2021 (4) TMI 853 - AT - Service Tax

CENVAT Credit - input services - insurance premium paid in respect of workmen compensation insurance policy - It is the case of the revenue that insurance being specifically excluded from the definition of input service under CCR, 2004, no Cenvat credit of service tax paid on Workmen Compensation Insurance Policy is admissible to the appellant - whether the view expressed by CESTAT Hyderabad in M/S HYDUS TECHNOLOGIES INDIA PVT LTD. VERSUS CCE, C ST, HYDERABAD-II 2017 (2) TMI 538 - CESTAT HYDERABAD or the view expressed by CESTAT-Chennai in the case of M/S. GANESAN BUILDERS LTD VERSUS COMMISSIONER OF SERVICE TAX, CHENNAI-II 2017 (7) TMI 720 - CESTAT CHENNAI is correct - matter has been referred to a larger Bench for a decision. HELD THAT - In Hydus Technologies India , a learned Member (Judicial) held that Cenvat credit is available in respect of service tax with respect to gratuity insurance, employees deposit linked insurance, employees health insurance, etc., on the ground that the benefit bestowed by one legislation cannot be taken away or made highly difficult and impractical to be adhered to by another field of law and accordingly, the benefit was allowed despite specific exclusion by Rule 2(l) whereas in Ganesan Builders , CESTAT-Chennai has denied the benefit of Cenvat credit on input services following the definition of input service including the exclusion clause therein under Rule 2(l) of CCR, 2004, as amended w.e.f. 01.04.2011. This decision of the CESTAT-Madras in Ganesan Builders has been overruled by the Hon ble High Court of Madras specifically dealing with workmen compensation insurance policy . The Hon ble High Court of Madras has held that the Workmen Compensation Act, 1923 is a beneficial legislation and the policy taken by the assessee in that case does not name the employees but categorised the employees based on their vocation/skill. The insured in that case is the assessee and the intention of the policy is to protect the employees who work at the site and not to drive them to various forums for availing compensation in the event of an injury or death. The service in that case was not primarily for personal use or consumption of employee and the insured is the assessee and not the employees. The present case is identical to the case of Ganesan Builders decided by the Hon ble High Court of Madras inasmuch the policy in question pertains to workmen compensation scheme. The insured, as can be seen from the insurance policies is the assessee/appellant and not the individual employees. In other words, the benefit of the policy, if any, goes to the assessee and not to the individual employees. It is not like health insurance taken for the benefit of employees. It is found from the Workmen Compensation Act, 1923 that Section 3 places the liability for compensation upon the employer. Section 4 determines the amount of compensation to be paid. If the assessee had not taken this insurance policy the employees would still be eligible for full compensation as per sections 3 and 4 of the Workmen Compensation Act, 1923. The question is referred to as follows - The view expressed by the Tribunal Hydus Technologies India lays down the correct position in law. The view expressed by the Tribunal in Ganesan Builders has been over ruled by the Madras High Court in Ganesan Builders Ltd. vs. Commissioner of Service Tax, Chennai. The matter may be placed before the appropriate bench for deciding the case.

Summary

Issues Involved:
1. Eligibility of Cenvat credit on service tax paid on insurance premium for "workmen compensation insurance policy."
2. Conflicting decisions in previous cases: Hydus Technologies India Pvt Ltd vs. C.C.E., CUS. & S.T., Hyderabad-II and Ganesan Builders Ltd vs CST, Chennai-II.
3. Interpretation of Rule 2(l) of the Cenvat Credit Rules (CCR), 2004, particularly the exclusion clause introduced w.e.f. 01.04.2011.

Detailed Analysis:

1. Eligibility of Cenvat Credit on Service Tax Paid on Insurance Premium for "Workmen Compensation Insurance Policy":
The appellant claimed Cenvat credit on service tax paid for the insurance premium under "workmen compensation insurance policy." The lower authorities denied this credit, leading to the appeal. The appellant argued that the insurance policy was taken to cover liability under the Workmen Compensation Act, 1923, which mandates employers to compensate workers for injuries sustained during employment. The appellant asserted that the insurance policy was not for the personal use or consumption of employees but to cover the employer's statutory liability.

2. Conflicting Decisions in Previous Cases:
The case was referred to a larger bench due to conflicting decisions in two previous cases:
- Hydus Technologies India Pvt Ltd: This case allowed Cenvat credit for various employee-related insurance policies, arguing that benefits provided by one legislation should not be negated by another.
- Ganesan Builders Ltd: This case denied Cenvat credit based on the exclusion clause in Rule 2(l) of CCR, 2004, as amended from 01.04.2011, which specifically excluded certain services, including insurance policies for employees.

3. Interpretation of Rule 2(l) of CCR, 2004:
Rule 2(l) defines "input service" and includes an exclusion clause effective from 01.04.2011, which excludes services related to personal use or consumption of employees. The appellant argued that the exclusion did not apply to their case because the insurance policy was not for personal use but to cover statutory liability.

Decision Analysis:
- Hydus Technologies India Case: The Tribunal allowed Cenvat credit, emphasizing that the insurance policies were legal responsibilities under labor laws and not for personal use of employees.
- Ganesan Builders Case: The Tribunal denied Cenvat credit, adhering strictly to the exclusion clause in Rule 2(l) of CCR, 2004, and emphasizing that legislative amendments could exclude certain services from the definition of input services.

High Court of Madras Overruling:
The High Court of Madras overruled the Tribunal's decision in Ganesan Builders, holding that the Workmen Compensation Act, 1923, is a beneficial legislation. The court noted that the insurance policy did not name individual employees but categorized them by vocation/skill, and the insured was the employer, not the employees. The court concluded that the insurance policy was not for personal use or consumption of employees but to cover the employer's statutory liability.

Conclusion:
The larger bench concluded that the view expressed in the Hydus Technologies India case was correct and aligned with the High Court of Madras' ruling in Ganesan Builders. The insurance policy in question was not excluded by clause (C) of Rule 2(l) because it was not for personal use or consumption of employees but to cover the employer's statutory liability.

Final Order:
The larger bench answered the reference by affirming the view in Hydus Technologies India and noting that the decision in Ganesan Builders had been overruled by the High Court of Madras. The matter was placed before the appropriate bench for final decision.