Service tax demands partially set aside for medical insurance and late payment interest, professional indemnity insurance liability upheld

CESTAT NEW DELHI partially allowed the appeal concerning service tax disputes. The tribunal set aside demands for Cenvat credit disallowance on medical insurance and interest on late payment of service tax from Associated Enterprise, ruling the amendment was prospective only. However, it upheld liability for service tax on imported professional indemnity insurance services. The tribunal remanded matters regarding Cenvat credit reversal calculations and legal fee taxation to the Commissioner for factual verification and proper determination. All penalties under section 80 of the Finance Act were set aside given the favorable findings on most demands.

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Issues Involved:

1. Disallowance of Cenvat credit of service tax paid on medical insurance of employees and their families.
2. Demand for short reversal of Cenvat credit under Rule 6(3) of CCR.
3. Short payment of interest on late paid service tax on services received from an Associated Enterprise.
4. Non-payment of service tax on certain imported services.

Disallowance of Cenvat credit of service tax paid on medical insurance of employees and their families:

The Commissioner disallowed Cenvat Credit of the service tax paid on medical insurance of the employees and their families. The appellant argued that this service was covered under 'input service' and relied on various decisions. The Commissioner agreed for the period up to 1 April 2011 but denied credit thereafter due to changes in Rule 2(l) of CCR. However, the SCN proposed denial only for Rs. 44,19,319/- for the period 2007-2008 to 2010-2011. The demand was set aside as the entire period was before 1.4.2011.

Demand for short reversal of Cenvat credit under Rule 6(3) of CCR:

The demand of Rs. 1,15,14,385/- was confirmed for short reversal of Cenvat credit under Rule 6(3). The appellant argued that services to SEZ units were excluded from reversal requirements under Rule 6(3) due to Rule 6(6A). The Commissioner did not allow this benefit, citing lack of evidence. The Tribunal found the Commissioner's reasoning flawed and remanded the matter to verify if services were rendered to SEZ units and recalculate the demand accordingly.

Short payment of interest on late paid service tax on services received from an Associated Enterprise:

The appellant received services from CBRE Inc. and paid for them in August 2008 but paid service tax in July 2011. The Commissioner held the amendment dated 10.5.2008 was retrospective, requiring service tax from 10.5.2008. The Tribunal disagreed, stating laws are presumed prospective unless stated otherwise, and set aside the demand for additional interest.

Non-payment of service tax on certain imported services:

The demand involved three types of services: indemnity insurance, legal fees for visas, and cost sharing of the global website. The appellant did not contest the cost sharing. For indemnity insurance, the Tribunal upheld the demand, finding a service provider-recipient relationship. The legal fees issue was remanded for verification of service period. The demand for costs shared for the global website was upheld. All penalties were set aside under section 80 of the Finance Act.

Summary of the Judgment:

a) The denial of Cenvat credit of Rs. 44,19,319/- for medical insurance was set aside.
b) The demand of Rs. 1,15,14,385/- for short reversal of Cenvat credit was remanded for verification regarding SEZ services.
c) The additional interest demand of Rs. 2,16,021/- was set aside.
d) The service tax demand of Rs. 11,13,633/- on indemnity insurance was upheld.
e) The service tax demand of Rs. 8,185/- on legal services was remanded for period verification.
f) The demand of Rs. 18,130/- for global website costs was upheld.
g) Interest on any due service tax was applicable.
h) All penalties were set aside invoking section 80 of the Finance Act.

(Order pronounced in open court on 19/04/2024.)

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