2019 (2) TMI 1251 - AT - Service Tax

CENVAT Credit - input services - 'Errors Omissions Liability Insurance Policy obtained by the appellant for themselves as well as to their subsidiaries - Held that - Admittedly, the amount of insurance policy paid by the appellant is not wholly utilized by the appellant but the same includes proportionate amount paid by the appellant on behalf of the subsidiaries. It is also a fact on record that the amount attributable to the local subsidiaries, the appellant has paid service tax which shows that the appellant was having considered view that the proportionate amount attributable to the subsidiaries, the appellant is not entitled to take cenvat credit, therefore, the appellant charged amount of service tax from the subsidiaries located within India. Further, the contention of the Ld. Counsel for the appellant is that the appellant is providing Business Support Service to their subsidiary companies is not acceptable as the insurance policy has been obtained by the appellant as a global policy for their subsidiaries located in India as well as outside India and appellant is only recovering the consideration attributable to those subsidiaries by issuance of the debit notes on cost basis and charging service tax for the subsidiaries located in India. In that circumstances, it cannot be said that the appellant is provided any business support service to their subsidiaries. Therefore, the said contention of the appellant is not acceptable. The last contention raised by the Ld. Counsel that there foreign entities and the appellant are same, therefore, they are entitled to take cenvat credit. If the said contention is taken to be correct, in that circumstances, why the appellant has recovered proportionate amount of consideration form their subsidiaries. If the appellant is recovering any amount attributable to their subsidiaries, therefore, the appellant itself is considering their subsidiaries are all together different from the appellant. In that circumstances, also the appellant is not entitled to take cenvat credit for the services availed by third party - the appellant is not entitled to avail cenvat credit on the proportionate consideration of the amount on Errors Omissions Liability Insurance Policy attributable to their foreign entities, therefore, the same is required to be reversed by the appellant. Extended period of limitation - Held that - The appellant has taken the cenvat credit in the guise of export of services which was well within the knowledge of the appellant that for the services which has been provided by Insurance Company on account of third party, the appellant is not entitled to take cenvat credit - extended period rightly invoked. There is no infirmity in the impugned orders qua demand on account of reversal of cenvat credit and imposition of penalty - appeal disposed off.

Summary

Issues:
Whether the appellant is entitled to avail cenvat credit on the service of Errors and Omissions Liability Insurance Policy or not?

Analysis:
The appellant, a Global IT Service Company, appealed against the denial of cenvat credit on an 'Errors & Omissions Liability Insurance Policy' covering both the appellant and its subsidiaries. The issue revolved around whether the appellant could avail cenvat credit for the insurance policy amount attributable to its foreign subsidiaries. The appellant contended that the insurance policy was procured as a Business Support Service (BSS) for the subsidiaries, qualifying as an export of service under specific conditions. However, the Revenue argued in favor of the impugned orders.

The Tribunal examined the facts and submissions. It noted that the appellant had debited the insurance policy amount to the subsidiaries on a cost basis, indicating that the appellant did not receive the services for that proportionate amount and thus was not entitled to cenvat credit. The Tribunal rejected the appellant's argument that they provided BSS to the subsidiaries, as the insurance policy was obtained as a global policy for all subsidiaries, and the appellant charged service tax only for Indian subsidiaries.

Furthermore, the Tribunal held that the appellant was not entitled to cenvat credit for the insurance policy amount attributable to foreign subsidiaries, as the service tax paid was not refundable, and the appellant was not entitled to avail cenvat credit for services provided to third parties. The Tribunal also noted that the appellant's contention that the foreign entities and the appellant were the same was contradicted by the appellant's recovery of amounts from subsidiaries, indicating they were distinct legal entities.

In conclusion, the Tribunal upheld the impugned orders, ruling that the appellant was not entitled to cenvat credit for the insurance policy amount attributable to foreign subsidiaries. It also confirmed the imposition of penalties and clarified that interest was not payable if the appellant maintained a sufficient balance in their cenvat credit account during the relevant period.

Therefore, the appeals were disposed of with the decision that the appellant was not entitled to avail cenvat credit on the amount attributable to foreign subsidiaries for 'Errors & Omissions Liability Insurance Service' as input services. Penalties were upheld, and interest was payable if the appellant did not maintain a sufficient balance in their cenvat credit account.