Admissibility of Cenvat Credit on Group Medical policy & Group Insurance Health Policy

PJ/Case Laws/2011-12/1369

Case: COMMR. OF C. EX. & SERVICE TAX, LTU, BANGALORE v/s MICRO LABS LTD.

Citation: 2011 (270) E.L.T. 156 (Kar.)

Issue:- Whether assessees entitled to claim Cenvat credit for service tax paid on Group Medical Policy and Group Insurance Health Policy?

Brief Facts:- Respondents-assessees are engaged in the manufacture of medicaments and are registered under Central Excise. On scrutiny of their records, Revenue noted that respondent had availed Cenvat credit for payment made towards Group Mediclaim Policy premium. Accordingly, a show cause notice was issued to demand the reversal of Cenvat credit availed by the assessees as it was irregularly availed by them. The Assessing Authority confirmed the demand with interest and imposed penalty.

In appeal, the Commissioner (Appeal) confirmed the order of the Assessing Authority and dismissed the appeal of Revenue.

In further appeal, the Tribunal placed reliance on the case of Stanzen Toyotetsu India Pvt. Ltd. v. CCE, Bangalore-III [2009 (14) S.T.R. 316 (Tri.-Bang.)] and held that respondent-assessees are entitled to avail Cenvat credit of the service tax paid on Group Mediclaim Policy premium.

Revenue is in appeal before the High Court.

Reasoning of Judgment:- The High Court 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 own 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 obligations under the workmen's compensation Act he has to obtain the Insurance Policy covering the risk of the employees. The employee State Insurance Act takes care of the health of the employees also and casts an obligation on the employer to provide insurance services. Under these circumstances, this Group Insurance Health Policy though is also a welfare measure is an obligation which is cast under the Statute that the employer has to obey. Section 38 of the Employees State Insurance Act, 1948, mandates that subject to the provisions of the Act, all employees in factories or establishments to which this Act applies shall be insured in the manner provided by this Act. May be the employees also have to contribute but the employer is under an obligation to take an Insurance policy and contribute his share. Therefore, the said 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.

Therefore, merely because these services are not expressly mentioned in the definition of input service it cannot be said that they do not constitute input service and the assessees are not entitled to the benefit of CENVAT credit. In fact, Rule 3 of the Cenvat Rules, 2004, specifically provides that the manufacturer of final products shall be allowed to take credit. The service tax is leviable under Section 66 of the Finance Act and paid on any input service received by the manufacturer of a final product. Therefore under the scheme of the 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. Therefore, the Judgment of the Tribunal is legal and valid and is in accordance with law and does not suffer from any legal infirmity which calls for any interference.

Therefore 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.

Decision:- Appeal dismissed.

Comment:- Although the credit is allowed on these policies but the main issue whether the same will be allowed after the amendment in definition of “input service”? This will be termed as policy for personal use of employee but the manufacturer will contend that the same is required statutorily and it is not primarily for personal use of employees. The department has once again raised the disputes which were going to settle by amending the definition. The fate will come in times to come. Neither Government and nor assessee will benefited from the same. But one thing is absolutely clear that the Chartered Accountants, consultants and advocates will be benefited from this uncertainty. We should thank to Board for the same.

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PJ/Case Laws/2011-12/1369

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