2023 (7) TMI 261 - AT - Service Tax

Cenvat Credit Allowed on Employee Insurance; Reversal Under Rule 6(3) CCR 2004 Overturned; Penalty Waived

M/s. Essjay Ericsson (P) Ltd. Versus Commissioner of CGST, Delhi East

CESTAT New Delhi held that Cenvat credit availed on employee insurance policies was eligible and the reversal orders were set aside, aligning with ... Wrong availment of Cenvat credit - Employee Insurance - Non-reversal of Cenvat credit under Rule 6(3) of Cenvat Credit Rules, 2004 - Non-payment of Service Tax under RCM on legal charges. Cenvat credit availed by the company on Group Personal Accident Policy, Group Term Life Policy and Group Mediclaim Policy taken for employees - HELD THAT:- The bare perusal of definition of Input service shows that it would mean any service used by the manufacturer/the service provider whether directly or indirectly, in or in relation to the manufacture of final product and include services used in relation to the activities relating to business or capital goods. That apart, the definition of input services is too broad. It is inclusive also in definition what is contained in the definition is only illustrative in nature. However, holding that the activities relation to business and any services rendered in connection therewith would form the part of input services - The Hon’ble High Court of Bombay in the case of M/S. COCA COLA INDIA PVT. LTD. VERSUS THE COMMISSIONER OF CENTRAL EXCISE, PUNE-III [2009 (8) TMI 50 - BOMBAY HIGH COURT] has held that expression ‘means and includes’ is exhaustive and expression ‘business’ is an integrated/continued activity and is not confined or restricted to mere manufacture of the product. Therefore, activities in relation to business can cover all activities that are related to the functioning of the business - The Hon’ble High Court also held that once the cost incurred by the service has to be added to the cost, and is so assessed, it is a recognition by Revenue for the services having a connection with the manufacture of the final product. This Tribunal also in the case of M/S RAJRATAN GLOBAL WIRE LTD. VERSUS COMMISSIONER, CENTRAL GOODS & SERVICE TAX, UJJAIN [2021 (4) TMI 400 - CESTAT NEW DELHI] has held that once there is no evidence that the insurance service was obtained for the personal use of the employee of assessee, it is definitely an eligible input service for which the assessee is entitled to claim the Cenvat credit. Above all, department has conceded for this issue to no more res integra and to have been decided in favour of the assessee - it is held that the Cenvat credit availed by the appellant on the various insurance policies taken for its employee were eligible for availment is permissible. The order of reversing/disallowing the same is therefore liable to be set aside. Method/option of Cenvat credit reversal under Rule 6 of Cenvat Credit Rules pertaining to non-taxable service provided by the appellant in the state of Jammu & Kashmir - HELD THAT:- The adjudication authority has held that appellant is required to reverse the Cenvat credit on common input services on the ground that the appellant has also provided non-taxable services in the State of Jammu & Kashmir. Since, there is no denial that appellant was providing taxable as well as non-taxable services, the proportionate reversal of Cenvat credit has to be done in accordance of Rule 6(3) of CCR, 2004 - It is an admitted fact that the assessee herein have calculated the CENVAT Credit in terms of clause (c) read with clause (h) and have deposited the amount so determined, by 30th June in the succeeding financial year as prescribed. Rule 6 cannot be used as tool of oppression to extract the amount which is much beyond the remedial measure and what cannot be collected directly and cannot be collected indirectly, as well. Accordingly, in case of substantive compliance made by the assessee i.e. calculation of the amount of Cenvat credit proportionate reversal on annual basis and payment of the amount before the prescribed date, substantial benefit cannot be denied as it tantamount to not availing of input service credit on common inputs which are going into exempted services - reversal of Cenvat credit on common input services has wrongly been ordered by the adjudicating authority below. Penalty on tax liability discharged under reverse charge on legal services - HELD THAT:- Apparently and admittedly, the liability on this count stands already discharged by the appellant. The adjudicating authority has still made appellant liable for payment of interest. But we are of opinion that there is no evidence on record about the discharge of said liability beyond the reasonable time. The question of payment of interest does not at all arises - It is also observed that the issue of levy of service tax on legal services is undisputedly a question of law pending consideration before the Hon’ble High Court of Delhi. Imposition of penalty in these circumstances, does not at all arises. Otherwise also, there is no evidence of any positive act on the part of the appellant proving that appellant had intention to evade the payment of duty. In these circumstances, the order of imposition of penalty is held unreasonable. Thus, it is held that there was no shortcoming as were pointed out against the appellant (3 in number). The order confirming the demand based on alleged said short comings is therefore not sustainable. Same is accordingly, hereby set aside - appeal allowed. Issues Involved:1. Wrong availment of Cenvat credit on Employee Insurance.2. Non-reversal of Cenvat credit under Rule 6(3) of Cenvat Credit Rules, 2004.3. Non-payment of Service Tax under RCM on legal charges.Summary:Issue 1: Wrong Availment of Cenvat Credit on Employee InsuranceThe appellant was denied Cenvat credit on Group Personal Accident Policy, Group Term Life Policy, and Group Mediclaim Policy taken for employees. The adjudicating authority held that these do not qualify as input services under Rule 2(l) of CCR, 2004. However, the Tribunal referred to the broad definition of input services, which includes services used in relation to business activities. Citing precedents like the cases of Coca Cola (I) Pvt. Ltd. and Ultratech Cement Ltd., the Tribunal concluded that the insurance services are indeed input services as they are related to business activities. The Tribunal held that the Cenvat credit availed by the appellant on these policies was permissible and set aside the order of disallowance.Issue 2: Non-Reversal of Cenvat Credit under Rule 6(3) of CCR, 2004The adjudicating authority required the appellant to reverse Cenvat credit on common input services, arguing that the appellant provided non-taxable services in Jammu & Kashmir. The Tribunal observed that Rule 6(3) of CCR, 2004 provides multiple options for proportionate reversal of Cenvat credit. It concluded that the Revenue cannot insist on a particular option and that the condition of filing a declaration is directory, not mandatory. The Tribunal found that the appellant had complied substantively by calculating and paying the proportionate Cenvat credit. Therefore, the reversal of Cenvat credit was wrongly ordered and was set aside.Issue 3: Non-Payment of Service Tax under RCM on Legal ChargesThe adjudicating authority imposed a penalty for non-payment of service tax under the Reverse Charge Mechanism (RCM) on legal services. The Tribunal noted that the appellant had already discharged the liability and that the issue of service tax on legal services is pending adjudication in the Hon'ble High Court of Delhi. The Tribunal found no evidence of intentional evasion of duty by the appellant and held that the imposition of penalty was unreasonable. Consequently, the order of penalty was set aside.Conclusion:The Tribunal found no merit in the shortcomings pointed out by the department. The order confirming the demand based on these alleged shortcomings was set aside, and the appeal was allowed.