2015 (4) TMI 615 - AT - Service Tax

Denial of CENVAT Credit - various insurance policies in respect of capital assets - Held that - various insurance policies taken by the appellant falls into the category of Marine Hull Policy, Public Liability Insurance Policy, Standard Fire and Special Perils Policy, Burglary Standard Insurance Policy, Marine Cargo Open Policy, Industrial all Risks Insurance Policy, Marine War Insurance Policy, Money Insurance Policy and Contractors Plant and Machinery Insurance Policy. While Marine Hull Policy, Marine Cargo Open Policy and Marine War Insurance Policy pertain to tugs and barges used by the appellant in transportation of materials from the mother vessels to the jetty, the other insurance policies pertain to the insurance of the capital assets used within the factory except in the case of Contractors Plant and Machinery Insurance Policy. The nexus between the assets utilised within the factory is clearly discernible, the same cannot be said in respect of goods used outside the factory. As regards the tugs and barges in respect of which marine policies have been taken, this issue has been considered in the Vikram Ispat (cited supra) wherein it was held that there was no nexus between the impugned services with manufacture/clearance of goods; therefore, they are not input service on which the assessee could get benefit of credit of service tax. - Therefore, the eligibility to Cenvat credit on marine insurance policies taken in respect of tugs and barges is clearly not admissible. Appellant will not be entitled for Cenvat credit of service tax paid on Marine Insurance Policies taken in respect of the tugs and barges or materials brought in a ship or in respect of life or health or medi-claim insurance of the employees/families. Similarly, the appellant would not be entitled for the service tax paid on the contractors equipments. In respect of other assets, which are used by the appellant within its factory for the manufacturing activity, the appellant would be eligible for the credit of service tax paid on various insurance policies in respect of such assets. Therefore, the matter is remanded back to the adjudicating authority for ascertaining the entitlement of service tax paid in respect of items as discussed above and allow the same to the appellant - Decided against assessee.

Summary

Issues:
Denial of input service credit to the appellant, Interpretation of "input service" under CCR 2004, Eligibility of service tax paid on insurance policies, Nexus between assets and services, Applicability of Cenvat credit rules, Challenge to previous tribunal decision, Imposition of penalty.

Analysis:
The appeal challenges the denial of input service credit to the appellant, M/s. Welspun Maxsteel Ltd., by the appellate authority. The appellant claimed credit for service tax paid on various insurance policies related to capital assets from April 2011 to August 2012. The appellant argued that services availed fall within the definition of "input service" under Rule 2(l) of CCR 2004. However, the appellant acknowledged that credit for life insurance and health insurance for employees and families is excluded under the rule. The appellant cited relevant court decisions to support their interpretation of the rules.

The Revenue contended that the appellant also claimed credit for services related to tugs and barges used for transportation, citing a previous tribunal decision that denied such benefits. The appellant countered by mentioning that the tribunal decision was challenged in the Bombay High Court, creating uncertainty. The appellant emphasized a broader interpretation of "input service" based on a High Court decision regarding manufacturing activities.

The tribunal examined the insurance policies taken by the appellant, distinguishing between policies related to assets within the factory and those for external use. It determined that services for tugs and barges lacked a nexus with manufacturing activities, aligning with the previous tribunal decision. The tribunal noted that CCR 2004 does not allow credit for excise/CVD on tugs and barges, supporting the denial of service tax credit. Additionally, insurance for life, health, and medi-claim of employees was explicitly excluded under the rules.

The tribunal concluded that the appellant is eligible for credit on insurance policies related to assets used within the factory for manufacturing activities. It remanded the matter to the adjudicating authority for further assessment. Given the interpretation of the Cenvat Credit Rules, the tribunal set aside the penalty imposed on the appellant. The appeal was disposed of accordingly, rendering the stay application moot.

This detailed analysis addresses the denial of input service credit, interpretation of relevant rules, nexus between services and assets, and the tribunal's decision regarding the appellant's eligibility for service tax credit on insurance policies.