Cenvat credit exclusion for worker insurance services upheld, but penalty removed where credit was fully disclosed in returns.

Cenvat credit on insurance services for site workers was denied for the post-01.04.2011 period because the amended definition of input service in rule 2(l) expressly excluded life insurance and health insurance services, and a requirement under another statute did not override that exclusion; interest was therefore upheld. Penalty, however, was set aside because the credit was disclosed in the returns and records, and the dispute was treated as a bona fide interpretative issue without suppression or mala fide intent.

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Issues: (i) Whether service tax credit on insurance services taken for workers at site was admissible after the amendment to the definition of input service with effect from 01.04.2011; (ii) Whether penalty was sustainable where the credit had been availed and disclosed in the returns.

Issue (i): Whether service tax credit on insurance services taken for workers at site was admissible after the amendment to the definition of input service with effect from 01.04.2011.

Analysis: The insurance cover was taken for workers at site and was stated to be mandated by the Employees' State Insurance Act, 1948. However, the amended definition of input service in section 2(l) of the Cenvat Credit Rules, 2004 introduced an express exclusion for life insurance and health insurance services. The exclusion was treated as clear and unambiguous, and the fact that the service was required under another statute did not override the amended credit restriction. The period in dispute being subsequent to 01.04.2011, the earlier view allowing credit could not be applied.

Conclusion: The denial of Cenvat credit and the confirmation of interest were upheld.

Issue (ii): Whether penalty was sustainable where the credit had been availed and disclosed in the returns.

Analysis: The credit was reflected in the accounts and in the returns filed with the Revenue. The dispute turned on interpretation of the amended credit provisions, and the conduct was treated as involving a bona fide legal issue rather than suppression or mala fide intent.

Conclusion: The penalty was set aside.

Final Conclusion: The appeal failed on the question of credit and interest, but succeeded only to the limited extent of deletion of penalty.

Ratio Decidendi: Where the statutory definition of input service contains a clear exclusion, credit cannot be claimed merely because the service is required under another enactment, though penalty may be avoided if the dispute is purely interpretative and the assessee has disclosed the credit in its records and returns.

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