TaxTMI 
TaxTMI 
2022 (4) TMI 1357
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....r employees with the Indian Petrochemicals Corporation Limited, IPCL, which had been taken over by the appellant. CENVAT credit of Rs. 1,33,37,699/-, thus availed by the appellant, was disallowed by the Commissioner of Customs, Excise and Service Tax, Mumbai, the Commissioner by an order dated 29.12.2011 and its recovery was directed under rule 14 of the CENVAT Credit Rules, 2004, the 2004 Rules read with the proviso to section 11A (1) of the Central Excise Act, 1944, the Excise Act. 2. At the time of hearing of the appeal, the Division Bench of the Tribunal noticed that conflicting views had been expressed by benches of the Tribunal while interpreting 'input service' defined in rule 2(l) of the 2004 Rules, as it stood prior to its amendment on 01.04.2011 and, therefore, referred the matter to the President of the Tribunal for constituting a Larger Bench of the Tribunal to decide the following two issues:- i. Interpretation of rule 2 (l) of the 2004 Rules for the period prior to the amendment made in the year 2011. ii. Applicability of Cost Accounting Standard-4, CAS-4 for determination of eligibility to CENVAT credit in cases other than where the goods are cap....
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....lated by one of the following methods; A. 2 months (Two months) of salary for each completed year of service subject to minimum of Rs. 10 Lakhs (Ten lakhs) PLUS 2 months (Two months) of salary for each year of service remaining before attaining the age of superannuation. B. 1.5 months (One and half months) of salary for each completed year of service subject to minimum of Rs. 10 Lakhs (Ten lakhs) PLUS 2.5 months (Two and half months) of salary for each year of service remaining before attaining the age of superannuation. Between the amounts arrived at from methods A & B, more beneficial ones for an optee will be considered, but subject to overall ceiling of Rs. 16 Lakhs (Sixteen Lakhs) OR the salary for the remaining months in service till the age of superannuation, whichever is less. [Note: Salary means Basic Pay plus IDA per month] The company would facilitate purchase of annuities with monthly payment facility for part/full lump sum payment at optee's request. b) The company will bear the premium for the following insurance coverage. i. Medi-claim for self and spouse for a total sum assured Rs. 5 lakhs (Rupees Five L....
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....29.12.2011, confirmed the demand made in the show cause notice observing that from a perusal of the definition of 'input service' in rule 2(l) of the 2004 Rules it transpired that it was necessary for an assessee to establish that the premium paid to the insurance company for the medical insurance of its retired employees under VSS had some connection or nexus with the manufacturing activities of the assessee in order to avail CENVAT credit of the service tax paid on the insurance premium. The Commissioner further observed that the welfare measures offered by the appellant can at best be considered as an activity related to the welfare of ex-employees and the incentives/ compensation that was offered to the employees was for the purpose of saving unwanted expenses by weeding them out, but such employees had no connection with the activity of manufacture of the finished products. 9. At the time of hearing of the appeal before the Division Bench, learned counsel for the appellant placed reliance upon the decision of the Tribunal rendered by a learned Member of the Tribunal in its own matter in Reliance Industries Ltd. v/s Commissioner of Central Excise & Service Tax (LTU), Mumbai ....
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....ndisputedly in the case of the serving employees, the law has been settled by the various decisions of the tribunal and High Courts that the service tax paid on the premium paid for the medical insurance, group insurance, workman insurance policies will be admissible to CENVAT Credit. However it is worth noting that the view that emerges in all these decisions is that CENVAT Credit would not be admissible in respect of that part of service tax which is paid on the insurance premium for the medical insurance cover provided to the family members." (emphasis supplied) 12. The Division Bench hearing the appeal also noticed that the Division Bench of the Tribunal in Deloitte Support Services India Pvt. Ltd. v/s CCE, Hyderabad-IV 2017 (5) GSTL 393- Bang-Tri had rejected the contention of the Department that group insurance premium for retired employees did not directly or indirectly relate to the output services rendered. The Division Bench also noticed that the aforesaid decision of the Tribunal was upheld by the Andhra Pradesh High Court, but the Appeal filed by the Department against the judgment of the Andhra Pradesh High Court was pending in the Supreme Court. 13. The decis....
