Case Law Details
Diamond Beverages Private Limited Vs Commissioner of CGST & CX (CESTAT Kolkata)
CESTAT Kolkata held that CENVAT Credit of service tax paid on Employees Health Insurance and Group Accidental Insurance Policy is within the scope and ambit of input service as provided under Rule 2(l) of the Cenvat Credit Rules, 2004.
Facts- On the basis of audit objection of Central Excise (Internal Audit) and by alleging contravention of Cenvat Credit Rules, 2004, suppression of material facts during the period May 2011 to March 2012 as regards irregular availment and utilization of Cenvat Credit attributable to certain input services, a Show Cause cum Demand Notice dated 26.04.2016 was issued for recovery of Cenvat Credit of Service Tax amounting to Rs.2,98,842/- along with interest and proposal for imposition of penalty.
The Applellant reversed the entire credit with regard to motor vehicles and ‘rent a cab’ service wand paid necessary interest. However, the Appellant did not agree with the contention of the Department that Cenvat Credit on Employees Group Insurance, Health Insurance, Personal Accident Policy were not available to them in the scenario of facts of their case.
Conclusion- Held that the Appellant was under the obligation and compulsion to cover the risk factor as well as safety of their employees through Employees Health Insurance and Group Accidental Insurance Policy and it would be an erroneous view if such coverage is treated as “primarily for consumption of employees” and thereby excluded the same from the scope and ambit of input service as provided under Rule 2(l) of the Cenvat Credit Rules, 2004. Accordingly, the employees who are not covered under ESI Scheme are well covered under the insurance policy for any untoward eventuality, therefore, it is also a moral obligation on the part of the employer to look after the welfare of the employees who are working inside or outside of the premises. Moreover, insurance coverage to the employees is mandatorily required as per the Factories Act. I find that Rule 2(l)(ii)(BA) & (C) of the Cenvat Credit Rules, inter alia excludes life insurance and health insurance from the purview/ambit of the definition of input service when such service is used primarily for personal use and consumption.
FULL TEXT OF THE CESTAT KOLKATA ORDER
The facts of the case in brief are that on the basis of audit objection of Central Excise (Internal Audit) and by alleging contravention of Cenvat Credit Rules, 2004, suppression of material facts during the period May 2011 to March 2012 as regards irregular availment and utilization of Cenvat Credit attributable to certain input services, a Show Cause cum Demand Notice dated 26.04.2016 was issued for recovery of Cenvat Credit of Service Tax amounting to Rs.2,98,842/- along with interest and proposal for imposition of penalty. In their reply to the Show Cause Notice, the Appellant stated that Cenvat Credit on motor vehicles and ‘rent a cab’ service was availed by them under the bona fide belief as regards admissibility of the same. But subsequently they reversed the entire credit amounting to Rs.49,417/- along with interest amounting to Rs.43,317/- payable on this score under E-Payment Challan dated 17.12.2016. But the Appellant did not agree with the contention of the Department that Cenvat Credit on Employees Group Insurance, Health Insurance, Personal Accident Policy were not available to them in the scenario of facts of their case. They stated that though w.e.f. 01.04.2011 some services have been brought under exclusion category of input services which inter alia includes Health Insurance policies of employees if the same are used primarily for personal use or consumption of any employee. The Appellant contended that the word ‘Primarily for personal use or consumption’ has absolutely no applicability in their insurance policies of the employees against which Cenvat Credit has been availed by them since obligation on the part of the employer is the primary object behind such coverage. They stated that such insurance policies in different names are primarily and basically meant for protecting the company from various unascertained monetary liability arising out of employment of various persons in the organization. It is obligatory and statutorily required to bring them under the coverage of insurance against the possibility of any untoward happening. Fulfillment of such statutory obligation undeniably has a nexus with their production and clearance of final product. Therefore, the employees who are not covered under E.S.I. Scheme are statutorily and mandatorily required to be covered under such insurance policies to eliminate risk factors of any unpleasant eventuality. The Appellant also stated that as a welfare measure, the employer cannot shirk their responsibility in this regard. In this context the appellant cited the following decisions wherein the Tribunal has allowed the credit on similar facts.:-
(i) Sundaram Fasteners Ltd. Vs. CCE, Chennai [2016 (43) STR 454 (Tri.-Chennai)]
(ii) Fiem Industries Ltd. Vs. CCE, Chennai-III [2016 (43) STR 470 (Tri-Chennai)]
2. The Appellant further stated that the demand raised on this score is not sustainable on merits and accordingly proposition of charging interest and imposition of penalty do not come into the picture.
