CESTAT, NEW DELHI BENCH
Oudh Sugar Mills Ltd.
Commissioner of Central Excise, Lucknow
MISC. ORDER NO. 451 OF 2012-Ex (BR)
STAY ORDER NO. 719 OF 2012-Ex (BR)
FINAL ORDER NO. A/483 OF 2012-EX(BR)
EXCISE MISCELLANEOUS APPLICATION NO. 1004 OF 2011
STAY APPLICATION NO. 2021 OF 2011
APPEAL NO. 1540 OF 2011
APRIL 3, 2012
Rakesh Kumar, Technical Member – The facts leading to the appeal, are in brief, as under.
1.1 The appellant manufacture sugar and molasses chargeable to Central excise duty. They avail Cenvat credit of Central excise duty paid on inputs and capital goods and of service tax paid on input service used in or in relation to the manufacture of their final products. In this case, the dispute is eligibility for Cenvat credit in respect of the services of the insurance of –
(a) plant and machinery including breakdown of machinery;
(b) company’s vehicles;
(c) employees in respect of medical claim (Medi-claim)
(d) stock of finished goods (sugar) and molasses (by product) kept in the factory;
(e) cash in safe and transit; and
(f) finished goods (sugar) in transit.
According to Department, the appellant are not eligible for Cenvat credit of service tax paid on premium for the above-mentioned insurance policies as these services have no nexus with the manufacture of final products and, hence, are not covered by the definition of ‘input service’ in Rule 2 (I) of Cenvat Credit Rules, 2004 and secondly, the appellant have not provided specific informative to the Department regarding details of these services and the items in respect of which the insurance service, in question, were used. On this basis a show-cause notice dated 30/10/09 was issued to the appellant seeking recovery of allegedly wrongly taken Cenvat credit amounting to Rs. 24,86,526/- along with interest under Rule 14 of the Cenvat Credit Rules, 2004, read with section 11A (1) and 11AB of Central Excise Act, 1944 and imposition of penalty on the appellant under Rule 15 of Cenvat Credit Rules, 2004.
1.2 The above-show cause notice was adjudicated by the Additional Commissioner vide order-in-original dated 19/8/2010 by which the above-mentioned Cenvat credit demand was confirmed along with interest and penalty of equal amount was imposed on the appellant under Rule 15 of the Cenvat Credit Rules, 2004.
1.3 On appeal against the above-mentioned order of the Additional Commissioner, the same was upheld in toto by the CCE (appeals) vide order-in-appeal dated 29/3/11.
1.4 Against the above order of CCE (Appeals), this appeal and stay application have been filed. A miscellaneous application No. E/M/1004/2011-EX has been filed for admission as additional evidence of the list of documents along with a chart showing the details of credit taken by the appellant on various insurance premium paid in connection with the business of the appellant along with some copies of the bills/vouchers issued by the service providers.
2. Heard both the sides. Though this matter was today listed for hearing of stay application and miscellaneous application, after hearing the same for sometime, we were of the view that the appeal itself can be taken up for final disposal and accordingly, with the consent of both the sides, the matter was heard for final disposal after waiving the requirement of pre-deposit.
3. Shri Rajesh Chhibber, Advocate, the learned Counsel for the appellant, pleaded that the insurance service for insurance of the plant and machinery, finished goods in stock and in transit of the cash in safe and in transit are the services related to manufacturing business of the apellant and hence are eligible for Cenvat credit, that in this regard, he relies upon Tribunal judgment in case of Finolex Cables Ltd. v. CCE  22 STT 87 (Mum-Cestat) and CCE v. Beekay Engg. & Castings Ltd. [Final Order No. 661/2009-SM(BR)(PB), dated 11-6-2009] that insurance service for cash in transit, and company’s vehicles are eligible for Cenvat credit and in this regard he relies upon judgments of the Tribunal in cases of HEG Ltd. v. CCE  23 STT 157 (New-Delhi) that insurance of employees against accident and sickness is eligible for Cenvat credit and in this regard he relies upon Tribunal’s judgments in cases of CCE v. Endurance Systems India Pvt. Ltd. 2009 (237) E.L.T. 204, Millipore India Ltd. v. CCE  22 STT 15 (Bang-Cestat) that the appellant have all the details regarding receipt of various insurance services from various insurance companies, all of which are public sector companies, along with the details of invoices on the basis of which Cenvat credit had been taken, that the original adjudicating authority and the first appellate authority disallowed the Cenvat credit without giving them an opportunity to produce these documents that the appellant may be allowed to place on record this additional evidence and, that from these documents it will clear that the Cenvat credit, in question, has been correctly taken by the appellant and the impugned order is therefore not correct.
