2024 (3) TMI 1407 - AT - Service Tax

CENVAT credit allowed on service tax paid for employee and family insurance premiums under rule 2(l)

M/s. TATA Teleservices (Maharashtra) Limited Versus Commissioner, Service Tax, Mumbai-II.

CESTAT Mumbai held that appellant was entitled to CENVAT credit for service tax paid on insurance premiums for both employees and their family members. ... CENVAT Credit - input service - service tax paid by an employer on insurance premiums for policies taken for employees and their family members. Insurance taken for employees - HELD THAT:- It would be appropriate to refer to the decision of the Bombay High Court in Coca Cola [2009 (8) TMI 50 - BOMBAY HIGH COURT], wherein the definition of ‘input service’ under rule 2(l) of the CENVAT Rules, as it stood prior to amendment made on 01.04.2011, came up for interpretation. The issue was as to whether the appellant, a manufacturer of non-alcoholic beverage bases, was eligible to avail credit of the service tax paid on advertising services, sales promotion, market research and the like services that had been availed. The High Court held that the expression ‘means and includes’ is exhaustive and that the expression ‘business’ is an integrated/continued activity and is not confined or restricted to mere manufacture of the product and, therefore, activities in relation to business can cover all activities that are related to the functioning of a business. The Bombay High Court in Ultratech Cement [2010 (10) TMI 13 - BOMBAY HIGH COURT], after considering the earlier judgment of the Bombay High Court in Coca Cola, took the view that the definition of ‘input service’ in rule 2(l) of the CENVAT Rules consists of three categories of services, and CENVAT credit of service tax paid on all such services would be available to an assessee. The judgment of the Supreme Court in Maruti Suzuki [2009 (8) TMI 14 - SUPREME COURT] would not come to the aid of the department to contend that unless there is a clear nexus between ‘input service’ and ‘manufacturing activity’, CENVAT credit cannot be claimed. The appellant would be entitled to avail CENVAT credit of the service tax paid on procuring insurance policies for the employees. Insurance for family members of employees - HELD THAT:- It has been found as a fact in the present case that the appellant is entitled to avail CENVAT credit of the service tax paid on the insurance premium for the employees and their family members in terms of the definition of ‘input service’ contained in rule 2(l) of the Credit Rules. The decision of the Tribunal in PTC Software [2014 (12) TMI 498 - CESTAT MUMBAI] correctly holds that CENVAT credit of the service tax paid for procuring insurance for the family members of the employees can be availed. The decisions to the contrary do not lay down the correct position in law. CENVAT credit of the service tax paid on the insurance premium paid for the family members of the employees would also be admissible. Conclusion - The appellant would be entitled to avail CENVAT credit of the service tax paid by the appellant on the insurance premium paid for procuring insurance services for the employees and their family members, as the said service would be an ‘input service’ under rule 2(l) of the CENVAT Rules, both under the main limb of the definition as also under the inclusive limb of the definition. It is not necessary for the appellant to establish an integral connection between the service and business of manufacture for the said service to be categorized as ‘input service’ under rule 2(l) of the CENVAT Rules for the period prior to 01.04.2011. The reference is answered, accordingly. The papers may be placed before the Division Bench of the Tribunal for hearing the appeal on merits. ISSUES PRESENTED and CONSIDEREDThe core issue referred to the Larger Bench of the Tribunal was whether the service tax paid by an employer on insurance premiums for policies taken for employees and their family members could be considered as 'activity relating to business' under the inclusive part of the definition of 'input service' in Rule 2(l) of the CENVAT Credit Rules, 2004. Alternatively, whether the claimant must establish an integral connection between the service and the business of manufacturing the final product to qualify as 'input service' for CENVAT credit before the 2011 amendments.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe definition of 'input service' under Rule 2(l) of the CENVAT Rules, prior to 01.04.2011, includes services used directly or indirectly in the manufacture of final products and activities relating to business. The definition is broad and inclusive, covering various business-related activities.Precedents considered include decisions from the Karnataka High Court in Commissioner of Central Excise & Service Tax, LTU, Bangalore vs. Micro Labs Ltd. and the Bombay High Court in Commissioner of Central Tax & Central Excise, Mumbai vs. Axis Bank Ltd., which allowed CENVAT credit on insurance policies. The Tribunal also referenced decisions in M/s Prism Cement Ltd., EXL Service Com India Pvt. Ltd., and PTC Software (India) Pvt. Ltd. where credit facilities were extended for insurance premiums.Court's Interpretation and ReasoningThe Tribunal interpreted that the definition of 'input service' in Rule 2(l) is broad and encompasses services related to business activities. It emphasized that the term 'activities relating to business' is of wide import, and the phrase 'such as' in the definition indicates an illustrative, not exhaustive, list. The Tribunal noted that the decisions of the Bombay High Court in Coca Cola India Pvt. Ltd. and Ultratech Cement support a broad interpretation of 'input service,' allowing for CENVAT credit on services related to business activities.Key Evidence and FindingsThe Tribunal found that industries like telecommunication rely heavily on skilled manpower, necessitating benefits like insurance policies to retain talent. The insurance services were deemed essential for maintaining employee efficiency and morale, thereby relating to business activities. The Tribunal also noted that the insurance policies were part of the cost structure under accounting standards, further supporting their classification as 'input services.'Application of Law to FactsThe Tribunal applied the broad definition of 'input service' to conclude that insurance services for employees and their families relate to business activities. It highlighted that these services contribute to the business's operational efficiency by ensuring employee welfare and retention, thus qualifying for CENVAT credit under both the main and inclusive limbs of the definition.Treatment of Competing ArgumentsThe Tribunal addressed the Department's reliance on the Supreme Court decision in Maruti Suzuki, clarifying that this case pertained to 'input' rather than 'input service' and was not applicable. It also distinguished contrary Tribunal decisions by emphasizing the broader interpretation of 'input service' supported by High Court precedents.ConclusionsThe Tribunal concluded that the appellant is entitled to avail CENVAT credit for the service tax paid on insurance premiums for employees and their families. It held that the services qualify as 'input services' under Rule 2(l) without needing to establish an integral connection to the manufacturing process.SIGNIFICANT HOLDINGSThe Tribunal established that the definition of 'input service' is broad and inclusive, covering services that relate to business activities. It emphasized that the phrase 'activities relating to business' allows for a wide range of services to qualify for CENVAT credit. The Tribunal's determination clarified that insurance services provided to employees and their families fall within this scope, supporting employee welfare and operational efficiency.The Tribunal's final determination was that the appellant is entitled to CENVAT credit for the service tax paid on insurance premiums for employees and their families, under both the main and inclusive limbs of the definition of 'input service' in Rule 2(l) of the CENVAT Rules, for the period prior to 01.04.2011.