Whether the service tax paid on insurance premium for workmen's compensation (general insurance) can be considered as an activity related to the business?

PJ/Case Laws/2012-13/1205

Case:-SURANI CERAMICS LTD. V/S COMMISSIONER OF CENTRAL EXCISE, RAJKOT

Citation:-2012 (27) S.T.R. 270 (Tri.-Ahmd.)

Issue:- Whether the service tax paid on insurance premium for workmen's compensation (general insurance) can be considered as an activity related to the business?
Brief Facts: - M/s. Surani Ceramics, the respondent have availed cenvat credit of service tax paid on workmen's compensation (general insurance) on the amount of insurance paid to M/s. The New India Assurance Company Ltd. Proceedings were initiated to deny the cenvat credit on the ground that the input service was not used in relation to the manufacture of final product namely ceramic tiles. Lower authorities have taken the view that cenvat credit of service tax paid is admissible and in the impugned order the learned Commissioner relied upon the decision of the Tribunal in the case of Millipore India Ltd. v. C.C.E., Bangalore reported in 2009 (236) E.L.T. 145 (Tri. - Bang.) = 2009 (13) S.T.R. 616 (Tri.) which is directly on the same service and in favour of the party. He also relied upon the decision of the Larger Bench in the case of GTC Industries Ltd. reported in 2008 (12) S.T.R. 468 (Tri.-LB).
Appellant’s Contention: - Nobody was present on behalf of the Appellants.
Respondent’s Contention: - The respondent contended that the decision of the Larger Bench in the case of GTC Industries Ltd. has been set aside and matter remanded to the Tribunal again. Therefore the reliance on that decision is not correct. As regards Millipore India Ltd., he submits that in view of the decision of the Hon'ble High Court of Gujarat in the case of M/s. Gujarat Heavy Chemicals Ltd., this stands overruled and also an appeal has been filed against the decision.
Reasoning of Judgment: - The CESTAT held that the in the decision of the Hon'ble High Court of Gujarat in M/s. Gujarat Heavy Chemicals Ltd. reported in 2011-TIOL-383-HC-AHM-ST. = 2011 (22) S.T.R. 610 (Guj.), was considering the eligibility of service tax paid on security services provided at residential quarters of workers as cenvat credit. Hon'ble High Court came to the conclusion that such security services cannot be stated to be the service used by the manufacturer in relation to the manufacture of final product. Hon'ble High Court also took note of the decision of the Hon'ble Bombay High Court in the case of C.C.E., Nagpur v. Manikgarh Cement reported in 2010 (20) S.T.R. 456 (Bom.). Further the Hon'ble High Court also referred to the decision of Hon'ble Bombay High Court in the case of C.C.E., Nagpur v. Ultratech Cement Ltd. reported in 2010 (20) S.T.R. 577 (Bom.) = 2010 (260) E.L.T. 369 (Bom.) and observed that the observations of Bombay High Court in the case of Ultra tech Cement could not be applied to the situation in the case of Gujarat Heavy Chemicals Ltd. since providing canteen facilities to the workers was mandatory and failure to do so attract penal conclusions. In the case of Coca-cola India Pvt. Ltd. reported in 2009 (15) S.T.R. 657 (Bom.) = 2009 (242) E.L.T. 168 (Bom.) and in the case of Ultratech Cement Ltd., the Hon'ble Bombay High Court took the view that for eligibility of service tax to be taken as cenvat credit, it should be coming under the definition of input service in terms of definition of input service and the definition of input service is that the same should be related to the business activity of the assessee.
In fact the decision of the Hon'ble Supreme Court in the case of Maruti Suzuki Ltd. reported in 2010 (256) E.L.T. A58 (S.C.), wherein a view was taken that for eligibility of inputs in cenvat credit, nexus with the manufacture is a must was differentiated. It was held that the nexus with manufacture is required only in the case of inputs and in the case of input service, it should be relatable to the business activity.
In case of an accident within the factory, the compensation has to be paid by the company in accordance with the law and this is obligatory. To fulfill this legal obligation, the assessee has taken insurance. Therefore it can be said that in this case the insurance premium is definitely relatable to business activity and is to fulfill one of the legal obligations of providing compensation to worker in case of injury in the factory. Therefore the issue in this case is similar to the one which was under consideration in the case of Ultratech Cement by the Hon'ble Bombay High Court.
Further, they also find that the decision of the Tribunal, Bangalore in the case of Millipore India Ltd. is also directly on the same service. No stay has been granted and only an appeal has been filed. Therefore they have to follow the decision of Co-ordinate Bench. Under these circumstances, they hold that cenvat credit of service tax paid on insurance taken to pay workmen's compensation to the Insurance Company is admissible.
Decision: - The appeal was rejected.
Comment:- This is very important decision wherein the credit on workmen compensation for employees has been allowed. This has been considered as business expenditure. But the CBEC has changed the definition of “input service”. The credit is not allowed on personal expenditure of employees. Now the question will be whether the insurance premium of workmen compensation of employees will be business expenditure or personal expenditure. The litigation will go on this point. The things were going to be settled after these decisions and the Board has changed the definition. It is truly said “litigation never stops.”.

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PJ/Case Laws/2012-13/1205

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