4. Shri Nagesh Pathak, the learned Senior Departmental Representative, defending the impugned order by reiterating the findings of the Commissioner (Appeals) in the impugned order emphasised that the insurance service for insurance of plant and machinery, machinery breakdown, finished goods in storage and transit, cash in transit, company’s vehicles and employee’s insurance against accident and medi-claim have no nexus with the manufacture of final product and are not covered by the definition of ‘input service’. He also pleaded that the documents, sought to be brought on record now had not been produced before the original adjudicating authority and Commissioner (Appeals).
5. We have carefully considered the submissions from both the sides and perused the records.
6. The main point of dispute is as to whether the service of insurance of plant and machinery, insurance against machinery breakdown, insurance of appellant company’s vehicles, finished goods in stock and in transit, cash in transmit and the insurance of employees against accident and sickness is covered by the definition of ‘input service’.
6.1 The definition of ‘input service’, as given in Rule 2 (I) of Cenvat Credit Rules, 2004 has two parts. The main definition part during the period of dispute covered – “any service used by a provider of taxable service for providing in output service, or used by a manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products from the place of removal.” The inclusive portion during the period of dispute covered certain service and group of service specifically mentioned. The group of services mentioned in the inclusive portion is – “activities relating to business, such as auditing, accounting, financing,
6.1.1 The main definition part in respect of manufacture, because of use of the expression -“used whether directly or indirectly, in or in relation to the manufacture of final product” would cover all the services, which have nexus with manufacture whether directly or indirectly and accordingly in addition to services directly required for manufacture such as erection, installation and commissioning of plant, research and development, technical testing, technical consultancy repair and maintenance of plant and machinery, services for optimising the productivity etc., the services required to be availed for compliance with statutory provision by a manufacturer like Factories Act, labor laws, environmental laws etc. without which manufacturing operations will not be allowed will also be covered. If providing medi-claim insurance policy and accident insurance cover to employees is the requirement of some statutory provision, to be complied by the manufacture, the same would have to be treated as covered by the main definition part of input service. If, however, there is no statutory requirement for providing such insuranceer for the employees, and the same is pure welfare activity, in view of judgment of Hon’ble Bombay High Court in case of CCE v. Manikgarh Cement  29 STT 244 will not be covered by the definition of ‘input service’.
6.1.2 While the inclusive portion of the definition of ‘input service’ does not specifically cover insurance of plant, machinery, goods in storage or transit etc., it does cover – “activities relating to business, such as accounting, auditing, financing, ….”. Because of use of the words “such as” the scope of “activities relating to business” is very wide and the list of services covered by this expression mentioned in the definition i.e. “accounting, auditing, financing, recruitment, ….” is not exhaustive. Hon’ble Bombay High Court in case of CCE v. Ultra tech Cement Ltd.  29 STT 244 (Bom.) in para 28 and 29 of the judgment has held that the expression – “activities relating to business” covers the activities which are integrally connected with the business of manufacturing of the final product. Any prudent businessman in manufacturing business would insure his plant and machinery, goods in storage, cash in transit and goods in transit if his sales are on FOR destination basis. In our view, therefore these services are integrally connected with the manufacturing business of an assessee and the same have to be treated as “activities relating to business” and hence covered by the definition of input service. Same view has been taken by the Tribunal in case of Finolex Cables Ltd. (supra).
7. Another objection of the Department to permitting the Cenvat credit, in question, is that the appellant have not provided the details of the item of machines etc. ensured and the details of the invoices of insurance companies on the basis of which the Cenvat credit has been taken. The appellant plead that the lower authorities decided the case against them without giving them opportunity to produce these documents and that they are in a position to produce these documents and they went to place these documents on record. Since these documents go to the root of the matter, the miscellaneous application filed by the appellant for admitting this additional evidence is allowed. However, since the appellant’s claim regarding Cenvat credit can be examined with regard to these documents only by the original adjudicating authority, the matter has to be remanded to the original adjudicating authority for this purpose.
8. In view of the above discussion, the impugned order is set aside and the matter is remanded to the original adjudicating authority for de novo adjudication keeping in view our observations in this order. The de novo adjudication proceedings must be completed within three months time. The stay application and the miscellaneous application also stand disposed of, as above.