2016 (6) TMI 1071 - AT - Service Tax

CESTAT Hyderabad: Appellant wins case on irregular credit for services in Jammu & Kashmir

The Appellate Tribunal CESTAT Hyderabad ruled in favor of the appellant in a case involving irregular credit availed on input services for providing ... CENVAT credit admissibility for services used in non-levy territories - Distinction between services not subject to levy and exempted services for CENVAT purposes - Applicability of Rule 6(2) and Rule 6(3) of the CENVAT Credit Rules to common input services - Definitional scope of input service and output service under CENVAT regime - Admissibility of credit on group/ floater employee insurance as an input serviceCENVAT credit admissibility for services used in non-levy territories - Distinction between services not subject to levy and exempted services for CENVAT purposes - Applicability of Rule 6(2) and Rule 6(3) of the CENVAT Credit Rules to common input services - Definitional scope of input service and output service under CENVAT regime - Whether the appellant was liable to reverse CENVAT credit availed on common input services used partly for providing services in the State of Jammu & Kashmir and partly for taxable services elsewhere - HELD THAT: - During the period 4/2008 to 9/2010 the Finance Act and CENVAT Rules did not extend to Jammu & Kashmir, so services rendered there were not subject to service tax levy. The Department's approach equating non-levy services to 'exempted services' and invoking Rule 6(2)/6(3) to require separate accounts and proportionate reversal is incorrect. Rule 6(2) deals with situations where a provider renders taxable services as well as services which are specifically exempted from service tax; it does not apply where services are outside the statutory levy (i.e., not subject to service tax at all). The definition of 'output service' and 'input service' contemplates services used for providing a taxable output service; services rendered in J&K, being outside the levy, do not fall within the category of exempted services for the purpose of those rules. The Tribunal followed the precedent in ECIL Rapiscan Ltd. and held that Rule 6(3)(1) (and related provisions) cannot be pressed into service to treat non-levy supplies as exempted supplies for disallowance of credit. [Paras 4, 6, 8]Demand for reversal of CENVAT credit attributable to services provided to Jammu & Kashmir is unsustainable and set aside.Admissibility of credit on group/ floater employee insurance as an input service - Definitional scope of input service under CENVAT Credit Rules prior to 01/04/2011 - Whether CENVAT credit on service tax paid for a floater/group insurance policy (covering employees and their dependants without differential premium) is admissible as an input service - HELD THAT: - The policy in question was a floater/group policy with a uniform premium not varying by number of dependants; it was taken for the benefit of employees. For the period prior to 01/04/2011 the definition of 'input service' had a wide ambit. On the facts, the group insurance service directly benefited the employees and qualifies as an input service used in providing output services. Consequently, the disallowance of credit on insurance services by the authorities was incorrect. [Paras 9]Disallowance of credit on the insurance premium is illegal and the credit is held to be admissible.Final Conclusion: The impugned order is set aside; the demand relating to CENVAT credit on input services used for services to Jammu & Kashmir is quashed, and the disallowance of credit on insurance premium is held illegal; the appeal is allowed with consequential reliefs, if any. Issues involved:1. Availing irregular credit on service tax paid on input services for providing output services to the State of Jammu & Kashmir and other parts of India.2. Availing irregular credit on service tax paid on insurance premium for dependants/family members of employees.Analysis:Issue 1:The appellant availed CENVAT credit on input services for providing output services in Jammu & Kashmir, which the department deemed irregular due to the exclusion of service tax applicability to Jammu & Kashmir under Section 64 of the Finance Act, 1994. The department contended that the appellant should reverse the credit as services in Jammu & Kashmir are considered exempted. However, the appellant argued that Rule 6(2) of CENVAT Credit Rules does not apply as the services provided in Jammu & Kashmir are not exempted services. The Tribunal agreed with the appellant, citing that the services in Jammu & Kashmir are not subject to service tax, making them neither taxable nor exempted services. The Tribunal held that the demand for reversing the credit on input services for Jammu & Kashmir services is unjustified.Issue 2:The second allegation pertained to the disallowance of credit on service tax paid on insurance premium for dependants/family members of employees. The appellant argued that the group insurance services availed for the benefit of employees qualify as input services, especially under the broader definition of input service before 01/04/2011. The Tribunal found the disallowance of credit on insurance services to be illegal and unjustified, ruling in favor of the appellant. Consequently, the impugned order was set aside, and the appeal was allowed with any consequential reliefs.In conclusion, the judgment by the Appellate Tribunal CESTAT Hyderabad addressed the irregular credit availed by the appellant on input services for Jammu & Kashmir services and insurance premium for dependants/family members of employees. The Tribunal ruled in favor of the appellant on both issues, finding the demands for reversing the credit and disallowance of insurance services credit to be unjustified and illegal, respectively.