Is manufacturer eligible to take Cenvat credit on Insurance premium paid by labour Contractor?

PJ/Case Laws/2012-13/1240

Case:-2012 (279) E. L.T. 423 (Tri. – Bang)

Citation:-Commissioner of Central Excise, Tirupati versus India Cements Ltd.

Brief Facts: -The appellant have taken the credit on the insurance premium paid on labour of the contractor. The contractor has paid the premium and not the respondents. When the insurance is paid by the contractor then the credit will not be allowed to manufacturer. Appeal is filed by the Revenue. There is no representation for the respondent despite notice.

Appellant Contention:-The Appellant reiterates the grounds of this appeal and submits that the Commissioner has not discussed the relevant aspects to determine whether insurance service was received by the respondent. The case of the department is that the respondent, during the period of dispute, employed labourers supplied by labour contractor. The labour contractor provided insurance coverage to the labourers by paying premium.

The Appellant pleaded that the insurance service was received by the contractor and not by the respondent and, therefore, the service cannot be held to be 'input service' for the respondent. This is the view taken in the show-cause notice and in the order passed by the original authority. The appellate authority held that, even though service was not directly contributing to the manufacturing activities of the respondent, it indirectly aided the business activity of the respondent and therefore the respondent was eligible to avail Cenvat credit of service tax paid on insurance premium.

Respondent Contention:- No one appeared on behalf of respondent.

Reasoning of Judgement:-After considering the submissions that this matter has to be remanded. The fact that the manufacturing activity of the respondent was undertaken by the labourers provided by the contractor is not in dispute. All the labourers are covered by insurance at the cost of the contractor who paid the insurance premium. It appears, during the material period, it was a statutory requirement that all workers be appropriately insured. Further it cannot be said that the expenses incurred by the contractor towards insurance premium must have been passed on to the manufacturer, in which event such expenses must have entered into the cost of production of the final product. In this view of the matter that and unable to sustain the view taken by the appellant with regard to connection between the insurance service and the manufacturing activity of the respondent. The insurance service was indirectly related to the manufacturing activity and hence would get covered under Cenvat Credit Rules, 2004 as an 'input service.' But, before taking a conclusive view, certain factual aspects have to be verified. The burden is on the respondent to show that the insurance premium paid by the contractor was either reimbursed by the manufacturer or otherwise factored into the cost of production of the final product. If this fact is established, the respondent can be said to have received the insurance service as an input service. For this purpose, the matter has to be re-adjudicated by the original authority.
The impugned order is set aside and the matter is remanded to the original authority for fresh adjudication in accordance with law. A reasonable opportunity of adducing evidence and of being personally heard shall be given to the respondent.

Decision:-Appeal Remanded.

Comment:- This decision has underlined that the insurance premium paid by the contractor has been reimbursed by the appellant then the credit will be available to him. But if the same is not borne by the appellant then the credit is not admissible.

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PJ/Case Laws/2012-13/1240

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