of service tax applicability to Jammu & Kashmir under Section 64 of the Finance Act, 1994. The department contended that the appellant should reverse the credit as services in Jammu & Kashmir are considered exempted. However, the appellant argued that Rule 6(2) of CENVAT Credit Rules does not apply as the services provided in Jammu & Kashmir are not exempted services. The Tribunal agreed with the appellant, citing that the services in Jammu & Kashmir are not subject to service tax, making them neither taxable nor exempted services. The Tribunal held that the demand for reversing the credit on input services for Jammu & Kashmir services is unjustified.

Issue 2:
The second allegation pertained to the disallowance of credit on service tax paid on insurance premium for dependants/family members of employees. The appellant argued that the group insurance services availed for the benefit of employees qualify as input services, especially under the broader definition of input service before 01/04/2011. The Tribunal found the disallowance of credit on insurance services to be illegal and unjustified, ruling in favor of the appellant. Consequently, the impugned order was set aside, and the appeal was allowed with any consequential reliefs.

In conclusion, the judgment by the Appellate Tribunal CESTAT Hyderabad addressed the irregular credit availed by the appellant on input services for Jammu & Kashmir services and insurance premium for dependants/family members of employees. The Tribunal ruled in favor of the appellant on both issues, finding the demands for reversing the credit and disallowance of insurance services credit to be unjustified and illegal, respectively.