2025 (6) TMI 1009 - AT - Service Tax

CENVAT credit - input services under the CENVAT Credit Rules 2004 - general insurance services - repair and maintenance of vehicles - expenses for staff welfare - nexus with the output service provided by the appellants or not - HELD THAT - On examination of the Certificate of Insurance submitted by the learned Counsel for appellants it transpires that the vehicle owned by the appellants and registered with the Regional Motor Vehicles Authority under their name and address giving credibility to the argument that such vehicles are used as capital goods by the appellants and therefore service tax on insurance premium paid should be treated as input service which is not covered under the exclusion clause (BA) of Rule 2(l) of the CCR of 2004. It is found that such insurance certificate(s) were issued by the insurance company in respect of vehicles registered in the name of the appellants. However it is found that both the authorities below have not discussed about the contents in those certificates which were now submitted by the appellants before the Tribunal. Therefore the disputed issue needs to be examined afresh and the matter should be remanded back to the original authority for the said purpose. The original authority should verify the certificate(s) of insurance and other documents submitted/to be submitted by the appellants for proper fact finding whether the input services are confirming to the definition of the input service provided under Rule 2(l) of the CCR of 2004 for determining its eligibility for availing CENVAT credit - appeal allowed by way of remand.

Summary

The core legal questions considered by the Tribunal in this appeal pertain to the eligibility of CENVAT credit availed by the appellants on certain input services under the CENVAT Credit Rules, 2004 (CCR 2004). Specifically, the issues are:

• Whether the CENVAT credit availed on service tax paid for general insurance services, including laptop insurance, property insurance, fire insurance, vehicle insurance, and employee insurance, is admissible under Rule 2(l) of CCR 2004, given the exclusion clause (BA) therein.
• Whether the credit availed on repairs and maintenance of vehicles qualifies as input service eligible for CENVAT credit.
• Whether the credit availed on staff welfare services, including employee insurance and related expenses, is admissible.
• Whether the authorities below have properly applied the legal framework and provided speaking orders with specific findings on admissibility of credit for each disputed head.

Issue-wise Detailed Analysis:

1. Eligibility of CENVAT Credit on General Insurance Services

Legal Framework and Precedents: Rule 2(l) of CCR 2004 defines 'input service' and includes an exclusion clause (BA) which restricts credit on certain general insurance services. However, an amendment effective 01.04.2011 narrowed this exclusion to exclude only credit on service tax paid on premium for general insurance of motor vehicles which are not capital goods. The Tribunal referred to precedents where CENVAT credit on insurance services, excluding motor vehicles not classified as capital goods, was allowed. Relevant precedents cited by the appellants include decisions from various benches allowing credit on such insurance services.

Court's Interpretation and Reasoning: The Tribunal noted that the appellants had produced insurance certificates showing that the vehicles insured were registered in their name and used as capital goods. This fact, not considered by the lower authorities, is crucial because the exclusion clause does not apply to motor vehicles classified as capital goods. Therefore, the Tribunal found merit in the appellants' claim that credit on insurance of such vehicles should be admissible.

Application of Law to Facts: Since the vehicles insured are capital goods, the exclusion under Rule 2(l)(BA) does not apply. Additionally, other insurance services such as laptop insurance, property insurance, and fire insurance are necessary for business operations and thus qualify as input services eligible for credit.

Treatment of Competing Arguments: The Revenue argued that the insurance services did not have direct nexus with output services and were merely indemnification against future liabilities, hence ineligible for credit. The Tribunal found this interpretation too narrow and emphasized the statutory definition and amendments which allow credit on insurance services related to capital goods and business necessities.

Conclusion: The issue requires fresh examination by the original authority with proper verification of insurance certificates and related documents to determine eligibility of credit on general insurance services.

2. Eligibility of CENVAT Credit on Repairs and Maintenance of Vehicles

Legal Framework and Precedents: Repairs and maintenance services are generally considered input services if they have nexus with output services and are used in business operations. However, credit is denied if the service is excluded under Rule 2(l) or if it relates to motor vehicles not used as capital goods.

