CA Bimal Jain
The Department denied the Cenvat credit to Reliance Industries Ltd. (the Appellant) on the ground that the Service tax paid on the life insurance/ medi-claim policy for the existing employees and retired employees is ineligible as they are not covered under the definition of Rule 2(l) of the Credit Rules.
The Hon’ble CESTAT, Mumbai, held that the Appellant is eligible to avail Cenvat credit of the Service tax paid on insurance premium to the Insurance Company for Group Insurance and medi-claim policies taken for existing employees as well as for the retired employees as the same Bench has decided in the Appellant’s own case in Appeal No. E/1283/2012-Mum [2015 (7) TMI 231 – CESTAT MUMBAI] wherein it was held that such credit is available relying on the judgement of the Hon’ble High Court of Karnataka in the case of Millipore India Ltd. [2011 (4) TMI 1122 – KARNATAKA HIGH COURT].
Here, we would like to draw your attention towards the definition of the term ‘Input services’ as was prevalent prior to April 1, 2011, which specifically mentioned activities relating to business under ‘includes-clause’. However, post facto April 1, 2011, definition of the term ‘Input service’ given under Rule 2(l) of the Credit Rules was substituted vide Notification No. 3/2011-CE(NT) dated March 1, 2011, inter alia, deleting the phrase ‘activities relating to business’. Thus, limiting the wide scope of the term ‘Input services’. In other words, effective from April 1, 2011, one has to be very careful while determining eligibility of any Input service under Rule 2(l) of the Credit Rules.
Further, effective from April 1, 2011, scope of wide interpretation of the term ‘Input service’ has been further curtailed/ limited by inserting exclusion-clause in the stated definition, which, inter alia, excludes employee related services under Clause (C):
“(C) such as those provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as Leave or Home Travel Concession, when such services are used primarily for personal use or consumption of any employee”
However, in the case of Hindustan Coca Cola Beverages Pvt. Ltd. Vs. Commr. of C. Ex., Nashik [2015 (38) S.T.R. 129 (Tri. – Mumbai)], the Hon’ble CESTAT, Mumbai has held that what is not eligible is that service which is meant for personal use or consumption by an employee or the cost of which is included as part of salary of the employee as a cost to company basis. When, the outdoor catering service is used in relation to business activities of the appellant and the cost of such services are admittedly borne by the company and not by the employee, the appellant has correctly claimed the Cenvat credit on outdoor catering services even after April 1, 2012. Relevant extract of the judgment is reproduced hereunder for the ease of reference:
“…4.1 I find considerable force in the submissions made by the ld. Counsel for the appellant, that what is excluded is only the services ‘primarily for personal use or consumption of any employee’ under clause (C) of Rule 2(l) of the definition of input service. When the Government has specifically used the words such as “used primarily for personal use or consumption of any employee”, the same has to be given due effect to. In the present case the outdoor catering service is used in relation to business activities of the appellant and the service is used by all employees in general. Also, the Revenue has not rebutted the contention of the appellant, that the costs of these input services form part of the cost of final product….
4.2 I further find that even the Government while issuing the budget clarification or subsequent circular has clarified that what is not eligible is that service which is meant for personal use or consumption by an employee or the cost of which is included as part of salary of the employee as a cost to company basis. In the present case, the cost of such services are admittedly borne by the company and not by the employee. Therefore, I hold that the appellant has correctly claimed the Cenvat credit on outdoor catering services….”
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