2022 (12) TMI 598 - AT - Central Excise

Insurance Premium Eligible for CENVAT Credit: Clarification on Input Service

Reliance Industries Ltd. Versus Commissioner of Central Excise & Service Tax LTU, Mumbai

The appeal challenged the disallowance of CENVAT credit on insurance premium for medical claims of employees under a Voluntary Separation Scheme. The ... CENVAT credit - Input services - availability of Service tax charged on procurement of ‘insurance service’ for covering medical claims of employees who had opted for the Voluntary Separation Scheme (VRS) - HELD THAT:- the impugned order has held the service on which CENVAT credit had been availed was ineligible for having been incurred on employees who were to retire and consequently having no nexus with manufacturing activity that is essential for taking credit under rule 3 of CENVAT Credit Rules, 2004. The decision of the Larger bench [2022 (4) TMI 1357 - CESTAT MUMBAI (LB)] has categorically spelt an end to the controversy over eligibility of credit in such circumstances. Decided in favor fo assessee. Issues:1. Disallowance of CENVAT credit on insurance premium for medical claims of employees under Voluntary Separation Scheme.2. Interpretation of rule 2(l) of CENVAT Credit Rules, 2004.3. Applicability of Cost Accounting Standard-46 for determining CENVAT credit eligibility.Analysis:1. The appeal challenged an order disallowing CENVAT credit on insurance premium for medical claims of employees under a Voluntary Separation Scheme. The impugned order held that the tax discharged on the insurance service was not eligible as credit since the employees had ceased to be on the rolls. The appellant argued citing various decisions supporting the eligibility of medical insurance as an input service. The matter was referred to a Larger Bench to determine the interpretation of rule 2(l) of the 2004 Rules and the applicability of Cost Accounting Standard-46. 2. The Larger Bench concluded that credit could be availed on the insurance premium paid for medical claims of employees under the Voluntary Separation Scheme as it constituted an 'input service' under rule 2(l) of the 2004 Rules. The interpretation of rule 2(l) was settled by previous judgments, including those of the Bombay High Court. The Bench emphasized that the service was in relation to business activities, making it eligible for credit.3. Regarding the applicability of CAS-4, the Larger Bench highlighted that employee costs, including medical benefits for employees and dependents under schemes like VRS, were integral components of CAS-4 and CAS-7. It was clarified that CAS-4 and CAS-7 should be treated similarly in terms of employee costs. The matter was directed back to the Division Bench for a decision on the appeal's merits.4. The impugned order's contention that the service was ineligible for CENVAT credit due to employees retiring was deemed resolved by the Larger Bench. The settlement confirmed the eligibility of credit for the insurance premium paid for medical cover for retiring employees under the special scheme, leading to the setting aside of the impugned order and allowing the appeal. The decision provided clarity on the eligibility of credit in such circumstances, bringing an end to the controversy.