2016 (4) TMI 370 - AT - Central Excise

Eligibility of Cenvat credit - Service tax paid on Health Insurance Services for the coverage of employees, spouse, dependent children and parents etc. - Department contended that the impugned service is not covered under the definition of the input service vide Rule 2(l) of Cenvat Credit Rules, 2004, Held that - it is found that when employees are at work in the factory, if an accident happens, the employer is liable to pay compensation and a prudent businessman will be interested in taking an accident insurance policy for his workers to cover the business risk and it cannot be considered that such insurance is not relation to the manufacturing activity. Even in the case of health insurance of the workmen, when employees fall sick, it is necessary that they are provided proper treatment so that they are brought back to work without loss of man hours and disruption of manufacturing lines and the employer may take insurance for arranging proper medical attendance for sick workman or other employees of the company. In the case of premium attributable to the families of employees it cannot have any direct nexus and will not qualify as input services. By following the judgment of Hon ble High Court of Karnataka in the case of CCE, Bangalore-III Vs. Stanzen Toyotetsu India (P) Ltd. 2011 (4) TMI 201 - KARNATAKA HIGH COURT , the medical insurance in relation to the employees of the company are within the broad definition of input service as per Rule 2(l)ibid. Hence, the impugned order is set aside. - Matter remanded back

Summary

Issues:
1. Availment of service tax credit on Health Insurance Services for employees and their families.
2. Interpretation of whether the insurance services are covered under the definition of input service.
3. Imposition of penalty under Rule 15 of Cenvat Credit Rules, 2004.

Analysis:
1. The appellant, a manufacturer of various ceramic products, availed a service tax credit on Health Insurance Services for employees, spouses, dependent children, and parents. The adjudicating authority held that the insurance coverage for employees' families did not qualify as an input service under Rule 2(l) of Cenvat Credit Rules, 2004, and demanded the irregularly availed credit along with interest and imposed a penalty of ?2,000.

2. The appellant argued that insurance against accidental death or sickness of employees is essential to prevent disruptions in business activities and unforeseen expenditures. They contended that such insurance is necessary for the manufacturing process and should qualify as an input service. The appellant agreed to reverse the credit for family coverage and requested a remand to determine the eligible credit amount. The appellant cited legal precedents to support their arguments.

3. The Department reiterated that the credit was rightfully disallowed as the insurance for employees and their families did not meet the requirement of being "used in or in relation to the manufacture" as per the Cenvat Credit Rules. They insisted that the appeal should be rejected based on the findings of the lower authorities.

4. Upon review, the Tribunal found that insurance for employees against accidents and health issues is directly related to the manufacturing activity as it mitigates business risks and ensures minimal disruption. However, insurance for employees' families lacks a direct nexus to manufacturing and does not qualify as an input service. Relying on legal precedents, the Tribunal set aside the previous order, remanded the matter to quantify the eligible Cenvat credit, and directed the appellant to provide necessary information.

5. The Tribunal noted that the dispute revolved around the interpretation of legal provisions and found no malicious intent on the part of the appellant. Consequently, the penalty imposed under Rule 15 of Cenvat Credit Rules, 2004, was set aside.

6. In conclusion, the Tribunal disposed of the appeal by setting aside the previous order, remanding the matter for quantification of eligible credit, and absolving the appellant from the penalty due to the absence of malicious intent.