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2022 (4) TMI 1357 - AT - Central ExciseCENVAT Credit - input services - service tax paid on insurance premium for availing medi-claim facility for employees who had opted for Voluntary Separation Scheme - conflicting views - Larger Bench Decision - HELD THAT - The two issues that have been referred to the Larger Bench of the Tribunal are, therefore, answered in following manner (i) The answer to the first issue would be a. The Bombay High Court in M/S. COCA COLA INDIA PVT. LTD. VERSUS THE COMMISSIONER OF CENTRAL EXCISE, PUNE-III 2009 (8) TMI 50 - BOMBAY HIGH COURT and CCE, NAGPUR VERSUS ULTRATECH CEMENT LTD., 2010 (10) TMI 13 - BOMBAY HIGH COURT has settled the interpretation of input service in rule 2(l) of the 2004 Rules, as it stood prior to its amendment on 01.04.2011; b. The definition of input service can be effectively divided into the following five categories. c. So far as it concerns the dispute raised in this appeal, the definition would cover not only input services which have a nexus with the manufacture of the final product (covered by the first limb in the definition), but also other input services , which do not have such a nexus but are covered by either of the other four limbs of the definition; d. Each limb of the definition is independent and benefit of CENVAT credit would be available even if any one of them is satisfied; e. So far as the first limb is concerned, the requirement of establishing a nexus between the input services and the process of manufacture would stand satisfied if the expenditure incurred for the input service forms part of the cost of production/value of the final product on which duty of the excise is levied; f. In this view of the matter, the appellant would be entitled to avail CENVAT credit on the service tax paid on insurance premium for employees who had opted for the Voluntary Separation Scheme ; and (ii) Cost Accounting Standard-4 would be applicable for determination of eligibility to CENVAT credit even if the goods are not captively consumed. The papers of this appeal may now be placed before the Division Bench for deciding the appeal on merits.
Issues Involved:
1. Interpretation of rule 2(l) of the CENVAT Credit Rules, 2004 for the period prior to the amendment made in 2011. 2. Applicability of Cost Accounting Standard-4 (CAS-4) for determining eligibility to CENVAT credit in cases other than where goods are captively consumed. Detailed Analysis: 1. Interpretation of Rule 2(l) of the CENVAT Credit Rules, 2004: The central issue was whether CENVAT credit could be availed on the service tax paid on insurance premiums for medi-claim facilities for employees who opted for the Voluntary Separation Scheme (VSS). The Tribunal's Larger Bench examined the definition of "input service" as it stood prior to the amendment on 01.04.2011. The definition of "input service" under rule 2(l) included services used by a manufacturer directly or indirectly in relation to the manufacture of final products and activities relating to business. The Tribunal noted that the VSS was aimed at keeping the business operations viable by reducing costs associated with a large workforce. Thus, the insurance premiums paid for medi-claim facilities under VSS were considered to have a direct nexus to the manufacturing activities. The Tribunal referred to several judgments, including those of the Bombay High Court in Coca Cola India and Ultratech Cement, which categorized "input service" into five limbs. It concluded that if an assessee satisfies any one of these limbs, CENVAT credit should be allowed. The Tribunal held that the services related to VSS fell under the category of "activities relating to business," thus qualifying as input services. 2. Applicability of Cost Accounting Standard-4 (CAS-4): The Tribunal also addressed whether CAS-4 could be used to determine eligibility for CENVAT credit even if the goods were not captively consumed. CAS-4 outlines the cost components that should be included in the cost of production, which is relevant for determining the assessable value of goods used for captive consumption. The Tribunal noted that the cost of production includes various components such as direct wages and salaries, which encompass fringe benefits like medical benefits, provident fund contributions, and other allowances. The Tribunal emphasized that these costs form part of the overall cost of production and should be considered when determining eligibility for CENVAT credit. The Tribunal referred to the judgment of the Karnataka High Court in Millipore India, which held that if service tax is paid on services forming part of the cost of production, CENVAT credit should be allowed. The Tribunal concluded that CAS-4 is applicable for determining eligibility to CENVAT credit even if the goods are not captively consumed. Conclusion: 1. Interpretation of Rule 2(l): The Tribunal concluded that the insurance premiums paid for medi-claim facilities under VSS qualify as input services under rule 2(l) of the CENVAT Credit Rules, 2004, as they relate to activities concerning business. 2. Applicability of CAS-4: The Tribunal held that CAS-4 is applicable for determining eligibility to CENVAT credit even if the goods are not captively consumed, as the costs outlined in CAS-4 form part of the production cost. The Tribunal directed that the matter be placed before the Division Bench for deciding the appeal on merits, emphasizing that the appellant is entitled to avail CENVAT credit on the service tax paid for the insurance premiums under the VSS.
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