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August 31, 2011
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                        Rule 2(l) of CENVAT Credit Rules, 2004 allows the manufacturer of final products or the provider of output service to take and utilize credit on service tax paid on input services utilized for manufacturing of final products or providing output service.   The said definition has inclusive clause of mentioning the services that are included for the purpose of definition of the term ‘input service’.  In this article whether the service tax paid on Group medical claim policy premium and group insurance health policy can be availed with reference to decided case laws.

                        In ‘Stanzen Toyotetsu India Private Limited V. Commissioner of Central Excise, Bangalore – III’ – 2008 -TMI - 33381 – (CESTAT BANGLORE) the appellant availed the credit on service tax paid on canteen services, rent-a-cab services and on the Group Health Insurance Services.  The contention of the appellants is  that the above said services are in or in relation to the manufacturing activity.  The Department contended that the input stage credit on the out door catering services and transportation charges and group insurance policy can never be, by any stretch of imagination considered as input services.   The assessee has provides these services as a welfare measure for its employees and in the background of effective management of the business.   This cannot be equated that these activities are in or in relation to the manufacturing activity.   The Tribunal relied on the decision taken in ‘Commissioner of Central Excise, Mumbai V. GRC Industries Limited’- 2008 (12) STR 468 (Tri. LB) in which the Tribunal held that in case of a factory having more than 250 workers under Section 46 of the Factories Act, 1948, it is mandatory on the part of the factories to provide a canteen facility within the factory and failure to comply with the provisions of Section 46 attracts prosecution and penalty under Section 92 of the Factories Act, 1948.   The Rent-a-cab service is used for bringing employees to work in the factory for manufacture of goods it has to considered as being used indirectly in relation to the manufacture or as part of business activity for promoting the business as any facility given to the employees will result in greater efficiency and promotion of business.   The Tribunal found that question of input credit on the group insurance health policy for the employees/workers of the appellant would also fall under the same category as per the law decided by the Tribunal in the above two cases.

                        In ‘Commissioner of Central Excise & Service Tax, LTU, Bangalore V. Micro Labs Limited’ – 92011 -TMI - 204470 - KARNATAKA HIGH COURT) the assessees are engaged in the manufacture of medicaments and are holders of Central Excise Registration.   On scrutiny of the records it was seen by the authority that the appellants had availed cenvat credit for payment made towards Group Mediclaim policy premium.   A show cause notice was issued to the assessees as to why the cenvat credit availed by the assessees towards payment of Group Mediclaim Policy premium should not be demanded and recovered since it was irregularly availed by them and also as to why the penalty and interest should not be imposed.  The assessing authority confirmed the demand, penalty and interest.   An appeal was preferred to Commissioner of Central Excise (Appeals) by the appellants who also confirmed the demand.  The Tribunal held that the assessees are entitled to avail CENVAT credit of the service tax paid on Group Mediclaim policy premium.  Therefore the present appeal was filed by the Revenue before the High Court.  Before the High Court the Department contended that the said services are expressly mentioned in the definition of ‘input service’ and the same do not constitute input service and the assessees are not entitled to the benefit of CENAT credit.   The High Court did not accept the arguments of the Tribunal.   It held that Rule 3 of CENVAT Credit Rules, 2004, the Tribunal held, specifically provides that the manufacturer of final products shall be allowed to take credit. 

                        The High Court relied on an identical question came up for consideration before the Division Bench in CEA96/2009.  In the said case the main question considered was as to whether the assessees are entitled to claim cenvat credit for the service tax paid on insurance/health insurance policy.   The Division bench held that in so far as insurance coverage to the employees is concerned in the course of employment if the employees suffer injury or dies, there is a vicarious liability imposed on the employer to compensate the employee.   If the employer employs its on transportation facility in order to cover the risk which also includes the risk of workers who are covered in that statutory establishment, he has to take the insurance policy with which the vehicle cannot go on the road.   Even for entering into the premises to meet the obligation under the Workmen’s compensation Act he has to obtain the Insurance policy covering the risk of the employees.   The ESI takes care of the health of the employees also and casts an obligation on the employer to provide insurance services.  Therefore it is mandatory under Section 38 of ESI that all employees in factories or establishments to which this Act applies shall be insured in the manner provided by the Act.  Therefore the Group Insurance Health policy taken by the assessee is a service which would constitute an activity relating to business which is specifically included in the input service definition.

                        The High Court further held that under the scheme of CENVAT Credit Rules, 2004, the service tax paid on all those services which the assessee has utilized directly or indirectly in or in relation to the final product is entitled to claim the credit.  It is evident that the assessees are entitled to avail CENVAT credit of the service tax on Group Medical Policy and Group Insurance Health Policy.


By: Mr.áM. GOVINDARAJAN - August 31, 2011


Discussions to this article


Cenvat credit on 'General Insurance Business' has been excluded from the defenetion of Input Service. Then, is the insurance which is called 'Group mediclaim policy premium and group insurance health policy' said to have been defined under the General Insurance Business or other service? 

By: Mallesh Goud
Dated: 03/09/2011


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