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....riod prior to amendments made in the said Rule in the year 2011. • Applicability of CAS-4 for determination of eligibility to CENVAT Credit in cases other than where the goods are captively consumed and valued in terms of Rule 4 of Central Excise Rules, 2000." 16. To appreciate the submissions advanced by Shri Vipin Jain, learned counsel for the appellant assisted by Shri Vishal Agarwal, Ms. Shilpa Balani, Shri A. Sheerazi and Shri Purushartha Satish, as also Ms. Anuradha Parab, learned authorized representative of the Department, it would be useful to reproduce the definition of 'input service'. 'Input service', as it stood at the relevant time prior to 01.04.2011, has been defined in rule 2(l) of the 2004 Rules as: "2(l) " input service" means any service,- (i) used by a provider of taxable service for providing an output service, or (ii) used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and clearance of final products upto the place of removal, and includes services used in relation to setting up, modernization, renovation or repairs of a factory, premises of provid....
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.... the definition of 'input service' under rule 2(l) of the 2004 Rules and in this connection the judgment of the Supreme Court in Maruti Suzuki Ltd v/s Commissioner of Central Excise, Delhi-III 2009 (240) ELT 641 (S.C.) has been relied upon; (iii) Services having nexus or integral connection with the manufacture of final products as well as the business of manufacture of final product would alone qualify to be 'input service'; (iv) The expression 'relating to business' in rule 2(l) of the 2004 would mean activities integrally related to business activity and the activity of insurance of VSS optees cannot be considered as an activity integrally related with the business of manufacture. In this connection reliance has been placed on the decision of the Bombay High Court in Commissioner of Central Excise, Nagpur v/s Manikgarh Cement. 2010 (20) S.T.R. 456 (Bom.); and (v) The element of insurance service of VSS optees, who are not employees, neither enriches the value of the excisable goods nor is included in the cost of the product. Therefore, credit of this service is not available. 19. The submissions advanced by the learned counsel for the appellant and ....
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....khs only) payable to the nominee in the unfortunate event of death of the optee before attaining the notional age of superannuation." 22. A number of other benefits in the form of compensation were enumerated in paragraphs 2.2.to 2.8 of the Scheme. 23. It would be seen from the aforesaid that VSS was for existing employees who had put in certain number of years of service as regular employees of IPCL and such employees whose application for voluntary separation was accepted by the management would not only be entitled to two months of salary for each completed year of service but also to two months of salary for each year of service remaining before attaining the age of superannuation. It needs to be noted that if these employees had not submitted application for voluntary separation or if the application seeking VSS was not accepted by the appellant, they would have continued to be in the employment of the appellant up to the age of superannuation. VSS only gives an option to such employees to cut short their service tenure for which they would receive certain benefits/compensation. It is for this reason that the lump sum paid as compensation includes two months of salary fo....
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....ce premium paid in respect of group insurance/insurance of employees including retired employees/medi-claim which are covered under the definition of 'input services' and have a nexus." (emphasis supplied) 27. Subsequently, a Division Bench of the Tribunal on 26.08.2015, in a matter again concerning the appellant and which decision is reported in 2016(42) STR 384 (TRI-Mum), placed reliance upon the aforesaid decision rendered by the learned Member of the Tribunal and held that the appellant was eligible to avail the CENVAT credit of service tax paid on the insurance cover premium extended to the retired employees. The relevant portion of the decision is reproduced below: "3. The issue involved in these cases is whether the appellant is eligible to avail CENVAT credit of the service tax paid on insurance premium to the Insurance Company for Group Insurance and medi-claim policies taken for existing employees as well as for the retired employees; xxxxxxxxxxxxxx Adjudicating authority as well as the first appellate authority have come to a conclusion that the service tax paid on the life insurance/medi-claim policy for the existing employees is eligible for CENVAT credi....