3. The Appellant also contended that the demand is barred by the limitation of time since the same was not issued within the normal time frame from the date of knowledge of such alleged irregularity and the extended period as invoked is not tenable, unwarranted and bad in law. Neither there was any willful suppression of fact nor there was any conscious or deliberate withholding of any information on their part. In support of their argument, the Appellant cited numerous decisions of Hon’ble Supreme Court and the Tribunal.
4. The Appellant received Order-in-Original NO.25/AC/CE/Taratala-II/Kol-I/2016-17 dated 23.03.2017 passed by the Assistant Commissioner, Central Excise, Taratala-II Division, Kolkata-I Commissionerate. The following order was passed:-
(i) Cenvat credit amounting to Rs.2,98,842.00 was disallowed and ordered for recovery. An amount of Rs.49,917.00 already paid by them was appropriated to the Government exchequer;
(ii) Interest charged on the amount as above and an amount of Rs.43,317.00 already paid by the Appellant as interest was ordered for appropriation;
(iii) An amount of Rs.1,49,421.00 as penalty was imposed in terms of Rule 15(2) of Cenvat Credit Rules, 2004 read with Section 11AC (1)(c) of the Central Excise Act, 1944.
5. Being aggrieved by the Order-in-Original so passed the Appellant, filed an appeal before the Commissioner(Appeals-I), Central Excise, Kolkata (1st Appellate Authority). Thereafter, the Appellant received Order-in-Appeal No.07/Kol-I/2019 dated 18.03.2019 passed by the Commissioner of CGST & CX (Appeal-I), Kolkata. In the order, the Ld. Appellate Authority rejected the appeal petition and upheld the Order-in-Original.
Hence the present appeal before the Tribunal.
6. Ld. Advocate, appearing on behalf of the Appellant submits that the fact remains that Rule 2(l)(ii)(BA) & (C) of Cenvat Credit Rules, 2004 inter-alia excludes Life Insurance and Health Insurance from the purview of the definition of input service when such services are used primarily for personal use and consumption. But in the case of the Appellant, situation is altogether different as the key word ‘Primarily’ has got no applicability since it is an obligation on the part of the employer company to bring their employees under insurance coverage which is the primary object behind such policies. Therefore, as a welfare measure, it is obligatory as well as mandatorily required to bring them under insurance coverage against the possibility of any unfortunate happening which is not at all desirable. Hence there was absolutely no irregularity in availing Cenvat Credit of Service Tax on such policies. The demand confirmed for recovery of the same is unwarranted and not maintainable. The Appellant relies on the following decisions in support of his submissions:-
(i) Sundaram Fastners Ltd. Vs. CCE, Chennai-II [2016 (43) STR 454 (Tri.-Chennai)]
(ii) Fiem Industries Ltd. Vs. CCE, Chennai-III [2016 (43) STR 470 (Tri.-Chennai)]
(iii) Hydus Technologies India Pvt. Ltd. v. CCE, Hyderabad-II [2017 (52) STR 186 (Tri.)]
(iv) Reliance Industries Ltd. v. CCE & ST (LUT Mumbai)] [2016 (45) STR 383 (Tri.-Mumbai)]
(v) CCE, Delhi-III v. Suzuki Motorcycle India Pvt. Ltd. [2017 (47) STR 85 (Tri.-Chennai)]
7. The Appellant further stated that no penalty is imposable on them since they took credit under bona fide belief without having any mala fide intention to evade any duty/tax.
8. The Appellant also submitted that the instant demand is barred by the limitation of time since the same was not issued within the normal time limit from the date of knowledge of the department as laid down in the statute. The fact remains that the alleged irregularity was pointed out by the Audit in the year 2013 and the demand notice was issued 26.04.2016 on expiry of the normal time frame. Moreover, the Appellant regularly submitted ERI returns to the department incorporating all the relevant details and there was no conscious or deliberate withholding of any information. Therefore, question of any willful suppression of facts does and cannot arise and extended period is not all invokable. All the factors taken together rendered the demand notice aptly barred by the limitation of time and merits to be dropped along with interest and penalty. Ld. Advocate relied upon the decision in the case of BCH Electric Ltd. Vs. CCE, Delhi-IV [2013 (31) STR 68 (Tri. Del.)]. He accordingly prayed for setting aside the impugned order.
9. The Ld. Authorized Representative for the Revenue justified the impugned orders and strongly opposed the contention put-forward by the Ld. Advocate for the Appellant with regard to credit availed after 01.04.2011. He also submitted that the Health Insurance Policy and Personal Accident Policy are all used for staff welfare and are therefore not eligible.