Court's Interpretation and Reasoning: The Tribunal observed that the lower authorities did not provide specific findings on this head and failed to consider evidence submitted by the appellants. Given that the vehicles are capital goods, repair and maintenance services related to them should be eligible for credit.

Application of Law to Facts: Since the vehicles are capital goods used in business, repair and maintenance services constitute input services eligible for credit.

Treatment of Competing Arguments: Revenue contended lack of direct nexus and personal use of vehicles, but no conclusive findings were recorded by the authorities below. The Tribunal found this insufficient and remanded the matter for detailed fact-finding.

Conclusion: The issue is to be re-examined by the original authority with an opportunity for the appellants to produce evidence.

3. Eligibility of CENVAT Credit on Staff Welfare Services (Employee Insurance and Related Expenses)

Legal Framework and Precedents: Input services used for business purposes are eligible for credit. However, services used for personal benefit of employees are excluded. The exclusion under Rule 2(l)(BA) includes certain welfare services if they are for personal benefit.

Court's Interpretation and Reasoning: The appellants had reversed credit relating to employee insurance and staff welfare amounting to Rs.2,60,728/- along with interest, indicating partial compliance. The Tribunal noted that insurance policies such as Mediclaim and group gratuity were borne by the appellants without recovery from employees, suggesting business use rather than personal benefit.

Application of Law to Facts: The Tribunal found that the insurance services provided to employees as a business expense and not recovered from them could qualify as input services eligible for credit.

Treatment of Competing Arguments: Revenue argued that such insurance was a perquisite for employees and thus for personal benefit, excluding it from credit. The Tribunal observed that the Revenue's argument was not supported by conclusive evidence and that the authorities below had not made specific findings on this point.

Conclusion: This issue also requires fresh consideration with proper evidence and hearing.

4. Adequacy of the Orders Passed by Lower Authorities

Legal Framework: Adjudicating authorities are required to pass speaking orders with specific findings on each issue and follow principles of natural justice, including granting opportunity of personal hearing.

Court's Interpretation and Reasoning: The Tribunal noted that the Commissioner (Appeals) and the adjudicating authority failed to give specific findings on admissibility of credit under each disputed head and did not adequately consider documentary evidence submitted by the appellants, including insurance certificates. Prior remand orders by the Tribunal had directed detailed findings which were not complied with.

Application of Law to Facts: The impugned order was found to be non-speaking and insufficient for adjudication.

Treatment of Competing Arguments: Revenue maintained that no evidence was submitted to establish eligibility; appellants contended all relevant evidence was on record. The Tribunal sided with the appellants on the need for fresh adjudication.

Conclusion: The matter is remanded to the original authority for fresh adjudication with opportunity for personal hearing and proper examination of evidence.

Significant Holdings:

The Tribunal set aside the impugned order and allowed the appeal by remanding the matter to the original authority for fresh adjudication. It held:

"The original authority should verify the certificate(s) of insurance and other documents submitted/to be submitted by the appellants for proper fact finding, whether the input services are confirming to the definition of the 'input service' provided under Rule 2(l) of the CCR of 2004 for determining its eligibility for availing CENVAT credit. Needless to say, that opportunity of personal hearing should be granted to the appellant before deciding the issue(s) afresh."

The Tribunal emphasized that the exclusion clause (BA) of Rule 2(l) does not constitute a blanket bar on credit for all general insurance services, specifically excluding only service tax paid on premium for general insurance of motor vehicles which are not capital goods. It recognized that vehicles used as capital goods and insured in the appellant's name are eligible for CENVAT credit on insurance service tax paid.

Further, the Tribunal underscored the necessity of speaking orders with specific findings on admissibility of credit for each disputed service head and adherence to principles of natural justice.

In conclusion, the Tribunal remanded the matter for detailed fact-finding and proper application of the law to the facts with an opportunity for the appellants to be heard, thereby preserving their right to claim legitimate CENVAT credit on eligible input services.