2015 (10) TMI 2228 - AT - Service Tax

Disallowance of CENVAT credit on medical insurance services and demand of interest alleging delay in payment of service tax on transactions with Associated Enterprises prior to 10.5.2008 Manpower Recruitment Appellant contends that it had to obtain insurance cover for employees who are provided temporarily to customers and they qualify as input services and they have rightly availed credit and has paid interest upon the delayed payment after 10.5.2008 upto the date of payment. Held That - Definition of input service during the relevant period covered every conceivable service used in the business of assessee - Disallowance of credit on medical insurance services cannot be sustained Decsion made in case of Commissioner of Service Tax, Bangalore Vs. M/s Team Lease Services (P) Ltd. 2014 (4) TMI 948 - KARNATAKA HIGH COURT followed. Transactions with associated enterprises - Held that - The statutory provision for demanding service tax in respect of transactions between associated enterprises, immediately upon amendment, has been introduced only w.e.f. 10.5.08. Prior to 10.5.08, neither the Finance Act, 1994 not the Service Tax Rules, 1994 contain any provision enabling demand of service tax prior to the realization of taxable services, in any circumstances. This being so, it is not legally permissible to give retrospective effect to the Explanation inserted in Rule 6 of the Service Tax Rules. - Decision in the case of CESTAT in Sify Technologies Ltd. Vs. CCE 2010 (11) TMI 232 - CESTAT, CHENNAI followed. No liability on part of appellants to pay interest on book adjustments made prior to 10.5.2008 as appellants have deposited interest applicable after 10.5.2008 Impugned demand of interest of ₹ 3,25,360/- is not sustainable Decided in favour of assessee.

Summary

Issues:
1. Disallowance of Cenvat credit on medical insurance services.
2. Demand of interest alleging delay in payment of service tax on transactions with Associated Enterprises prior to 10.5.2008.

Analysis:
1. Disallowance of Cenvat Credit on Medical Insurance Services:
The appellant availed credit on medical insurance services for the period 2007-08 to 2010-2011, which the department deemed ineligible as input services. The appellant argued that these services were crucial for their business, qualifying them as input services. Citing a judgment, the tribunal held that the disallowance of credit on medical insurance services was unjustified as the definition of input services was broad during the relevant period.

2. Demand of Interest for Delay in Payment of Service Tax:
The department alleged a delay in payment of service tax for services received from overseas associates in 2006-07 and 2007-08. The dispute arose due to an amendment clarifying the inclusion of book adjustments in the gross amount charged for service tax. The appellant contended that interest was only applicable post-amendment, citing relevant judgments. The tribunal agreed, stating that there was no liability for interest on book adjustments made before 10.5.2008. Consequently, the demand for interest was deemed unsustainable, and the appeal was allowed in favor of the appellant.

In conclusion, the tribunal set aside the impugned order, ruling in favor of the appellant on both issues. The judgment highlighted the importance of understanding the legal provisions and relevant case laws to determine the eligibility of credits and liabilities accurately.