9911796707
TMI Blog2022 (4) TMI 1357X X X X Extracts X X X X X X X X Extracts X X X X ..... icals 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 captively consumed and valued in terms of rule 4 of Cent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 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 Lakhs Only) till the notional age of superannuation or death of the optee, whichever is earlier. The salient features of this medi-claim scheme ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 2015 (38) S.T.R. 217 (Tri-Mumbai) as also upon the Division Bench decision of the Tribunal rendered in its own matter in Reliance Industries Ltd. v/s Commissioner of Central Excise & Service Tax (LTU), Mumbai 2016 (42) STR 384 (Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T 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 decisions rendered by the Tribunal in the two matters of the appellant in Reliance Industries would, according to the Division Bench, require reconsideration for the following reason: "4.20. In both of the above decisions the CENVAT credit has been allowed just by referring to the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 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 provider of output service or an office relating to such factory or premises, advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, activities relating to business, such as accounting, auditing, financing, recruitment and quality control, coaching and training, computer networking, credit rating, share regist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut 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 the learned authorized representative appearing for the Department have been considered. 20. A bare perusal of the definition of 'input service' reproduced above shows that it would mean any service used by the manufacturer, whether directly or indirectly, in or in relation to the manufacture of final products and includes services used in relation to activities relating to business or capital goods. 21. To appreciate the issue involved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aration 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 for each year of service remaining before attaining the age of superannuation and the medi-claim insurance was to continue only upto the notional age of superannuation. 24. The issue involved in this appeal is with regard to the insurance premium which the appellant would bear for the medi-claim of the serving employees whose VSS application had been accepted. The appellant availed CENVAT credit of the service tax paid on the insurance premium for such employee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 credit but the service tax paid on the insurance premium for the retired employees is ineligible as they are not covered under the definition of Rule 2(l) of the Cenvat Credit Rules, 2004.xxxxxxxxxx 5. We find that in respect of the service tax paid on the premium of the life insurance/medi-claim taken for the existing employees as well as the retired employees or the employees who had taken voluntary retirement is now eligible to avail CENVAT credit as this Bench in the appellant's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 business operations of the appellant viable and sustainable in the long run because the continued losses incurred by IPCL would have increased and the appellant would not have been in a position to carry the manufacturing operations if the business itself had became unviable. The submission, therefore, is that the premium paid by the appellant for providing medi-claim to such employees who had adopted VSS was aimed at keeping the manufacturing operations viable and running and, therefore, had a direct nexus to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 input service must be allowed on expenditure incurred by the assessee which form a part of the assessable value of the final product. If the above is not done, as sought to be done by the department in the present case, it will defeat the very basis and genesis Cenvat i.e. value added tax. 39. The definition of input service which has been reproduced earlier, can be effectively divided into the following five categories, in so far as a manufacturer is concerned: (i) Any service used by the manufacturer, whether directly or ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidering 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 services which are directly or indirectly used in or in relation to the manufacture of final products. The second category, covers the services which are used for clearance of the final products up to the place of removal. The third category, includes services namely: (a) Services used in relation to setting up, modernization, renovation or repairs of a factory, (b) Services used in an office relating to such factory, (c) Services like advertisement or sales promotion, market research, storage upto the place of removal, procurement of inputs, (d) Activities relating to business such as, ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the manufacture of the final products. The High Court further held that unlike in the case of 'input', where nexus was required to be established with the manufacture of the finished goods, the nexus insofar as 'input service' is concerned has to be established with the manufacture of the final product OR the business of manufacture. Paragraph 33 of the judgment rendered in Ultratech Cement by the Bombay High Court clarified as under: "... In other words, by applying the ratio laid down by the Apex Court in the case of Maruti Suzuki Ltd. (supra), it cannot be said that the definition of 'input service' is restricted to the services used in relation to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies 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 itself would be at stake. The relied upon case laws, which have equated CSR only with charity and not covered the other aspects of CSR namely triple bottom-line approach (discussed above), corporate citizenship, philanthropy, (charity just being a part only), strategic philanthropy, share value, corporate sustainability and business responsibility are of no application to the case on hand." 41. The aforesaid decision of the Tribunal emphasises that the 'Corporate Social Responsibilities' that a Company has to discharge have to be treated as 'input services' relating to business, production and sustainability of the company. It was for this reason that it was held that the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the Tribunal in Oudh Sugar Mills which had disallowed credit on service tax paid on insurance premium in respect of medi-claim insurance if it was not pursuant to a statutory requirement. The Division Bench also referred to the decision of the Tribunal in Emerson Export Engineering Centre, wherein the refund claim for service tax paid on medi-claim for the relatives and family members of the staff was denied. The Division Bench also referred to the decision of the Tribunal in Titan Industries wherein service tax paid on premium pertaining to dependents/family members of employees was considered not to be an activity directly or indirectly in relation to the manufacture and also to the decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 maintenance cost thereof is included in the cost of production for arriving at assessable value of the final products. It is settled law that a decision is an authority only on the proposition that it decides and not what was not urged or considered therein or what can be said to be logically flowing these from {see Mittal Engineering Works (P) Ltd. (supra), Fiat India Pvt. Ltd. - 2012 (283) E.L.T. 161 (S.C.).