Credit on insurance premium paid on material not admissible when its value excluded while paying service tax.

PJ/Case Law/2013-14/1671

Case:-GENUS POWER INFRASTRUCTURES LTD Vs COMMISSIONER OF CENTRAL EXCISE, SERVICE TAX, JAIPUR-I

Citation:-2013-TIOL-1079-CESTAT-DEL

Brief facts:-Present appeal is filed by the appellant vide Order-in-Appeal No.192(RND)ST/JPr-I/2012 dated 11/9/2012. Appellant are engaged in the manufacture of excisable goods falling under chapter heading No.9028, 8534 and 8542 and providing taxable service of Erection, Commissioning & Installation.

During the course of scrutiny of appellant's records, it was observed that they had obtained an order from JVVNL for Rural Electricity Infrastructure and Household Electrification for various stations on turnkey basis. The appellant has entered into two separate contracts for this activity:-

(i) For supply of material / equipment

(ii) For Erection, Testing and Commissioning of material/works.

The appellant has paid Service Tax on the value of output service of Erection & Commissioning & Installation. They were directed to furnish the details of input services. The appellant has taken credit of service tax paid on entire amount of Insurance Premium pertaining the turnkey contracts including that pertaining to the cost of material procured from the open market and supplied by them. Since the credit taken by the appellant to the extent of value of supply of material procured from the open market has not been used in providing the output service of Erection, Commissioning and installation, the input service credit taken to this extent is not available to them.

The input service credit taken in respect of Insurance Premium paid on turnkey contracts to the extent of cost of material procured from the open market and supplied by the appellant is not admissible to them as these services are neither used by the appellant for providing any output service nor used in or in relation to the manufacture of final products and clearance, of final products from the place of removal and therefore are not covered, under 'input service' as defined under rule 2(1) of the Cenvat Credit Rules, 2004. Further they have opted for payment of Service Tax only on the value of Erection, Commissioning and Installation and have not included value of material used by availing benefit of Notification No. 01/2006-ST dated 01.03.2006 (formerly Notification No. 19/2003-ST dated 21.08.2003). Inadmissible input service credit taken by the appellant as stated above is worked out to be Rs. 1,07,971/- for the period January 2008 to September 2008.

Adjudicating Authority confirmed the demand of wrongly availed and utilized input service credit amounting to Rs. 76,150/- under Rule 14 of the Cenvat Credit Rules, 2004 against the appellant and dropped the remaining amount. He also ordered for recovery of imposed penalty of Rs. 2,000/- on the appellant under Rule 15(3) of the Cenvat Credit Rules, 2004.

Reasoning of Judgment:-The Tribunal observed thatCommissioner (Appeals) on the basis of submissions made before him and also on examination of Notification No. 1/2006-ST dated 01.3.2006, came to the conclusion that the appellant has taken Cenvat credit of service tax paid on entire amount of insurance premium pertaining to turnkey contract including that pertaining to the cost of material procured from the open market and supplied by them. Since the credit taken by the appellant to the extent of value of supply of material procured from the open market have not been used in providing the output service of Erection, Commissioning and installation, the input service credit taken to this extent is irregular. The said credit is not admissible to the appellant because they have opted for payment of service tax only on the value of Erection, Commissioning and installation and have not included value of material used by availing benefit of Notification No. 01/2006-ST dated 01.3.2006. The input service credit taken in respect of insurance premium paid on turnkey contracts to the extent of cost of material procured from the open market and supplied by the appellant is not admissible to them as these services are neither used by the appellant for providing any output service nor used in or in relation to the manufacture of final products and clearance of final products from the place of removal and therefore are not covered under input service as defined under Rule 2(1) of the Canvas Credit Rules, 2004.

During the submission before the Tribunal, none is present on behalf of the appellant. Heard the matter with the help of ld. AR. He invited attention to Notification No. 1/2006-ST dated 01.3.2006 and also shown condition 33 of the Notification in which it is specifically written that benefit shall be available if Cenvat Credit of duty on inputs and capital goods or service tax credit of input services has not been availed. Tribunal agrees with the contention with the AR which is also the point the basis of Commissioner (Appeals) rejecting the appeal.

Issue is purely covered by the notification. Tribunal do not find any force in the appellant's submission. Therefore, the Tribunal uphold the Order-in-Appeal No.192(RND)ST/JPr-I/2012 dated 11.9.2012. Accordingly Appeal is rejected.

Decision:-Appeal rejected

Comment:-The decision given by the Tribunal clearly reflects the principle that when the value of material has not formed part of the taxable service and the service has also not used in the manufacture of dutiable final products, input service tax credit on the insurance premium paid on such materials will not be admissible to the appellant.

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PJ/Case Law/2013-14/1671

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