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....of the input services. The medical benefit extended to the employees, insurance policy to cover the risk of accidents to the vehicle as well as the person, certainly would be a part of the salary paid to the employees. Landscaping of factory or garden certainly would fall within the concept of modernization, renovation, repair, etc., of the office premises. At any rate, the credit rating of an industry is depended upon how the factory is maintained inside and outside the premises. The Environmental law expects the employer to keep the factory without contravening any of those laws. That apart, now the concept of corporate social responsibility is also relevant. It is to discharge a statutory obligation, when the employer spends money to maintain their factory premises in an eco-friendly, manner, certainly, the tax paid on such services would form part of the costs of the final products. In those circumstances, the Tribunal was right in holding that the service tax paid in all these cases would fall within the input services and the assessee is entitled to the benefit thereof." (emphasis supplied) 30. The contention of the appellant is that the Scheme was announced to keep the....
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.... definition of 'input service' was divided into five limbs/categories, and it was held that if an assessee could satisfy any one of the five limbs, then credit of the input service would be available, even if the assessee did not satisfy other limbs of the above definition. The Bombay High Court ultimately observed: "34. It is therefore, clear that the burden of service tax must be borne by the ultimate consumer and not by any intermediary i.e. manufacturer or service provider. In order to avoid the cascading effect, the benefit of cenvat credit on input stage goods and services must be ordinarily allowed as long as a connection between the input stage goods and services is established. Conceptually as well as a matter of policy, any input service that forms a part of the value of the final product should be eligible for the benefit of Cenvat Credit. ***** 38. Service tax therefore, paid on expenditure incurred by the assessee on advertisements sales promotion, market research will have to be allowed as input stage credit more particularly if the same forms a part of the price of final product of the assessee on which excise duty is paid. In other words, credit of....
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....e of the final product and establish the relationship between the input service and the manufacture of the final product. The manufacturer thereby can avail the credit of the service tax paid by him. Once the cost incurred by the service has to be added to the cost, and is so assessed, it is a recognition by Revenue of the advertisement services having a connection with the manufacture of the final product. This test will also apply in the case of sales promotion." 33. The Bombay High Court in Commissioner of C. Ex., Nagpur vs. Ultratech Cement Ltd. 2010 (20) S.T.R. 577 (Bom.), after considering the earlier judgment of the Bombay High Court in Coca Cola India, took the view that the definition of 'input service' in rule 2 (l) of the 2004 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 relevant portion of the judgment of the Bombay High Court is reproduced below: "27. The definition of "input service" as per rule 2(l) of 2004 Rules (insofar as it relates to the manufacture of final product is concerned), consists of three categories of services. The first category, covers se....
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....ice forms part of the cost of production/value of the final product, on which duty of excise is levied. 36. Learned departmental representative or the referring Bench have not relied upon any judgment of a Court or decision of the Tribunal to dispute the correctness of the said two principles but learned authorised representative for the department relied on the judgment of the Supreme Court in Maruti Suzuki to submit that unless there is a clear nexus between the input service and the manufacturing activity, CENVAT credit of the same cannot be available. 37. The judgment of the Supreme Court in Maruti Suzuki was in the context of 'input' defined under rule 2 (k)and not 'input service' under rule 2 (l) of the 2004 Rules and, therefore, would not be applicable to the present dispute. This is for the reason that the said judgment was considered by the Bombay High Court in Ultratech Cement wherein it was held that the definition of 'input service' in rule 2(l) is wider than the definition of 'input' in rule 2(k) and that it not only covered input services having nexus with the manufacturing of the final product but also covered services used prior to/during the course of/after t....
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....oked into as to if CSR can be considered as input service and be included within the definition of "activities relating to business" and if in so doing, a company's image before corporate world is enhanced so as to increase its credit rating as found from the handbook of CSR activities discussed above. The answer is in the affirmative since to win the confidence of the stakeholders and shareholders including the people affected by the supply of raw material from their locality, say natural resources like mines and minerals etc., the hazardous emission that may result in production activities. 11.1 XXXXXXXX. Therefore sustainability is dependent on CSR without which companies cannot operate smoothly for a long period as they are dependent on various stakeholders to conduct business in an economically, socially and environmentally sustainable manner i.e. transparent and ethical. Hence in my considered view, CSR which was a mandatory requirement for the public sector undertakings, has been made obligatory also for the private sector and unless the same is to be treated as input service in respect of activities relating to business, production and sustainability of the company....
