2018 (7) TMI 842 - AT - Central Excise

CENVAT Credit - input service - group insurance policy for employees - the said group insurance policy was taken for its employee for medical claim, personal and vehicle insurance from M/s National Insurance Company Limited - denial on the ground that group insurance services provided by the appellant to his employees and their family member will constitute personal consumption of employees and the same will fall under exclusion clause of definition - Extended period of Limitation - Penalty u/r 15(2) of the CCR 2004. Held that - In view of the amendments made in the definition of input services in the year 2011, the phrase activities relating to business appearing in inclusive part of the definition has been deleted, and an exclusion clause specifying the services that are to be excluded from the definition of the input services has been added - Undisputedly the period under consideration is from July 2014 to October 2015. Hence it is to be examined whether the group insurance services provided by the appellant to his employees and their family member will be covered by the definition of input services as amended from 2011. Adjudicating authority has analyzed the various provisions of the policy to determine whether the policy is primarily for personal consumption of employees or otherwise and has concluded that the said policy is for the personal consumption of employee - when both Adjudicating Authority and Commissioner (Appeal) have arrived at common finding of the fact that the insurance policies under consideration are primarily meant for personal consumption of the employees, there is no reason to differ with the said finding of fact. Further in terms of the language of Rule 2(l) once a finding of fact is arrived that the insurance policy is primarily for the personal consumption of the employee than the said policy shall go out in totality from the definition of the input service and there can be no justification for artificial bifurcation of the policy and allow the credit in respect of that part of the policy which is not for the personal consumption of the employee. Since the insurance services in the present case are primarily meant for the personal consumption of the employees hence they do not qualify to be input services under the definition of input services as amended in 2011. Hence credit in respect of the said insurance services is not admissible. Extended period of Limitation - Held that - The true nature of insurance policies was never in knowledge of the departmental officers and came to light only when the unit was audited. The insurance services against which this credit has been taken definitely are within the exclusion clause and credit in respect of the same would have not been admissible - Further the fact that these insurance policies provided insurance cover to family members of the employees was also never disclosed to the department - By taking such credit they have willfully suppressed the relevant facts knowingly to claim the CENVAT Credit not due to them - extended period of limitation rightly invoked. Penalty u/r 15(2) of the CCR 2004 - Held that - Since the party has willfully suppressed the facts with intent to evade payment of duty, penalty has been rightly imposed by the adjudicating authority on them under the provisions of Rule 15(2) of the CENVAT Credit Rules, 2004 - penalty rightly upheld. Appeal dismissed - decided against appellant.

Issues Involved:
1. Disallowance of CENVAT credit on insurance policies.
2. Demand for interest on disallowed credit.
3. Imposition of penalty under Rule 15(2) of CENVAT Credit Rules, 2004.
4. Applicability of extended period of limitation.

Detailed Analysis:

1. Disallowance of CENVAT Credit on Insurance Policies:
The Assistant Commissioner disallowed CENVAT credit amounting to ?4,73,413/- availed by the appellant on the Service Tax paid against insurance policies issued by M/s National Insurance Co Ltd. The appellant argued that the insurance policies for employees' medical claims, personal accidents, and vehicle insurance should not fall within the exclusion category from the definition of “input service” under CENVAT Credit Rules, 2004, citing several judicial decisions in their favor. However, the respondent countered by referring to the 2011 amendment in the definition of "input service," which excluded services primarily for the personal use or consumption of employees. The Commissioner (Appeal) and Adjudicating Authority found the insurance policies primarily for personal consumption of employees and their families, thus falling under the exclusion clause. The Tribunal upheld this view, concluding that the insurance services did not qualify as "input services" as per the amended definition.

2. Demand for Interest on Disallowed Credit:
Interest on the disallowed credit was demanded under Section 11AA. The Tribunal did not provide a separate detailed analysis on this issue but upheld the demand for interest in line with the disallowance of the CENVAT credit.

3. Imposition of Penalty under Rule 15(2) of CENVAT Credit Rules, 2004:
A penalty equal to the amount of disallowed credit was imposed under Rule 15(2). The appellant contested this, arguing against the invocation of the extended period of limitation and the imposition of penalty. However, the Tribunal agreed with the Adjudicating Authority's finding that the appellant had willfully suppressed facts to claim undue CENVAT credit, justifying the penalty.

4. Applicability of Extended Period of Limitation:
The appellant argued that the demand was barred by limitation and that the extended period was not invokable. They cited various judicial decisions to support their argument. The respondent maintained that the extended period was applicable due to the appellant's suppression of material facts. The Tribunal upheld the invocation of the extended period, noting that the true nature of the insurance policies was revealed only during an audit and that the appellant had not disclosed that the policies also covered employees' family members. The Tribunal concluded that the appellant had willfully suppressed facts with the intent to evade duty, justifying the extended period of limitation and the associated penalty.

Conclusion:
The Tribunal dismissed the appeal, upholding the disallowance of CENVAT credit, the demand for interest, the imposition of penalty, and the invocation of the extended period of limitation. The judgment emphasized that insurance services primarily for the personal consumption of employees do not qualify as "input services" under the amended CENVAT Credit Rules, 2004.

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