2015 (12) TMI 444 - AT - Service Tax

Cenvat Credit - service tax paid on insurance premium towards Mediclaim paid by the appellant claimed as Input Service Credit - Held that - basic logic adopted by the High Courts and the Tribunal is that if the inputs/ input services are taken or provided in pursuance of statutory requirements, then the assessees are duty bound to observe the same and hence credit of duty/service tax paid on such inputs/ input services would be eligible. However, when such inputs/ input services are taken by the employees or offered to the employees as welfare measure and is voluntary in nature, the same cannot be held to have any nexus with the Output Service . Therefore, in such scenario, CENVAT credit of the duty/ service tax on such inputs/ input services would not be available to the assessees. We find fort in the decision of this very Bench of the Tribunal in the case of M/s. One Advertising & Communication Services Limited vs. Commissioner of Service Tax, Ahmedabad - 2012 (5) TMI 219 - CESTAT, AHMEDABAD - appellant would not be eligible to take CENVAT credit in respect of the Mediclaim which is in the nature of a welfare measure and voluntary, in the instant case. Therefore, we uphold the order of the Commissioner (Appeals) in the said respect. - However, penalty is set aside - Decided partly in favour of assessee.

Summary

Issues:
1. Denial of service tax on insurance premium as Input Service Credit.
2. Eligibility of CENVAT credit on voluntary welfare measures like Mediclaim.
3. Imposition of penalty under various provisions.

Analysis:
1. The appellant challenged the denial of service tax on insurance premium as Input Service Credit by the Commissioner (Appeals). The appellant argued that Mediclaim for employees should be treated as an 'Input Service' since it covers the risk of employees, who are a major asset of their business. The Revenue contended that Mediclaim is voluntary and a welfare measure without a nexus to the 'Output Service' of advertising. The Tribunal analyzed previous decisions and concluded that when inputs or services are voluntary welfare measures, not statutorily required, they do not have a nexus with the Output Service, making CENVAT credit ineligible. The decision in M/s. One Advertising & Communication Services Limited vs. Commissioner of Service Tax, Ahmedabad was cited to support this reasoning.

2. The Tribunal referred to the case of Commissioner of Central Excise & Customs vs. Gujarat Heavy Chemicals Limited to further support the ineligibility of CENVAT credit on voluntary welfare measures. In this case, the Gujarat High Court held that services like security provided in residential quarters for workers, which were voluntary, did not have a direct or indirect relation to the manufacturing activity, thus not qualifying as 'input service'. The Tribunal upheld the denial of CENVAT credit on Mediclaim, considering it a voluntary welfare measure without a direct nexus to the business's output service.

3. While upholding the denial of CENVAT credit on Mediclaim, the Tribunal decided not to impose a penalty on the appellant under Section 80 of the Finance Act, 1994. The Commissioner (Appeals) had already dropped penalties under Sections 76 and 77 but imposed a penalty under Rule 15(1) of the Cenvat Credit Rules, 2004, which the Tribunal set aside. The appeal was disposed of without imposing any penalty on the appellant based on the circumstances of the case.

This judgment clarifies the eligibility of CENVAT credit on voluntary welfare measures like Mediclaim, emphasizing the necessity of a direct nexus to the business's output service for credit availability. The decision provides insights into the interpretation of 'input service' under Cenvat Rules and highlights the importance of statutory requirements in determining credit eligibility.