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....nexus with the manufacturing activities, but the Division Bench also observed that under the 2004 Rules credit can be taken only on service tax paid for services utilized directly or indirectly in or in relation to the final product. The Division Bench thereafter took note of the observation made by the Commissioner that 'it remains unexplained as to how the well being of the ex-employees who are no more part of the work force will have any effect 'directly' or 'indirectly' on the manufacture of final product' and in this connection the Division Bench observed:- "4.10 Undisputedly in the case of the serving employees, the law has been settled by the various decisions of the tribunal and High Courts that the Service Tax paid on the premium paid for the medical insurance, group insurance, workman insurance policies will be admissible to CENVAT Credit. However it is worth noting that the view that emerges in all these decisions is that CENVAT Credit would not be admissible in respect of that part of Service Tax which is paid on the insurance premium for the medical insurance cover provided to the family members." 46. Thereafter, the Division Bench referred to the decision ....
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....the appellant herein. On perusal of the judgment of the Hon'ble High Court of Bombay in the case of Manik-garh Cement (supra) we find that the judgment of the Hon'ble High Court in the case of Coca Cola India Pvt. Ltd. (supra) was not cited before them. Be that as it may, we also find that in the narration of the facts as recorded by the Hon'ble High Court there is nothing which indicates that the assessee's Counsel had urged an argument that the cost of setting up of residential township/colony and subsequent maintenance was included in the cost of the final product and considered for arriving at assessable value. In the absence of any such proposition from the Counsel, their Lordships had taken a view which is correct in the facts and circumstances of that case, while the case in hand before us, the issue seems to be now squarely covered by the judgment of the Hon'ble High Court of Bombay in the case of Coca Cola India Pvt. Ltd. We find strong force in the contentions raised by the learned Counsel that the Hon'ble High Court in the case of Manik-garh Cement (supra) had not decided the issue, as it was never raised before them i.e. cost of setting up of the township/colony and the....
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....) S.T.R. 389 (Guj.), Commr. of S.T., Mumbai-II vs. Willis Processing Services (India) Pvt. Ltd. 2017 (7) GSTL 12 (Bom.) and Commr. of C. Ex. & Service Tax vs. Tata Consultancy Services Ltd. 2018 (362) E.L.T. 777 (Bom.). It would be pertinent to reproduce the relevant portion of the judgment of the Bombay High Court in Tata Consultancy Services and it is as follows: "2. The Revenue proposes the questions at page Nos. 6 and 7 as substantial questions of law. However, these very questions have been considered by this Court in the two judgments. One rendered in the case of Commissioner of Central Excise, Nagpur v. Ultratech Cement Ltd. reported in 2010 (260) E.L.T. 369. That judgment and order has been followed by another Bench in deciding Central Excise Appeal No. 168 of 2017 (The Commissioner, Service Tax, Mumbai -II v. M/s. Willis Processing Services (India) Pvt. Ltd. (formerly known as M/s. Tgrinity Computer Processing (India) Pvt. Ltd.) decided on 13th September, 2017. [2017 (7) G.S.T.L. 12 (Bom.)]. 3. In the light of these two judgments and orders, the questions proposed in the present appeal cannot be treated as substantial questions of law. The appeal is there....
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....f Rule 8 of the Central Excise Valuation Rules, 2000. In case the assessable value of the goods is not determined as per Rule 8, the said standard cannot be pressed into service for determining the eligibility to CENVAT Credit. In the decisions referred above Hon'ble Karnataka High Court has specifically stated that "If services tax is paid in respect of any of those services which forms part of the costs of the final products certainly the assessee would be entitled to the cenvat credit of the tax so paid." "4.17 In our view the submission of the appellant by relying on the para 4.1 & 4.2 of CAS-4 can be sustained if the appellant was determining the value of the goods as per CAS-4 in normal course of business but was not determining the same on the basis of transaction value as per Section 4 of the Central Excise Act, 1944. In our view all the decisions of the tribunal wherein the provision of CAS-4 have been applied need re-consideration." (emphasis supplied) 57. It is for this reason that the Division Bench also referred the applicability of CAS-4 for determination of eligibility to CENVAT credit to the Larger Bench of the Tribunal. 58. It would, therefore, be....