10. Heard both sides and perused the appeal records.
11. I find that the instant issue relates to Cenvat dispute in which Cenvat Credit of Service Tax availed by the Appellant on (i) Employees Health Insurance and Group Accidental Insurance Policy and (ii) ‘rent a cab’, Motor Vehicles Insurance have been disallowed by the original authority for availment of inadmissible credit covering the period 01.05.2011 to 31.03.2012 and penalty of Rs.1,49,421/- being 50% of the amount of duty confirmed has been imposed in terms of Rule 15(2) of Cenvat Credit Rules, 2004 read with Section 11AC (1) (e) of the Central Excise Act, 1944.
12. It is the case of the Appellant that their manufacturing unit is manned by a number number of workers/employees, who are either discharging their duties inside or outside the factory premises in relation to the manufacture and clearance of their dutiable final products. Amongst them some are covered under Employees State Insurance Schemes as per norms laid down in the scheme. Rest remain uncovered from any insurance scheme though they are engaged in various jobs as assigned to them. The company as employer cannot shirk their responsibilities so far the safety and security of the employees is concerned specially if any untoward happening occurs. Ld. Advocate vehemently argued that the Appellant was under the obligation and compulsion to cover the risk factor as well as safety of their employees through Employees Health Insurance and Group Accidental Insurance Policy and it would be an erroneous view if such coverage is treated as “primarily for consumption of employees” and thereby excluded the same from the scope and ambit of input service as provided under Rule 2(l) of the Cenvat Credit Rules, 2004. He further submits that as an employer the Appellant cannot ignore welfare of their employees. Accordingly, the employees who are not covered under ESI Scheme are well covered under the insurance policy for any untoward eventuality, therefore, it is also a moral obligation on the part of the employer to look after the welfare of the employees who are working inside or outside of the premises. Moreover, insurance coverage to the employees is mandatorily required as per the Factories Act. I find that Rule 2(l)(ii)(BA) & (C) of the Cenvat Credit Rules, inter alia excludes life insurance and health insurance from the purview/ambit of the definition of input service when such service is used primarily for personal use and consumption.
13. The Ld. Advocate also argued that the demand is barred by limitation of time. It is his submission that the Appellant regularly submitted ER-1 Returns incorporating therein the relevant information in the prescribed format. The said returns were subjected to scrutiny by the departmental officers as per the norms fixed by the Board. Therefore, the Department was at liberty to call for any information, put in query, undertook any verification, if felt necessary. All the factors taken together nullified Department’s allegation of willful suppression of facts with intent to evade payment of duty. Accordingly, invocation of extended period is uncalled for. I find that the Tribunal in the case of BCH Electric Ltd. Vs. Commissioner of Central Excise, Delhi-IV [2013 (31) S.T.R. 68 (Tri.-Del.)] has observed as under:-
“8. As regards the question of limitation, it is not denied the availment of Cenvat credit in respect of these services was detected by the department only in course of audit of their records in course of which the appellant themselves had presented their records to the auditors. It is also not denied that the appellant were regularly submitting ER-I returns and the jurisdictional Central Excise Officers were well within their powers to call for records and examine the same. Therefore, in view of the judgment of the Hon’ble Gujarat High Court in case of Prolite Engg. v. CCE (supra), the appellant cannot be accused of suppression of the relevant information as it is not the allegation of the department that the appellant in terms of legal requirements were required to give invoice-wise and item-wise details of Cenvat credit which they have not given. Therefore, only normal limitation period would be available to the department for recovery of ineligible Cenvat credit. “
14. I also find that the Tribunal in the case of Lear Automotive India Ltd. vs. Commissioner of C. Ex., Vadodara-II [2013 (291) ELT 411 (Tri.-Ahmd.)], has held as under:-
“7. As regards point made on limitation, here also appellant has made out a case, inasmuch as Cenvat credit was availed by appellant in the year 2007-08 as per provisions of Cenvat Credit Rules, 2004. In my view the appellant had every reason to entertain a bona fide belief that they are eligible for availment of Cenvat credit, as these storage systems are used within the factory premises. Show-cause notice was issued in the year 2009. In my view the show-cause notice is blatantly time barred as there is no dispute that appellant had filed prescribed returns to the authorities. There cannot be any suppression or wilful misstatement of facts”.
15. In view of the above discussions, the impugned order cannot be sustained and is accordingly set aside. The Appeal filed by the Appellant is allowed on limitation with consequential relief, as per law.
(Order pronounced in the open court on 17 August 2023.)
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