2018 (10) TMI 269 - HC - Service Tax

CENVAT Credit - input services - insurance services provided by the appellant to workers working at their site, as per the mandatory requirement of labour laws - denial of credit on the ground that the payment of insurance premium for availing the insurance policy stand excluded from the definition of input services , pursuant to the definition of Input Services , after 01.04.2011. Held that - The Tribunal interpreted Clause (C) above and stated that in so far as the expression and used between two expressions health insurance and Travel benefits is disjunctive and is not required to be read along with the expression health insurance . - Further, it held that the exclusion clearly mentions various services, including life insurance and health insurance, as not covered by input services. It is further held that the travel benefits extended to the employees at the time of leave or home travel concession also stand excluded and therefore, there is no warrant to read excluded health insurance services with the travel benefits for leave etc. and the contention of the assessee that the health insurance services, which stand excluded are only which are extended during leave, cannot be accepted. The Tribunal missed a very significant point, while taking a decision as to whether the credit availed by the assessee is eligible or not ?. The first and foremost factor, which should have weighed the mind of the Tribunal is the nature of the policy availed by the assessee ; the beneficiary of the policy ; and the Statute, under which, the policy is required to be availed. These three are very important factors in the instant case. The inclusion of the Workmen's Compensation Act in the 1996 Act, a beneficial legislation, is for the purpose of protecting workmen, who generally belong to unorganized sector. The policy does not name the employees, but categorized the employees based on their vocation/skill. The insured is the assessee and the intention of the policy is to protect the employees, who work in the site and not to drive them to various forums for availing compensation in the event of an injury or death. Therefore, even viewed from this angle, the availment of the policy appears to be a statutory requirement and as rightly contended by the assessee, this service is not used primarily for personal use or consumption of an employee and this, being the statutory requirement, it is insured (assessee) specific and not employees specific. Thus, the Tribunal fell in error in dismissing the appeal filed by the assessee and equally the First Appellate Authority as well as the Original Authority failed to interpret the statutory provisions, in the manner it is required to be done. Appeal allowed - decided in favor of assessee.

Summary

Issues:
Interpretation of the definition of "input services" under Rule 2(l) of Cenvat Credit Rules, 2004 for insurance services provided to workers, statutory requirements under labor laws, exclusion of services primarily for personal use or consumption of employees.

Analysis:
1. The appeal raised substantial questions of law regarding the eligibility of Service Tax paid on insurance services provided to workers as "input services" under Rule 2(l) of Cenvat Credit Rules, 2004. The dispute centered around whether such insurance services, mandated by labor laws, could be considered excluded under the definition of "input services" for availing Cenvat credit.

2. The Tribunal and lower authorities denied CENVAT credit to the assessee, citing exclusion clauses post-April 2011. The Tribunal emphasized the exclusion of health insurance, life insurance, and travel benefits primarily for personal use or consumption of employees. It rejected the assessee's argument that the insurance services were obligatory under labor laws, stating that legislative amendments could alter service inclusions or exclusions.

3. The High Court noted the critical factors of the policy nature, beneficiaries, and statutory requirements under the Building and Other Construction Workers Act, 1996. The policy aimed to protect workers in the unorganized sector, with the insured being the assessee and employees categorized by vocation. The Court emphasized that the policy was not employee-specific but a statutory obligation for worker protection.

4. The Court referenced precedents where services mandated by labor laws, such as Pest Control Service and Outdoor Catering Services, were deemed eligible for CENVAT credit post-amendments in Rule 2(l). It highlighted cases where insurance services under labor legislations were considered not primarily for personal use or consumption of employees, thus eligible for credit.

5. Ultimately, the Court found the Tribunal's decision erroneous, emphasizing the statutory intent of the Workmen's Compensation Act policy in protecting workers, not for personal employee use. The appeal was allowed in favor of the assessee, with substantial questions of law answered against the Revenue. No costs were awarded in the judgment.