Tribunal upholds service tax demand on medical insurance for workmen's families

The Tribunal upheld the demand for duty, interest, and penalties on service tax paid for medical insurance policies for workmen's families, ruling that such service tax did not relate to the manufacturing of goods. The applicant's arguments on merit and time-bar were rejected. The Tribunal directed the applicant to deposit 50% of the demand within six weeks, with the remaining amount waived upon deposit. Recovery was stayed pending appeal, with compliance required by a specified date.

---

---

Issues:
Waiver of duty, interest, and penalties based on service tax paid in relation to medical insurance policy for workmen's families.

Analysis:
The applicant sought a waiver of duty amounting to Rs. 63,65,681/- along with interest and penalties due to the denial of credit for service tax paid on medical insurance for workmen's families. The demand was upheld on the grounds that the service tax paid did not pertain to the manufacture of goods.

The applicant contended on both merit and time-bar. They argued that as per the definition of "input service," service tax paid for business activities qualifies as input service credit. Regarding time-bar, they claimed that regular monthly returns were filed, indicating the availing of credit, making the demand unsustainable.

The Revenue, however, pointed out that the service tax was indeed paid on policies for employees and their families. They argued that the service tax on mediclaim policies for workmen's families does not qualify as an activity related to manufacturing the final product. The Revenue also emphasized that mediclaim insurance is a welfare activity and cannot be considered an 'input service' for manufacturing goods.

The Commissioner (Appeals) in the impugned order specifically noted that the service tax credit availed was for policies of employees/staff and their families. Considering these facts, the Tribunal found merit in the Revenue's argument that service tax on mediclaim policies for workmen's families cannot be deemed an input service. Consequently, the Tribunal directed the applicant to deposit 50% of the demand within six weeks, with the remaining dues being waived upon this deposit. The recovery of the amount was stayed during the pendency of the appeal.

In conclusion, the Tribunal ruled that the service tax on mediclaim insurance for workmen's families did not qualify as an input service related to manufacturing goods, leading to the decision for partial waiver of duty and the stay of recovery pending the appeal process. Compliance was to be reported by a specified date.

---