} In view of this we hold that the ratio as laid down by the Hon'ble High Court of Bombay in the case of Coca Cola India Pvt. Ltd. (supra) is specifically on the point raised by the appellant before the lower authorities as well as before us." (emphasis supplied) 50. This apart, the issue as to whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 therefore disposed of in terms of the aforesaid two judgments. 53. In view of the aforesaid discussion, it has to be held that credit can be availed on the amount of insurance premium paid by the appellant to the insurance company for availing medi-claim of employees who had opted for the VSS announced by the appellant as the service that was rendered would amount to 'input service' in terms of rule 2(l) of the 2004 Rules, as it stood at the relevant time; it being in relation to activities relating to business. 54. The next issue that would arise for the consideration is whether the amount paid towards premium would form part of the cost of production in terms of CAS-4. 55. This issue was examined by the Commissioner who held that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asis 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 necessary to refer to the relevant portions of CAS-4, which are as follows:- 1. Introduction The Cost Accounting principle for determination of cost of production is well established. Similarly, rules for levy of excise duty on goods used for captive consumption are also well defined. Captive Consumption means the consumption of goods manufactured by one division and consumed by another division(s) of the same organization or related undertaking for manufacturing another product(s). Liability of excise duty arises as soon as the goods covered under excise duty are manufactured but excise duty is collected at the time of removal or clearance from the place of manufacture even if such removal does not amount to sale. Assessable value of goods used for captive cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terials 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 of material, duties and taxes, freight inwards, insurance and other expenditure directly attributable to procurement. Trade discount, rebates and other similar items will be deducted for determining the cost of materials. Cenvat credit, credit for countervailing customs duty, Sales Tax set off, VAT, duty draw back and other similar duties subsequently recovered/ recoverable by the enterprise shall also be deducted. 5.2 Direct wages and salaries Direct wages and salaries shall include house rent allowance, overtime and incentive payments made to employees directly engaged in the manufacturing activities. Direct wages and salaries include fringe benefits such as: (i) Contribution to provident fund and ESIS (ii) Bonus/ ex-gratia payment to employees (iii) Provision for retirement benefits such as gratuity and superannuation (iv) Medical benefits (v) Subsidised food (vi) Leave with pay and holiday payment (vii) Lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 services would be allowed that go to form a part of the assessable value of which excise duty is charged". The Department, while controverting the submission of the assessee pointed out that the Larger Bench decision in GTC Industries was inapplicable since duty was actually being paid on the finished goods i.e. cement, not on the assessable value or the cost of production, but on tonnage basis. This contention of the Department was rejected by the High Court in Ultratech Cement and the relevant observations are as follows: "24. In the present case, the dispute is, whether the assessee is entitled to take credit of service tax reimbursed by the assessee to the outdoor caterer (whose services were engaged for providing canteen facilities to the employees of the assessee) and utilize the said credit in discharging the excise duty/CENVAT payable on the cement manufactured by the assessee? 25. In the present case, the CESTAT following the Larger Bench decision of the Tribunal in the case of GTC Industries Ltd. (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated 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 finished goods in terms of rule 8 of the Central Excise Rules, 2000. Despite this, the High Court held that the cost of production and CAS-4 were relevant for determining the eligibility to CENVAT credit in respect of input services in terms of rule 2 (l) of the 2004 Rules. Reliance placed by the Karnataka High Court on CAS-4 was on a conceptual level and not on the basis that the finished goods in that case, were, in fact, being valued under rule 8 of the Central Excise Valuation Rules, 2000. The Press Note dated 12.08.2004 itself clarifies that reference to the cost of production is at a conceptual and policy level. When the CBEC itself has taken a view that the eligibility of CENVAT credit on input services is dependent on the question whether or not the input service form a part of the cost of production, there is no reason to take a contrary view. 66. The Referral Order in paragraph 4.15 made the following observations: "4.15 From the above also it is quite evident that the benefits as enumerated are with reference to the employees d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insurance against accident or health scheme * Statutory provisions for workman's compensation * Medical benefits to the Employees and dependents * Free or subsidised food * Free or subsidised housing * Free or subsidised education to children ........." (emphasis supplied) 69. Since CAS-7 defines the expression 'employee cost', in general, all references to employee costs in the Cost Accounting Standards, including in CAS-4, will have to take the same meaning as provided in CAS-7. It is clear from CAS-7, that employee costs include payments made in cash or kind and refers to not only the present costs by way of salaries, wages and employee welfare benefits, but also future benefits such as gratuity, leave encashment, VRS and other employee benefits. It also includes benefits to family members and dependents. 70. It is thus clear from CAS-7 that medical benefits pertaining to employees and dependents, even if they are in terms of VRS/retirement/separation schemes, are an integral part of the 'employee cost'. 71. The two issues that have been referred to the Larger Bench of the Tribunal are, therefore, answered in following manner: (i) The answer to the first issue ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
