2013 (12) TMI 266 - AT - Service Tax

CENVAT Credit - premium for group insurance/mediclaim policy - Held that - department s allegation is that the appellant have taken Cenvat credit of service tax paid on the premium paid for group insurance/mediclaim/life insurance policies in respect of employees as per Annexure A to the show cause notice. Annexure A to the show cause notice also gives the details of the credit taken on the insurance services availed for the employees. In the show cause notice there is absolutely no allegation that the insurance cover provided by the appellant also covered the family members of the employees. In view of this, the original Adjudicating Authority and the 1st Appellate Authority, have gone totally wrong in travelling beyond the show cause notice. When the group insurance/mediclaim/life insurance cover to the employees of manufacturer is a requirement of Section 38 of the Employees State Insurance Act, 1948 and in this case it is not disputed that the provisions of this Act are applicable to the appellant, the appellant have to provide insurance cover as per the provisions of this Act to their employees failing which, they would face penal action. Therefore, the availment of the insurance services for providing insurance/mediclaim/life insurance has to be treated as an activity in or in relation to manufacture and would be covered by the definition of input service. In view of this, the impugned order is not sustainable - Decided in favour of assessee.

Summary

Issues:
1. Eligibility of Cenvat credit on service tax paid for group insurance/mediclaim policy for employees.
2. Interpretation of input service under Cenvat Credit Rules 2004.
3. Adjudication based on show cause notice allegations.
4. Applicability of judgments by High Courts and Apex Court.
5. Coverage of family members under insurance policies.

Analysis:

1. The case involved the eligibility of Cenvat credit for service tax paid on the premium for group insurance/mediclaim policy for employees. The department contended that this insurance service did not fall under the definition of input service, leading to a show cause notice for recovery of Cenvat credit, interest, and penalties.

2. The Adjudicating Authority upheld the demand for Cenvat credit, citing that the Tribunal's judgment in a similar case was not applicable as the insurance cover in question extended to workers and their family members. On appeal, the Commissioner (Appeals) affirmed this decision, prompting the appellant to file the current appeal.

3. The appellant argued that the insurance provided to employees was necessary under the Employees' State Insurance Act, making it an activity related to manufacturing operations. They contended that the show cause notice did not mention coverage for family members, and authorities had overstepped by considering this aspect beyond the notice's scope.

4. The Tribunal analyzed the show cause notice's allegations and emphasized that the insurance cover for employees, as mandated by law, was integral to the manufacturing process. Referring to relevant judgments, including those by the Apex Court and High Courts, the Tribunal concluded that the insurance services qualified as input services, overturning the previous decisions.

5. The Tribunal highlighted that the insurance cover for employees, as per the statutory requirements, was crucial for the appellant's manufacturing activities. Since the show cause notice did not raise concerns about coverage for family members, the authorities erred in considering this aspect. Ultimately, the impugned order was set aside, and the appeal was allowed in favor of the appellant.