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....or captive consumption, adjustment for Stock of work-in-Process, finished goods, recoveries for sales of scrap, wastage etc shall be made. 4.2 Captive Consumption: Captive Consumption means the consumption of goods manufactured by one division or unit and consumed by another division or unit of the same organization or related undertaking for manufacturing another product(s). 4.3 Normal Capacity is the production achieved or achievable on an average over a period or season under normal circumstances taking into account the loss of capacity resulting from planned maintenance. (CAS-2) 5. Determination of Cost of Production for Captive Consumption To determine the cost of production for captive consumption, calculations of different cost components and adjustments are explained below: 5.1 Material Consumed Material Consumed shall include materials directly identified for production of goods such as: (a) indigenous materials (b) imported materials (c) bought out items (d) self manufactured items (e) process materials and other items Cost of material consumed shall consist of cost....
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....he manner in which duty is discharged on the finished goods for if this approach is accepted, the appellant would be entitled to avail credit on the input services if the finished goods are only cleared for captive consumption to another sister unit. Conversely, if the entire production was cleared as sales to independent parties, the appellant would not be entitled to such credit. 61. This issue has, in fact, been settled by the jurisdictional Bombay High Court in Ultratech Cement. The department had contended that the assessee would not be eligible to avail CENVAT credit on certain input services as duty on cement was payable on tonnage basis and not on ad valorem basis. In that case, reliance had been placed by the assessee on the decision of the Larger Bench of the Tribunal in GTC Industries for contending that it was eligible to avail credit, since services had formed part of the cost of production and, therefore, also formed a part of the assessable value of the finished goods on which duty liability was to be discharged. The decision of the Larger Bench in GTC Industries had, in turn, relied on a press note holding that, "In principle, credit of tax on those taxable servi....
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....h of the Tribunal in GTC Industries and also referred to the CAS-4 Standards. The referring order does not cite any judgment taking a view contrary to the one taken by the Karnataka High Court in Millipore India. 63. The Bombay High Court in Ultratech Cement and Coca Cola India are also in line with the view taken by the Karnataka High Court in Millipore India. 64. The judgment of any High Court (not just the jurisdictional High Court) would be binding, unless there is a contrary view taken by a different High Court. In the present case, the judgments of the jurisdictional High Court are consistent with the decision of the Karnataka High Court in Millipore India. This being the position, there is no basis for doubting the correctness of the view expressed by the Tribunal in Reliance Industries in the two matters concerning the appellant. 65. Even otherwise, the view expressed by the Division Bench that a 'theoretical application' of CAS-4 without even determining the applicability of the said CAS-4 "may not be what has been stated by the Karnataka High Court" may not be correct for the simple reason that Millipore India was not a case where the assessee was valuing finishe....
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.... an integral part of these other heads. 68. The expression "employee cost" is separately defined in Cost Accounting Standard-7, CAS-7 in the following manner: "4.7 Employee Cost: The aggregate of all kinds of consideration paid, payable and provisions made for future payments for the services rendered by employees of an enterprise (including temporary, part time and contract employees). Consideration includes wages, salary, contractual payments and benefits, as applicable or any payment made on behalf of employee. This is also known as Labour Cost. ... Employee Cost includes payment made in cash or kind. For example: • Employee Cost • Salaries, wages, allowances and bonus/incentives. • Contribution to provident and other funds. • Employee welfare • Other benefits • Employee Cost - Future benefits • Gratuity • Leave Encashment • Other retirement/separation benefits • VRS/other deferred Employee cost • Other future benefits • Benefits generally include • Paid holidays â....